All ER 1994 Volume 1

All England Law Reports 1936 - books on screen™
All ER 1994 Volume 1

[1994] 1 All ER 1
Attorney General for Hong Kong v Reid and others

TRUSTS; COMMONWEALTH; Commonwealth countries
PRIVY COUNCIL
LORD TEMPLEMAN, LORD GOFF OF CHIEVELEY, LORD LOWRY, LORD LLOYD OF BERWICK AND SIR THOMAS EICHELBAUM
4, 5, 6 OCTOBER, 1 NOVEMBER 1993
Trust and trustee – Constructive trust – Bribe – Equitable duty of fiduciary who receives bribe – Property purchased with proceeds of bribe – Increase in
value of property purchased with proceeds of bribe – Whether recipient of bribe entitled to keep increase in value of property purchased with proceeds of
bribe – Whether fiduciary who receives bribe under equitable duty to account for profits from bribe.
Precedent – New Zealand Court of Appeal – Departure from decision of English Court of Appeal – Whether New Zealand Court of Appeal free to review
English Court of Appeal authority and to depart from it if considered wrong.
R was convicted of accepting bribes given to him in the course of his position as a public prosecutor in Hong Kong as an inducement to exploit his
official position by obstructing the prosecution of certain criminals. He was sentenced to eight years’ imprisonment and ordered to pay the Crown the
sum of $HK12·4m, being the value of assets then controlled by him which could only have been derived from bribes. No payment to the Crown was
made by R. The Attorney General for Hong Kong registered caveats on behalf of the Hong Kong government against the titles to three properties in New
Zealand registered in the names of R and his wife or his solicitor which were alleged to have been bought with bribes received by R. In an application in
the High Court of New Zealand to renew the caveats the Attorney General claimed that the three properties, the value of which had increased since their
purchase, were held on a constructive trust in favour of the Crown. The respondents claimed that the Crown had no equitable interest in the properties.
The judge held that the Crown as caveator could not as a matter of law establish an arguable case that it had a proprietary interest in the three properties.
On appeal by the Attorney General the Court of Appeal of New Zealand, following a long-established English Court of Appeal authority, upheld the
judge’s decision on the grounds that as between principal and fiduciary the receipt of a bribe by the fiduciary only gave rise to the relationship of creditor
and debtor and not trustee and cestui que trust as the principal had no proprietary interest in the bribe or moneys or investments representing it. The
Attorney General appealed to the Privy Council.
Held – When a fiduciary accepted a bribe as an inducement to betray his trust he held the bribe in trust for the person to whom he owed the duty as
fiduciary; and, if property representing the bribe increased in value, the fiduciary was not entitled to retain any surplus in excess of the initial value of the
bribe because 1 he was not allowed by any means to make a profit out of a breach of duty. A bribe was a secret benefit which the fiduciary derived
from trust property or obtained from knowledge which he acquired in the course of acting as a fiduciary and he was accountable under a constructive trust
for that secret benefit to the person to whom the fiduciary duty was owed as soon as the bribe was received, whether in cash or in kind, under the
equitable principle that equity considered as done that which ought to have been done. If property representing the bribe increased in value or if a cash
bribe was invested advantageously the false fiduciary was accountable not only for the original amount or value of the bribe but also for the increased
value of the property representing the bribe since otherwise he would receive a benefit from his breach of duty. Accordingly, the three properties so far as
they represented bribes accepted by R were held in trust for the Crown, which was entitled to have the caveats renewed. The appeal would therefore be
allowed (see p 4 d e g to p 5 a e f, p 7 j, p 9 f to j and p 11 b c j to p 12 b, post).
Keech v Sandford [1558–1774] All ER Rep 230, Fawcett v Whitehouse (1829) 1 Russ & M 132, Sugden v Crossland (1856) 3 Sm & G 192, Re
Canadian Oil Corks Corp, Hay’s Case (1875) LR 10 Ch App 593 and Re Caerphilly Colliery Co, Pearson’s Case (1877) 5 Ch D 336 applied.
Metropolitan Bank v Heiron (1880) 5 Ex D 319 considered.
Lister & Co v Stubbs [1886–90] All ER Rep 797 doubted.
Per curiam. Although the application of stare decisis in the New Zealand Court of Appeal is a matter for that court, it is free to review an English
Court of Appeal authority on its merits and to depart from it if it considers it to be wrong (see p 11 g, post); dictum of Lord Scarman in Tai Hing Cotton
Mill Ltd v Liu Chong Hing Bank Ltd [1985] 2 All ER 947 at 958 explained.
Notes
For the receipt by agents of secret profits and bribes, see 1(2) Halsbury’s Laws (4th edn reissue) paras 105–108, and for cases of the subject, see 1(2)
Digest (2nd reissue) 333–350, 2683–2809.
For constructive trusts and the rule that a trustee is not usually allowed to make a profit out of his trust, see 16 Halsbury’s Laws (4th edn reissue)
paras 903, 909.
For circumstances in which an agent is a trustee and for profits arising from trust property or a fiduciary relationship, see 48 Halsbury’s Laws (4th
edn) paras 516, 590, and for cases on the subject, see 48 Digest (Reissue) 149–151, 1174–1189..
Cases referred to in judgment

A-G v Goddard (1929) 98 LJKB 743.
Boardman v Phipps [1966] 3 All ER 721, [1967] 2 AC 46, [1966] 3 WLR 1009, HL.
Caerphilly Colliery Co, Re, Pearson’s Case (1877) 5 Ch D 336, CA.
Canadian Oil Works Corp, Re, Hay’s Case (1875) LR 10 Ch App 593, CA.
Fawcett v Whitehouse (1829) 1 Russ & M 132, 39 ER 51, LC.
Hart v O’Connor [1985] 2 All ER 880, [1985] AC 1000, [1985] 3 WLR 214, PC.
Islamic Republic of Iran Shipping Lines v Denby [1987] 1 Lloyd’s Rep 367.
Keech v Sandford (1726) Cas temp King 61, [1558–1774] All ER Rep 230, 25 ER 223, LC.
Lister & Co v Stubbs (1890) 45 Ch D 1, [1886–90] All ER Rep 797, CA.
Preamble
Metropolitan Bank v Heiron (1880) 5 Ex D 319, CA.

Morvah Consols Tin Mining Co, Re, McKay’s Case (1875) 2 Ch D 1, CA.
2
Powell & Thomas v Evans Jones & Co [1905] 1 KB 11, CA.
Reading v A-G [1951] 1 All ER 617, [1951] AC 507, HL.
Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378, [1967] 2 AC 134, HL.
Sugden v Crossland (1856) 3 Sm & G 192, 65 ER 620, V-C.
Sumitomo Bank Ltd v Kartika Ratna Thahir [1993] 1 SLR 735, Singapore HC.
Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1985] 2 All ER 947, [1986] AC 80, [1985] 3 WLR 317, PC.
Tyrrell v Bank of London (1862) 10 HL Cas 26, 11 ER 934.
Appeal
The Attorney General of Hong Kong appealed, with the leave of the Court of Appeal of New Zealand given on 6 July 1992, from the decision of that
court (Richardson, Hardie Boys and Gault JJ) delivered on 12 December 1991 dismissing his appeal from the judgment of the Supreme Court of New
Zealand (Penlington J) delivered on 13 September 1991 whereby he refused to extend caveats registered on behalf of the Hong Kong government against
the titles to three properties registered in the names of the first respondents, Charles Warwick Reid and Judith Margaret Reid (as to two of the properties),
and the second respondent, Marc Molloy (as to the third property), holding that the Crown as caveator could not as a matter of law establish an arguable
case that it had a proprietary interest in the three properties. The interest claimed by the Hong Kong government in the three properties was an estate or
interest as beneficiary by virtue of a constructive trust created by the registered proprietors in applying moneys received by Mr Reid in breach of his
duties owed to the Hong Kong government in the course of his employment as a Crown servant of the government. The Attorney General’s application
for an order that the caveats should not lapse had been opposed by Mrs Reid and Mr Molloy but not by Mr Reid, who agreed to be bound by the decision
of the court. The facts are set out in the judgment of the Board.
David Oliver QC and Stephen Kos (of the New Zealand Bar) (instructed by Herbert Smith) for the Attorney General.
Antony White (instructed by Simons Muirhead & Burton) for Mrs Reid.
11 November 1993. The following judgment of the Board was delivered.
LORD TEMPLEMAN. Mr Reid, a solicitor and New Zealand national, joined the legal service of the government of Hong Kong and became
successively Crown counsel, deputy Crown Prosecutor and ultimately acting Director of Public Prosecutions. In the course of his career Mr Reid, in
breach of the fiduciary duty which he owed as a servant of the Crown, accepted bribes as an inducement to him to exploit his official position by
obstructing the prosecution of certain criminals. Mr Reid was arrested, pleaded guilty to offences under the Prevention of Bribery Ordinance and was
sentenced on 6 July 1990 to eight years’ imprisonment and ordered to pay the Crown the sum of $HK12·4m, equivalent to $NZ2·5m, being the value of
assets then controlled by Mr Reid which could only have been derived from bribes. No part of the sum of $HK12·4m has been paid by Mr Reid.
Among Mr Reid’s assets are three freehold properties in New Zealand. The trial judge’s finding that the Attorney General for Hong Kong had
established an arguable case that each of the three properties was acquired with moneys 3 received by Mr Reid as bribes has not been challenged.
Two of the freehold properties were conveyed to Mr Reid and his wife and one to Mr Reid’s solicitor, Mr Molloy. The three New Zealand properties
were purchased for approximately $NZ500,000. Their current value was not the subject of evidence before the New Zealand Court of Appeal. The total
amount thought to have been received by Mr Reid from bribes exceeds $NZ2·5m.
In the courts of New Zealand Mrs Reid and Mr Molloy argued that part of the costs of the three New Zealand properties might not be derived from
bribes. If so, the courts have ample means of discovering by means of accounts and inquiries the amount (if any) of innocent money invested in the
properties and the proportion of the present value of the properties attributable to innocent money. It was also argued that Mrs Reid might have a
beneficial interest in the properties. This also could be investigated in due course but it does not appear that either Mrs Reid or Mr Molloy was a bona
fide purchaser of a legal estate without notice. For present purposes this appeal proceeds on the assumption that the freehold New Zealand properties
were purchased with bribes received by Mr Reid and are held in trust for Mr Reid subject to the claims of the Crown in these proceedings.
A bribe is a gift accepted by a fiduciary as an inducement to him to betray his trust. A secret benefit, which may or may not constitute a bribe, is a
benefit which the fiduciary derives from trust property or obtains from knowledge which he acquires in the course of acting as a fiduciary. A fiduciary is
not always accountable for a secret benefit but he is undoubtedly accountable for a secret benefit which consists of a bribe. In addition a person who
provides the bribe and the fiduciary who accepts the bribe may each be guilty of a criminal offence. In the present case Mr Reid was clearly guilty of a
criminal offence.
Bribery is an evil practice which threatens the foundations of any civilised society. In particular, bribery of policemen and prosecutors brings the
administration of justice into disrepute. Where bribes are accepted by a trustee, servant, agent or other fiduciary, loss and damage are caused to the
beneficiaries, master or principal whose interests have been betrayed. The amount of loss or damage resulting from the acceptance of a bribe may or may
not be quantifiable. In the present case the amount of harm caused to the administration of justice in Hong Kong by Mr Reid in return for bribes cannot
be quantified.
When a bribe is offered and accepted in money or in kind, the money or property constituting the bribe belongs in law to the recipient. Money paid
to the false fiduciary belongs to him. The legal estate in freehold property conveyed to the false fiduciary by way of bribe vests in him. Equity however
which acts in personam insists that it is unconscionable for a fiduciary to obtain and retain a benefit in breach of duty. The provider of a bribe cannot
recover it because he committed a criminal offence when he paid the bribe. The false fiduciary who received the bribe in breach of duty must pay and
account for the bribe to the person to whom that duty was owed. In the present case, as soon as Mr Reid received a bribe in breach of the duties he owed
to the Government of Hong Kong, he became a debtor in equity to the Crown for the amount of that bribe. So much is admitted. But, if the bribe consists
of property which increases in value or if a cash bribe is invested advantageously, the false fiduciary will receive a benefit from his breach of duty unless
he is accountable not only for the original amount or value of the bribe but also for the increased value of the property representing the bribe. As soon as
the bribe was received 4 it should have been paid or transferred instanter to the person who suffered from the breach of duty. Equity considers as
done that which ought to have been done. As soon as the bribe was received, whether in cash or in kind, the false fiduciary held the bribe on a
constructive trust for the person injured. Two objections have been raised to this analysis. First it is said that, if the fiduciary is in equity a debtor to the
person injured, he cannot also be a trustee of the bribe. But there is no reason why equity should not provide two remedies, so long as they do not result
in double recovery. If the property representing the bribe exceeds the original bribe in value, the fiduciary cannot retain the benefit of the increase in
value which he obtained solely as a result of his breach of duty. Secondly, it is said that if the false fiduciary holds property representing the bribe in trust
for the person injured, and if the false fiduciary is or becomes insolvent, the unsecured creditors of the false fiduciary will be deprived of their right to
Preamble
share in the proceeds of that property. But the unsecured creditors cannot be in a better position than their debtor. The authorities show that property
acquired by a trustee innocently but in breach of trust and the property from time to time representing the same belong in equity to the cestui que trust and
not to the trustee personally whether he is solvent or insolvent. Property acquired by a trustee as a result of a criminal breach of trust and the property
from time to time representing the same must also belong in equity to his cestui que trust and not to the trustee whether he is solvent or insolvent.
When a bribe is accepted by a fiduciary in breach of his duty then he holds that bribe in trust for the person to whom the duty was owed. If the
property representing the bribe decreases in value the fiduciary must pay the difference between that value and the initial amount of the bribe because he
should not have accepted the bribe or incurred the risk of loss. If the property increases in value, the fiduciary is not entitled to any surplus in excess of
the initial value of the bribe because he is not allowed by any means to make a profit out of a breach of duty.
The courts of New Zealand were constrained by a number of precedents of the New Zealand, English and other common law courts which
established a settled principle of law inconsistent with the foregoing analysis. That settled principle is open to review by the Board in the light of the
foregoing analysis of the consequences in equity of the receipt of a bribe by a fiduciary.
In Keech v Sandford (1726) Cas temp King 61, [1558–1774] All ER Rep 230 a landlord refused to renew a lease to a trustee for the benefit of an
infant. The trustee then took a new lease for his own benefit. The new lease had not formed part of the original trust property, the infant could not have
acquired the new lease from the landlord and the trustee acted innocently, believing that he committed no breach of trust and that the new lease did not
belong in equity to his cestui que trust. Lord King LC held nevertheless that ‘the trustee is the only person of all mankind who might not have the lease’
(see Cas temp King 61 at 62, [1558–1774] All ER Rep 230 at 231); the trustee was obliged to assign the new lease to the infant and account for the profits
he had received. The rule must be that property which a trustee obtains by use of knowledge acquired as trustee becomes trust property. The rule must, a
fortiori, apply to a bribe accepted by a trustee for a guilty criminal purpose which injures the cestui que trust. The trustee is only one example of a
fiduciary and the same rule applies to all other fiduciaries who accept bribes.
In Fawcett v Whitehouse (1829) 1 Russ & M 132, 39 ER 51 the defendant Whitehouse, intending to enter into partnership with the plaintiffs Shand
and 5 Fawcett, negotiated for the grant of a lease by a landlord to the partnership. The landlord paid Whitehouse £12,000 for persuading the
partnership to accept the lease. Leach V-C had said that Whitehouse—
‘was bound to obtain the best terms possible for the intended partnership … and that all he did obtain will be considered as if he had done his
duty and had actually received the 12,000l. for the new partnership, as upon every equitable principle he was bound to do. I am of opinion,
therefore, that this is what must be called in a court of equity a fraud on the part of the defendant. It was in fact selling his intended partner for
12,000l. …’ (See 1 Russ & M 132 at 149, 39 ER 51 at 58.)
Leach V-C made a declaration that Whitehouse ‘had received the 12,000l. on behalf of himself and the Plaintiffs Shand and Fawcett equally, and that he
was a trustee, as to one third part of that sum, for Shand, and as to another third part … for the Plaintiff Fawcett’ (see 1 Russ & M 132 at 135, 39 ER 51 at
52). An appeal to the Lord Chancellor was dismissed by Lord Lyndhurst LC. Although in that case, there was no need to trace the sum of £12,000 into
other assets, the bribe of £12,000 was plainly held to be trust property.
In Sugden v Crossland (1856) 3 Sm & G 192, 65 ER 620 a trustee was paid £75 for agreeing to retire from the trust and to appoint in his place the
person who had paid the £75. Stuart V-C said (3 Sm & G 192 at 194, 65 ER 620 at 621):
‘It has been further asked that the sum of 75l. may be treated as a part of the trust fund, and as such may be directed to be paid by Horsfield to
the trustee for the benefit of the cestui que trusts under the will. It is a well-settled principle that if a trustee make a profit of his trusteeship, it shall
enure to the benefit of his cestui que trusts. Though there is some peculiarity in the case, there does not seem to be any difference in principle
whether the trustee derived the profit by means of the trust property, or from the office itself.’
This case is of importance because it disposes succinctly of the argument which appears in later cases and which was put forward by counsel in the
present case that there is a distinction between a profit which a trustee takes out of a trust and a profit such as a bribe which a trustee receives from a third
party. If in law a trustee who in breach of trust invests trust moneys in his own name holds the investment as trust property, it is difficult to see why a
trustee who in breach of trust receives and invests a bribe in his own name does not hold those investments also as trust property.
In Tyrrell v Bank of London (1862) 10 HL Cas 26, 11 ER 934 a solicitor acting for a bank in negotiating the purchase by the bank of a building
known as the Hall of Commerce acquired for himself an interest in a larger property which included the Hall of Commerce and then sold the Hall of
Commerce to the bank at a profit. The House of Lords held that the solicitor was a trustee for the bank of his interests in the Hall of Commerce but was
not a trustee for the bank of that part of the retained property which the bank never had any intention of acquiring. The solicitor was obliged to bring into
account the value of the retained property in calculating the profit which the solicitor had made at the expense of the bank. No difficulty arises from the
decision in this case but Lord Chelmsford said that, if the solicitor had been paid a sum of £5,000 to induce the bank to purchase the Hall of Commerce at
an excessive price, the bank could have recovered damages from the solicitor but could not have obtained the 6 £5,000 on the grounds that it belonged
to the bank (see 10 HL Cas 26 at 59–60, 11 ER 934 at 947). No reason was given and no authority cited for these observations, which were unnecessary
for the decision of the appeal before the House and which appear to be inconsistent with the authorities to which the Board have already referred.
In Re Canadian Oil Works Corp, Hay’s Case (1875) LR 10 Ch App 593 the vendors of property to a company gave money forming part of the
purchase price to a director of the company to enable him to subscribe for shares in the company. It was held that the money was the money of the
company and that the shares registered in the name of the director were therefore unpaid. The judgment emphasised the rule that ‘no agent can in the
course of his agency derive any benefit whatever without the sanction or knowledge of his principal’: per James LJ (at 601).
In Re Morvah Consols Tin Mining Co, McKay’s Case (1875) 2 Ch D 1 upon the application of the liquidator of an insolvent company a director was
ordered to pay under s 165 of the Companies Act 1862 compensation for his misfeasance in accepting 600 paid-up shares in the company from the vendor
of property to the company. Mellish LJ said (at 5):
‘Either as a matter of bargain or as a present to the agent of the purchaser, it was in consideration of a benefit which the vendor had received
from the company’s agents. Now it is quite clear that, according to the principles of a Court of Equity, all the benefit which the agent of the
purchaser receives under such circumstances from the vendor must be treated as received for the benefit of the purchaser.’
A similar decision was reached in Re Caerphilly Colliery Co, Pearson’s Case (1877) 5 Ch D 336, where a director received paid-up shares from the
vendor of property to the company. Jessel MR, referring to Sir Edwin Pearson the director in question, said (at 340–341):
‘That being the position of Sir Edwin Pearson, can he be allowed to say in a Court of Equity that he, having received a present of part of the
purchase-money, and being knowingly in the position of agent and trustee for the purchasers, can retain that present as against the actual
purchasers? It appears to me that, upon the plainest principles of equity and good conscience, he cannot … he cannot, in the fiduciary position he
Preamble
occupied, retain for himself any benefit or advantage that he obtained under such circumstances. He must be deemed to have obtained it under
circumstances which made him liable, at the option of the cestuis que trust, to account either for the value at the time of the present he was
receiving, or to account for the thing itself and its proceeds if it had increased in value.’
This is an emphatic pronouncement by the most distinguished equity judge of his generation that the recipient of a bribe holds the bribe and the
property representing the bribe in trust for the injured person.
Different reasoning and a different result followed in Metropolitan Bank v Heiron (1880) 5 Ex D 319. That was a decision of a distinguished Court
of Appeal heard and determined on one day, 5 August, perilously close to the long vacation without citation of any of the relevant authorities. An
allegation of the receipt of a bribe by a director was considered in 1872 by the board of directors of the company and they decided to take no action. In
1879 the company sued 7 to recover the bribe of £250 and it was held that the action was barred by the statute of limitations. James LJ said (at 323):
‘The ground of this suit is concealed fraud. If a man receives money by way of a bribe for misconduct against a company or cestui que trust, or
any person or body towards whom he stands in a fiduciary position, he is liable to have that money taken from him by his principal or cestui que
trust. But it must be borne in mind that that liability is a debt only differing from ordinary debts in the fact that it is merely equitable, and in dealing
with equitable debts of such a nature Courts of Equity have always followed by analogy the provisions of the Statute of Limitations, in cases in
which there is the same reason for making the length of time a bar as in the case of ordinary legal demands.’
This judgment denies that any proprietary interest exists in the bribe. Brett LJ said (at 324):
‘It seems to me that the only action which could be maintained by the company or by the liquidator of the company against this defendant
would be an action in equity founded upon the alleged fraud of the defendant. Neither at law nor in equity could this sum of 250l. be treated as the
money of the company, until the Court, in an action by the company, had decreed it to belong to them on the ground that it had been received
fraudulently as against them by the defendant.’
This is a puzzling passage, which appears to mean that a proprietary interest in the bribe arises as soon as a court has found that a bribe has been
accepted.
Cotton LJ said (at 325):
‘Here the money sought to be recovered was in no sense the money of the company, unless it was made so by a decree founded on the act by
which the trustee got the money into his hands. It is a suit founded on breach of duty or fraud by a person who was in the position of trustee, his
position making the receipt of the money a breach of duty or fraud. It is very different from the case of a cestui que trust seeking to recover money
which was his own before any act wrongfully done by the trustee.’
This observation does draw a distinction between moneys which are held on trust and are taken out by the trustee and moneys which are not held on
trust but which the trustee receives in circumstances which oblige him to pay the money into the trust. The distinction appears to be inconsistent with
Keech v Sandford (1726) Cas temp King 61, [1558–1774] All ER Rep 230 and with those authorities which make the recipient of the bribe liable for any
increase in value. The decision in Metropolitan Bank v Heiron (1880) 5 Ex D 319 is understandable given the finding that the fraud was made known to
the company more than six years before the action was instituted. But the same result could have been achieved by denying an equitable remedy on the
grounds of delay or ratification.
It has always been assumed and asserted that the law on the subject of bribes was definitively settled by the decision of the Court of Appeal in Lister
& Co v Stubbs (1890) 45 Ch D 1, [1886–90] All ER Rep 797.
In that case the plaintiffs, Lister & Co, employed the defendant, Stubbs, as their servant to purchase goods for the firm. Stubbs, on behalf of the
firm, bought goods from Varley & Co and received from Varley & Co bribes 8 amounting to £5,541. The bribes were invested by Stubbs in freehold
properties and investments. His masters, the firm Lister & Co, sought and failed to obtain an interlocutory injunction restraining Stubbs from disposing of
these assets pending the trial of the action in which they sought, inter alia, £5,541 and damages. In the Court of Appeal the first judgment was given by
Cotton LJ, who had been party to the decision in Metropolitan Bank v Heiron. He was powerfully supported by the judgment of Lindley LJ and by the
equally powerful concurrence of Bowen LJ. Cotton LJ said that the bribe could not be said to be the money of the plaintiffs (see 45 Ch D 1 at 12,
[1886–90] All ER Rep 797 at 798–799). He seemed to be reluctant to grant an interlocutory judgment which would provide security for a debt before that
debt had been established. Lindley LJ said that the relationship between the plaintiffs, Lister & Co, as masters and the defendant, Stubbs, as servant who
had betrayed his trust and received a bribe—
‘is that of debtor and creditor; it is not that of trustee and cestui que trust. We are asked to hold that it is—which would involve consequences
which, I confess, startle me. One consequence, of course, would be that, if Stubbs were to become bankrupt, this property acquired by him with the
money paid to him by Messrs. Varley would be withdrawn from the mass of his creditors and be handed over bodily to Lister & Co. Can that be
right? Another consequence would be that, if the Appellants are right, Lister & Co. could compel Stubbs to account to them, not only for the money
with interest, but for all the profit which he might have made by embarking in trade with it. Can that be right?’ (See 45 Ch D 1 at 15, [1886–90]
All ER Rep 797 at 800.)
For the reasons which have already been advanced, their Lordships would respectfully answer both these questions in the affirmative. If a trustee
mistakenly invests moneys which he ought to pay over to his cestui que trust and then becomes bankrupt, the moneys together with any profit which has
accrued from the investment are withdrawn from the unsecured creditors as soon as the mistake is discovered. A fortiori, if a trustee commits a crime by
accepting a bribe which he ought to pay over to his cestui que trust, the bribe and any profit made therefrom should be withdrawn from the unsecured
creditors as soon as the crime is discovered.
The decision in Lister & Co v Stubbs is not consistent with the principles that a fiduciary must not be allowed to benefit from his own breach of duty,
that the fiduciary should account for the bribe as soon as he receives it and that equity regards as done that which ought to be done. From these principles
it would appear to follow that the bribe and the property from time to time representing the bribe are held on a constructive trust for the person injured. A
fiduciary remains personally liable for the amount of the bribe if, in the event, the value of the property then recovered by the injured person proved to be
less than that amount.
The decisions of the Court of Appeal in Metropolitan Bank v Heiron and Lister v Stubbs are inconsistent with earlier authorities which were not
cited. Although over 100 years has passed since Lister & Co v Stubbs, no one can be allowed to say that he has ordered his affairs in reliance on the two
decisions of the Court of Appeal now in question. Thus no harm can result if those decisions are not followed.
Preamble
9
The decision in Lister & Co v Stubbs was followed in Powell & Thomas v Evans Jones & Co [1905] 1 KB 11 and A-G v Goddard (1929) 98 LJKB
743. In Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378, [1967] AC 134 shares intended to be acquired by directors at par to avoid them giving a
guarantee of the obligations under a lease were sold at a profit and the directors were held to be liable to the company for the proceeds of sale, applying
Keech v Sandford (1726) Cas temp King 61, [1558–1774] All ER Rep 230.
In Reading v A-G [1951] 1 All ER 617, [1951] AC 507 the Crown confiscated thousands of pounds paid to an army sergeant who had abused his
official position to enable drugs to be imported. The Crown was allowed to keep the confiscated moneys to avoid circuity of action.
Finally in Islamic Republic of Iran Shipping Lines v Denby [1987] 1 Lloyd’s Rep 367 Leggatt J followed Lister & Co v Stubbs, as indeed he was
bound to do.
The authorities which followed Lister & Co v Stubbs do not cast any new light on that decision. Their Lordships are more impressed with the
decision of Lai Kew Chai J in Sumitomo Bank Ltd v Kartika Ratna Thahir [1993] 1 SLR 735. In that case General Thahir, who was at one time general
assistant to the president director of the Indonesian state enterprise named Pertamina, opened 17 bank accounts in Singapore and deposited DM54m in
those accounts. The money was said to be bribes paid by two German contractors tendering for the construction of steel works in West Java. General
Thahir having died, the moneys were claimed by his widow, by the estate of the deceased general and by Pertamina. After considering in detail all the
relevant authorities the judge determined robustly that Lister & Co v Stubbs was wrong and that its ‘undesirable and unjust consequences should not be
imported and perpetuated as part of’ the law of Singapore (at 810). Their Lordships are also much indebted for the fruits of research and the careful
discussion of the present topic in the address entitled ‘Bribes and secret commissions’ [1993] RLR 7, delivered by Sir Peter Millett to a meeting of the
Society of Public Teachers of Law at Oxford in 1993. The following passage elegantly sums up the views of Sir Peter Millett (at 20):
‘[The fiduciary] must not place himself in a position where his interest may conflict with his duty. If he has done so, equity insists on treating
him as having acted in accordance with his duty; he will not be allowed to say that he preferred his own interest to that of his principal. He must
not obtain a profit for himself out of his fiduciary position. If he has done so, equity insists on treating him as having obtained it for his principal;
he will not be allowed to say that he obtained it for himself. He must not accept a bribe. If he has done so, equity insists on treating it as a
legitimate payment intended for the benefit of the principal; he will not be allowed to say that it was a bribe.’
The conclusions reached by Lai Kew Chai J in Sumitomo Bank Ltd v Kartika Ratna Thahir and the views expressed by Sir Peter Millett were
influenced by the decision of the House of Lords in Boardman v Phipps [1966] 3 All ER 721, [1967] 2 AC 46, which demonstrates the strictness with
which equity regards the conduct of a fiduciary and the extent to which equity is willing to impose a constructive trust on property obtained by a fiduciary
by virtue of his office. In that case a solicitor acting for trustees rescued the interests of the trust in a private company by negotiating for a take-over bid
in which he himself took an interest. He acted in good faith throughout and the information which the 10 solicitor obtained about the company in the
take-over bid could never have been used by the trustees. Nevertheless the solicitor was held to be a constructive trustee by a majority in the House of
Lords because the solicitor obtained the information which satisfied him that the purchase of the shares in the take-over company would be a good
investment and the opportunity of acquiring the shares as a result of acting for certain purposes on behalf of the trustees: see per Lord Cohen ([1966] 3 All
ER 721 at 743, [1967] 2 AC 46 at 103). If a fiduciary acting honestly and in good faith and making a profit which his principal could not make for
himself becomes a constructive trustee of that profit, then it seems to their Lordships that a fiduciary acting dishonestly and criminally who accepts a
bribe and thereby causes loss and damage to his principal must also be a constructive trustee and must not be allowed by any means to make any profit
from his wrongdoing.
The New Zealand Court of Appeal in the present case declined to enter into the merits of Lister & Co v Stubbs, founding itself on a passage in the
judgment of this Board delivered by Lord Scarman in Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1985] 2 All ER 947 at 958, [1986] AC 80 at
l08 where his Lordship said the duty of the New Zealand Court of Appeal was not to depart from a settled principle of English law. While their Lordships
regard the application of stare decisis in the New Zealand Court of Appeal as a matter for that court, they desire to make the following remarks, in case
Lord Scarman’s comments in Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd have in any way been misunderstood.
In the present case the Court of Appeal did not say and could not have meant that it was bound by a decision of the English Court of Appeal, since
for many years the New Zealand courts have not regarded themselves as bound by decisions of the House of Lords, although of course continuing to pay
great respect to them. The reasoning of the Court of Appeal, as their Lordships understand it, was rather that in the absence of differentiating local
circumstances the court should follow a decision representing contemporary English law, leaving its correctness for consideration by this Board. Without
in any way criticising that approach in the circumstances of this case, where the decision in question was of such long standing, their Lordships wish to
add that nevertheless the New Zealand Court of Appeal must be free to review an English Court of Appeal authority on its merits and to depart from it if
the authority is considered to be wrong. Hart v O’Connor [1985] 2 All ER 880, [1985] AC 1000, to which Lord Scarman referred in the passage
mentioned by the Court of Appeal, concerned the very different situation of the Court of Appeal wishing to apply English law but, in the judgment of this
Board, misapprehending the state of the contemporary law. In any case where the New Zealand Court of Appeal has to decide whether to follow an
English authority, its own views on the issue, untrammelled by authority, will always be of great assistance to the Board.
The Attorney General for Hong Kong has registered caveats against the title of the three New Zealand properties. He seeks to renew the caveats to
prevent any dealing with the property pending the hearing of proceedings which, their Lordships are informed, have been initiated for the purpose of
claiming the properties on a constructive trust. The respondents oppose the renewal of the caveats on the grounds that the Crown had no equitable interest
in the three New Zealand properties. For the reasons indicated their Lordships consider 11 that the three properties so far as they represent bribes
accepted by Mr Reid are held in trust for the Crown.
Before parting with this appeal their Lordships wish to express their appreciation for the eloquent and well-structured submissions made by Mr
David Oliver QC on behalf of the Attorney General for Hong Kong and by Mr Antony White on behalf of the respondents.
Their Lordships will therefore humbly advise Her Majesty that this appeal should be allowed. Since an unfulfilled order has been made against Mr
Reid in the courts of Hong Kong to pay $HK12·4m, his purpose in opposing the relief sought by the Crown in New Zealand must reflect the hope that the
properties, in the absence of a caveat, can be sold and the proceeds whisked away to some Shangri-La which hides bribes and other corrupt moneys in
numbered bank accounts. In these circumstances Mr and Mrs Reid must pay the costs of the Attorney General before the Board and in the lower courts.
Appeal allowed.
Celia Fox Barrister.

Preamble
[1994] 1 All ER 12
Birmingham City Council and others v H (a minor)

FAMILY; Children
HOUSE OF LORDS
LORD KEITH OF KINKEL, LORD JAUNCEY OF TULLICHETTLE, LORD BROWNE-WILKINSON, LORD SLYNN OF HADLEY AND LORD WOOLF
5, 6, 7 OCTOBER, 16 DECEMBER 1993
Child – Care – Local authority – Contact with parent – Parent a minor in care – Welfare of ‘child’ court’s paramount consideration – Local authority
applying for termination of contact between mother and child – Whether welfare of mother’s child paramount consideration – Whether welfare of mother
and child required to be balanced against each other – Children Act 1989, s 34(4).
Where both a mother and her child are minors in the care of a local authority which has applied to the court under 34(4)a of the Children Act 1989 for the
termination of contact between the mother and her child on the grounds that the mother is unable to look after her child, that the prospect of rehabilitation
between them ought not to be pursued and that her child is at risk of significant harm attributable to the mother being beyond parental control, the
principle that the child’s welfare shall be the court’s paramount consideration should be applied only to the mother’s child and not to the mother even
though she herself is a child for the purposes of the 1989 Act. It is the parent’s child who is the subject of the contact application and it is his or her
welfare that is paramount, and accordingly the court does not have to balance the welfare of 12 one against that of the other, since the question to be
determined does not relate to the applicant’s own upbringing (see p 13 j, p 14 d e, p 17 j to p 18 f and p 19 g, post).
________________________________________
a Section 34(4) provides: ‘On an application made by [a local authority in whose care a child is] or the child, the court may make an order authorising the authority to
refuse to allow contact between the child and [inter alios, his parents or any guardian of his].’
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Per Lord Keith and Lord Browne-Wilkinson. Where in legally aided proceedings concerning a child there is no significant difference between the
arguments of the mother, the father and the guardian ad litem of one of the parents, serious consideration should be given by solicitors and counsel to the
practicability and desirability of securing joint representation with a view to minimising the burden on public funds (see p 14 b c and e, post).
Notes
For contact with a child in care, see 5(2) Halsbury’s Laws (4th edn reissue) paras 790–791.
For the Children Act 1989, s 34, see 6 Halsbury’s Statutes (4th edn) (1992 reissue) 437.
Appeal
RH, a minor acting by his guardian ad litem, appealed with leave granted by the Appeal Committee on 8 June 1993 from the decision of the Court of
Appeal (Balcombe, Kennedy and Evans LJJ) ([1993] 1 FLR 883) delivered on 19 February 1993 allowing the appeal of M, the mother of RH, acting by
her guardian ad litem, against the decision of Connell J delivered on 27 November 1992 and discharging that part of the judge’s order granting the
application of the Birmingham City Council for leave to terminate the mother’s contact with RH except for the exchange of information twice a year. The
facts are set out in the opinion of Lord Slynn.
James Munby QC and Patrick Roche (instructed by Barbara Carter, Birmingham) for RH.
Michael Horowitz QC and Jeremy Posnansky (instructed by Stewart A Dobson, Birmingham) for Birmingham City Council.
Elizabeth Lawson QC and Elizabeth Szwed (instructed by Young & Lee, Birmingham) for M.
Roderic Wood QC and David Travers (instructed by Adie Evans & Warner, Birmingham) for M’s guardian ad litem.
Malcolm Bishop QC and Rehna Azim (instructed by Plunkett Lohmus & Co, Birmingham) for the father.
Their Lordships took time for consideration.
16 December 1993. The following opinions were delivered.
LORD KEITH OF KINKEL. My Lords, for the reasons given in the speech to be delivered by my noble and learned friend Lord Slynn of Hadley,
which I have read in draft and with which I agree, I would allow this appeal.
It is desirable that something should be said about the level of separate representation of parties, all at public expense, which was a feature of this
appeal. The appellant, R, proceeding through his guardian ad litem was represented by solicitors and by senior and junior counsel funded by the Legal
Aid Board, and rightly so. Birmingham City Council, which supported the 13 appeal, was similarly represented, at the expense of the Birmingham
community charge or council tax payers.
Separate solicitors and also senior and junior counsel appeared for each of the mother, the father and the guardian ad litem to the mother. These
three had lodged a joint written case. The mother and the father were funded by the Legal Aid Board, and the mother’s guardian ad litem by Birmingham
City Council. There was no significant difference between the arguments for those who supported the appeal or between the arguments for those who
resisted it.
In the circumstances there must be a serious question whether the degree of separate representation was necessary, or in any event whether the
employment of so many senior counsel was justified. It is to be hoped that in future cases where a similar question may arise serious consideration will
be given by solicitors and counsel to the practicability and desirability where appropriate of securing joint representation with a view to minimising the
Preamble
burden on public funds.
LORD JAUNCEY OF TULLICHETTLE. My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend
Lord Slynn of Hadley. I agree with it and for the reasons he gives I, too, would allow the appeal.
LORD BROWNE-WILKINSON. My Lords, for the reasons given in the speech prepared by my noble and learned friend Lord Slynn of Hadley, with
which I agree, I, too, would allow the appeal. I also agree with the comments made by my noble and learned friend Lord Keith of Kinkel.
LORD SLYNN OF HADLEY. My Lords, this appeal raises a question relating to the court’s jurisdiction to authorise a local authority to refuse contact
between a child in care and another person when that other person, in this case the child’s mother, is also a child in care.
Under the Children Act 1989 ‘child’ for all purposes relevant to the present appeal means a person under the age of 18.
By s 17 of the 1989 Act it is the general duty of every local authority to safeguard and promote the welfare of children within their area who are in
need, and, so far as is consistent with that duty, to promote the upbringing of such children by their families by providing appropriate services.
Pursuant to s 31 of the 1989 Act, a local authority may apply to the court for an order that a child be placed in the care of a designated local authority
if the child is suffering, or is likely to suffer, significant harm and if the harm, or likelihood of harm, is attributable to the care given or likely to be given
to the child, being not what it would be reasonable to expect a parent to give him, or if the child is beyond parental control. If such an order is made the
local authority has parental responsibility for the child (s 33) and it has a duty to safeguard and promote the welfare of the child (s 22).
The authority, however, must allow reasonable contact with the child’s parents or guardian (s 34(1)). Further, a child in the care of a local authority
may not be placed in accommodation provided for the purpose of restricting liberty (‘secure accommodation’) unless the child has a history of absconding
and is likely to abscond from any other description of accommodation, and if he absconds is likely to suffer significant harm, or, in any other type of
accommodation, is likely to injure himself or other persons (s 25).
14
Section 34 of the 1989 Act provides different ways in which an application can be made to the court for an order that there may be contact between a
child in care and other persons and provides that the court may authorise an authority to refuse such contact.
By para 15(1) of Sch 2 to the 1989 Act:
‘Where a child is being looked after by a local authority, the authority shall, unless it is not reasonably practicable or consistent with his
welfare, endeavour to promote contact between the child and—(a) his parents ...’
By s 1(1) of the 1989 Act: ‘When a court determines any question with respect to—(a) the upbringing of a child … the child’s welfare shall be the
court’s paramount consideration.’
Although not directly relevant to this case it is to be noticed that for children not in care a contact order may be made under s 8 of the 1989 Act—
‘requiring the person with whom a child lives, or is to live, to allow the child to visit or stay with the person named in the order, or for that
person and the child otherwise to have contact with each other ...’
Alternatively, an order may be made prohibiting steps to be taken by the parent in meeting his parental responsibility.
Of the parties to this appeal, R was born on 23 October 1991; his mother, M, was born on 11 January 1977. Each of them was at all material times a
‘child’ for the purposes of the 1989 Act. R’s father, who was not and is not married to M, was born on 26 February 1972 so that he was not at any
material time a ‘child.’
In March 1992 Ward J made interim care orders in respect of R and of M on the application of Birmingham City Council. These interim orders were
from time to time renewed. M, although ceasing to have care of R on 11 March 1992, had contact with R from time to time until September 1992.
On 30 September 1992 the council applied to the court for leave to refuse M contact with R, and in this was supported by R’s guardian ad litem.
On 16 November 1992 M herself applied for an order that she should have contact with R, in which she was supported by the father, and, on a
restricted basis, by her guardian ad litem.
Connell J in his judgment, given after a five-day hearing, set out the facts in detail. It is sufficient for present purposes to summarise them. M lived
from an early age with her grandmother, then with foster parents and subsequently in May 1979 she was adopted. Her behaviour caused serious problems
at home and in two different units for adolescents to which she was moved and where she assaulted members of the staff. After R’s birth she was
apparently for a while able to look after him satisfactorily but as time went on it was found that she was handling him roughly. On one occasion in
February 1992 a doctor feared that her roughness would cause R bony injury. M and R subsequently went to live in premises specially provided for
mothers with young children. There were disturbances involving both M and R, on occasion M fighting with other residents and assaulting members of
staff.
They were moved to an emergency facility in what is called a ‘crash pad’ and later to a college in Taunton. Here aggressive outbursts and assaults
by M led to anxiety about R’s safety and well-being and R was taken to foster parents. A guardian ad litem was appointed for each of them.
15
An attempt to reunite M with her natural parents and in particular with her grandmother failed and after M went to live in local authority
accommodation she was violent and absconded from time to time. During 1992 contact was arranged between M and R which at times was satisfactory
but unfortunately instances of rough or unsuitable handling of the baby occurred. There were further assaults on staff by M and on several occasions she
inflicted wounds on herself and took an overdose of tablets. Between the end of August and 16 October 1992 she absconded on 13 occasions and said she
had been soliciting. From the end of October 1992 until the hearing brought before Connell J she was in secure accommodation when, again, unhappy
incidents occurred. M’s immaturity and inability to put the interests of the child first led the judge to conclude that there was a strong likelihood that R
would suffer significant harm due to inadequate care on the part of his mother. The judge had no doubt that M was beyond parental control and that she
was suffering, and was likely to suffer, significant harm attributable to her being beyond parental control.
The judge, supported by both guardians ad litem, concluded that it was very unlikely that M would make significant progress within 12 months and
that she did not have the ability to look after R. Nor was the father prepared to offer any significant support. It was important that R should be adopted as
soon as possible and given a stable long term home. A care order was very necessary.
As to contact, the judge accepted that only in exceptional circumstances should contact between a mother and a young baby child be prevented and
that the court had to face the prospect that M might make further attempts to injure herself if she was prevented from seeing R. However, the judge, after
carefully considering the evidence, including the views of M’s mother, her guardian ad litem and the father, took the view that occasional contact in
secure accommodation as proposed could prove distressing both for M and for R and that there was a clear risk of physical harm to R. He said:
Preamble
‘So far as this aspect of the matter is concerned, it is [R’s] welfare which must be my paramount consideration. He is the child and in this
context [M] is the parent. Contact is the right of the child, not of the parent. Where conflict arises, his welfare, therefore, takes priority over [M’s]
welfare. I accept Mr Travers’s [counsel for M’s guardian ad litem] submission that [R’s] welfare is not the sole consideration in a situation such as
this and I also accept that [M’s] welfare and wishes are relevant, but [R’s] welfare comes first and the likelihood of harm to him from any contact
hereafter is clearly established.’
Accordingly, on 27 November 1992 Connell J made (a) care orders in respect of R and M, in R’s case with a view to placement for his adoption, (b)
a secure accommodation order under s 25 of the 1989 Act in respect of M for a period of three months and (c) an order under s 34(4) of that Act that the
council might refuse contact between R and M, save that contact by way of exchange of information only be allowed twice a year.
No order was made in respect of contact between R and the father, so that, by virtue of s 34(1) of the 1989 Act, contact must be allowed between
them, although the father has seen R on only one or two occasions.
M appealed to the Court of Appeal against the secure accommodation order, on the basis that the period should only have been two months, and the
refusal of contact order. As to the latter she was supported by the father. The appeal on the first ground was dismissed, that as to the latter was allowed,
and no order 16 was made as to contact. The result was thus that both M and the father were entitled to contact with R pursuant to s 34(1) of the 1989
Act, although it is clear that there has been little contact.
In the Court of Appeal Balcombe LJ (with whom Kennedy and Evans LJJ agreed) ([1993] 1 FLR 883) took the view that the question of contact with
M related to the upbringing of R and that the question of contact with R related to the upbringing of M. It was impossible to give each of them
paramountcy and the Act did not indicate that, where parent and child were both children, the latter’s interests were to prevail. On the contrary, while the
welfare of M and R taken together, is to be considered as paramount to the interests of any adults concerned in their lives, as between themselves the
court must approach the question of their welfare without giving one priority over the other. As Evans LJ put it (at 899):
‘Clearly, the court must have regard to R’s welfare on the applications made under [s 34(3) and (4) of the 1989 Act] and it must also have
regard to M’s welfare on the notional application under subs (2), in both cases because s 1 [of the 1989 Act] requires it to do so, including the
particular factors insofar as they are relevant listed in s 1(3).’
The requirements of paramountcy in s 1(1), he said—
‘must be regarded as qualified, in the cases where the welfare of more than one child is involved, by the need to have regard to potential
detriment for one in the light of potential benefit for the other.’
The Court of Appeal conducted this balancing exercise. As Balcombe LJ said (at 894):
‘Weighing in the balance the respective interests of M and R as summarised above, I have come to the conclusion that it is at the moment
premature to give the council leave to terminate contact. The position is that contact may be positively beneficial to M and, provided that it is
adequately monitored, should not, in the short term at least, be detrimental to R. The position will have to be reassessed when a suitable long-term
placement for R is found.’
Accordingly, they set aside the judge’s order, but made no order under s 34(2) thereby leaving it to the council to allow reasonable contact pursuant
to s 34(1).
The issue before your Lordships’ House is, thus, whether the Court of Appeal erred in law in setting aside Connell J’s order authorising the council
to refuse contact between M and R save on the limited basis to which reference has been made.
It is clear that the draftsman of the statute did not specifically provide for the situation where both parent and child are children within the meaning
of the 1989 Act. Although wider arguments have been addressed on the basis of other sections of the 1989 Act, it seems to me that the problem is
resolved on an analysis of the structure of s 34 itself which deals with the special situation of children in care.
The starting point is that by sub-s (1) the appropriate authority must allow the child in care reasonable contact with four categories of person, a
parent, a guardian, a person in whose favour a residence order was in force, or a person who has had the care of the child immediately before the care
order in question was made. If there is an issue about contact, any one of those persons may apply 17 to the court under sub-s (3) and the court ‘may
make such order as it considers appropriate with respect to the contact which is to be allowed between the child and that person’. For this purpose, ‘the
child’ is the child in care in respect of whom an order is sought by one of the four categories of person. That child is the subject matter of the application.
The question to be determined relates to that child’s upbringing and it is that child’s welfare which must be the court’s paramount consideration. The fact
that the parent is also a child does not mean that both parent’s and child’s welfare is paramount and that each has to be balanced against the other. Under
sub-s (3) the question to be determined does not relate to the applicant’s upbringing even if the applicant is a child.
By sub-s (2): ‘On an application made by the authority or the child, the court may make such order as it considers appropriate with respect to the
contact which is to be allowed between the child and any named person.’ In this application the child in care may apply and, if that child is the applicant,
it is that child’s welfare which is directly involved and which is paramount even if the other ‘named person’ is also a child. The welfare of any other
‘named person,’ even if a child, is not also paramount so as to require a balancing exercise to be carried out.
It may be doubted whether a parent was ever intended to be included within the category of ‘child’ in s 34(2) even if the parent is also a child. In
any event an order under sub-s (2) does not legally oblige the person named to have contact with the child, even if such contact will normally take place
where such an order is made.
By sub-s (4) the court may make an order, if the child in care or the authority makes an application, authorising the authority to refuse to allow
contact between the child in care and a person belonging to one of the four categories of person mentioned above who are named in the order. Thus the
court may authorise refusal to allow contact between the child in care and the parent. The child in respect of whose upbringing a question is to be
determined by the court is the son or daughter of the parent named in the order and it is that child’s welfare which is to be paramount. The fact that the
parent is also a child does not require the balancing exercise to be carried out since no question is to be determined as to the parent’s upbringing.
Moreover if an order is made or is to be made by the court under sub-s (4) allowing the authority to refuse contact between a parent (even if a child),
and its child the subject of the application, as not being in the interests of the latter child, it is neither sensible nor useful to make an order under sub-s (2)
that the parent-child applicant should have contact with its child.
In the present case M’s application was made on the face of it as a parent in respect of R as a child under s 34(3) and the council’s application was
made in respect of contact between R as the child and M as his parent under s 34(4). By s 34(5) of the 1989 Act the court has power to make an order
Preamble
under s 34 in any family proceedings in connection with a child in care, even though no application for an order has been made with respect to the child.
Accordingly, when the court is seised of family proceedings, which include proceedings under Pt IV of the 1989 Act, the court may consider whether an
order should be made under s 34(2) of that Act whether or not an application had been made by M as a child for contact with R as the named person. It
was therefore not necessary to consider whether, in the application form which she herself submitted, the application was limited to s 34(3) or whether it
covered s 34(2) as 18 well. The court has power of its own motion to consider both applications as if they had been made.
In the circumstances when the court decided that it was appropriate to authorise the authority to refuse contact under sub-s (4) with R (the child in
care whose welfare for that purpose was paramount) it was bound to refuse the application by M under sub-s (3) when a question arose as to R’s
upbringing and when his welfare was paramount. And it was of no value to make an order under sub-s (2) for M to have contact with R when contact
between R and M could be refused by the authority as a result of the court’s order under sub-s (4).
It was not therefore necessary for the balancing exercise, which the Court of Appeal considered had to be carried out, to be performed. Connell J in
making an order under s 34(4) was right to consider that R’s welfare was the court’s paramount consideration. He gave the question as to whether he
should make such an order very careful consideration, giving due weight to the fact that such an order prohibiting contact between a mother and a young
child should rarely be made and it is impossible to say that he erred in the exercise of his discretion in a way which would justify an appellate court from
setting it aside. It is further to be noted that between February 1993, the date of the Court of Appeal’s judgment, when contact again became possible,
and the date of the hearing before your Lordships’ House, M saw R only three times, all under supervision, the last being on 18 August 1993. A further
meeting was arranged for 18 September, but M failed to attend and her whereabouts were not known. The father, who did not see R during most of 1992
has only seen him once since the Court of Appeal judgment. R, meanwhile, is apparently well settled with potential adopters.
In my opinion the appeal should be allowed and the order of Connell J should be restored.
It is necessary to add one rider. There was much argument before your Lordships as to whether an application by a parent who is a child for contact
with its own child could be a question with respect to the ‘upbringing’ of the child who is a parent or whether that question related only to the child’s
position as a parent and not to its ‘upbringing’. Nothing in this opinion is to be taken as indicating an opinion either way on that issue, which, on the view
which I have taken on s 34, does not fall to be decided.
LORD WOOLF. My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Slynn of Hadley. I
agree with it and for the reasons he gives I, too, would allow the appeal.
Appeal allowed.

19
[1994] 1 All ER 20
L’Office Cherifien des Phosphates and another v Yamashita-Shinnihon Steamship Co Ltd

The Boucraa
ADMINISTRATION OF JUSTICE; Arbitration: CIVIL PROCEDURE
HOUSE OF LORDS
LORD TEMPLEMAN, LORD GOFF OF CHIEVELEY, LORD JAUNCEY OF TULLICHETTLE, LORD BROWNE-WILKINSON AND LORD MUSTILL
26, 27 JULY, 16 DECEMBER 1993
Arbitration – Practice – Want of prosecution – Dismissal of claim – Dismissal of claim for want of prosecution – Prolonged and unwarranted delay by
claimants in prosecuting claim prior to 1 January 1992 – Arbitrators having power after 1 January 1992 to dismiss claim for want of prosecution where
inordinate and inexcusable delay on part of claimant – Whether power to dismiss claim for want of prosecution retrospective – Whether arbitrator
entitled to have regard to delay in prosecuting claim occurring prior to 1 January 1992 – Arbitration Act 1950, s 13A.
In 1984 the owners of a vessel discovered immediately after the completion of a charter voyage that damage had been caused to the vessel. In 1985 the
owners’ complaint against the charterer was referred to arbitration. However, apart from the initial proceedings of claim and defence, neither party took
any further steps in the proceedings between 1986 and 1991. On 1 January 1992 s 13Aa of the Arbitration Act 1950 came into force. That section
conferred power on an arbitrator to dismiss a claim for want of prosecution where there had been inordinate and inexcusable delay by the claimant in
pursuing the claim. The charterer applied under s 13A to have the owners’ claim dismissed for want of prosecution. The arbitrator dismissed the claim
on the grounds of the owners’ inordinate and inexcusable delay prior to 1 January 1992 but the judge allowed an appeal by the owners on the ground that
s 13A did not operate retrospectively and therefore delay prior to 1 January 1992 was not a ground for dismissal of a claim under s 13A. The charterer
appealed, contending that s 13A was retrospective in effect and therefore the arbitrator was entitled to exercise the power conferred by the section in
respect of delay by the owners before the section came into force. The Court of Appeal, applying the presumption against the retrospective operation of
statutes, dismissed the appeal on the ground that s 13A affected the owners’ substantive right prior to 1 January 1992 to pursue their claim to an award
despite their delay and, there being no indication of Parliament’s intention in the section, the owners’ delay prior to 1 January 1992 could not be taken
into account by the arbitrator when considering the charterer’s application for dismissal of the owners’ claim since to do so would involve the
retrospective operation of s 13A. The charterer appealed to the House of Lords.
________________________________________
a Section 13A is set out at p 27 f to j, post
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Preamble
Held – Parliament was presumed when enacting legislation not to have intended to alter the law applicable to past events and transactions in a manner
which was unfair to those concerned in them unless a contrary intention appeared. Accordingly, the question whether an Act was retrospective was to
20 be determined according to whether in a particular case the consequences of reading the statute with the suggested degree of retrospectivity was,
having regard to the degree of retrospectivity involved, the value of the rights affected, the clarity of the language used and the circumstances in which the
legislation was enacted, so unfair that the words used by Parliament could not have been intended to mean what they might appear to say. On that
approach, s 13A of the 1950 Act was partially retrospective to the extent that it enabled an arbitrator to exercise the power to dismiss a claim by reference
to all the ‘inordinate and inexcusable delay’ which had caused the substantial risk of unfairness, including that which had occurred before s 13A came
into force, since the section was directed to the situation where the claimant himself had regarded his claim so poorly that he had taken no trouble to
enforce it and had been so remiss in exercising his right to call for an award that the award when ultimately rendered might be the outcome of an unfair
process. Accordingly, the arbitrator had been entitled to take into account the owners’ inordinate and inexcusable delay prior to 1 January 1992 in
dismissing the claim. The appeal would therefore be allowed (see p 23 c to f, p 24 g h, p 29 j to p 30 a e to h, p 32 a and p 33 e to j, post).
Decision of the Court of Appeal [1993] 3 All ER 686 reversed.
Notes
For the retrospective effect of statutes, see 44 Halsbury’s Laws (4th edn) paras 921–926, and for cases on the subject, see 45 Digest (Reissue) 430–443,
4246–4387.
For the Arbitration Act 1950, s 13A, see 2 Halsbury’s Statutes (4th edn) (1992 reissue) 589.
Cases referred to in opinions

A-G v Vernazza [1960] 3 All ER 97, [1960] AC 965, [1960] 3 WLR 466, HL.
Allen v Sir Alfred McAlpine & Sons Ltd, Bostic v Bermondsey and Southwark Group Hospital Management Committee, Sternberg v Hammond [1968] 1
All ER 543, [1968] 2 QB 229, [1968] 2 WLR 366, CA.
Arnold v Central Electricity Generating Board [1987] 3 All ER 694, [1988] AC 228, [1987] 3 WLR 1009, HL.
Athlumney, Re, ex p Wilson [1898] 2 QB 547, [1895–9] All ER Rep 329.
Birkett v James [1977] 2 All ER 801, [1978] AC 297, [1977] 3 WLR 38, HL.
Bremer Vulkan Schiffbau Und Maschinenfabrik v South India Shipping Corp [1981] 1 All ER 289, [1981] AC 909, [1981] 2 WLR 141, HL; rvsg [1980] 1
All ER 420, [1981] AC 909, [1980] 2 WLR 905, CA.
Colonial Sugar Refining Co Ltd v Irving [1905] AC 369, PC.
Costa Rica (Republic) v Erlanger (1876) 3 Ch D 62, CA.
Crawford v A E A Prowting Ltd [1972] 1 All ER 1199, [1973] QB 1, [1972] 2 WLR 749.
Excomm Ltd v Guan Guan Shipping (Pte) Ltd, The Golden Bear [1987] 1 Lloyd’s Rep 330.
Exormisis Shipping SA v Oonsoo [1975] 1 Lloyd’s Rep 432.
Gardner v Lucas (1878) 3 App Cas 582, HL.
Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal, The Hannah Blumenthal [1983] 1 All ER 34, [1983] 1 AC 854, [1982] 3 WLR 1149, HL.
R v Harrow on the Hill (inhabitants) (1848) 12 QB 103, 116 ER 805.
R v St Mary, Whitechapel (inhabitants) (1848) 12 QB 120, 116 ER 811.
Secretary of State for Social Security v Tunnicliffe [1991] 2 All ER 712, CA.
21
Siskina (cargo owners) v Distos Cia Naviera SA, The Siskina [1977] 3 All ER 803, [1979] AC 210, [1977] 3 WLR 818, HL.
Wright v Hale (1860) 30 LJ Ex 40, 6 H & N 227, 158 ER 94.
Yew Bon Tew v Kenderaan Bas Mara [1982] 3 All ER 833, [1983] 1 AC 553, [1982] 3 WLR 1026, PC.
Appeal
Yamashita-Shinnihon Steamship Co Ltd, the charterer of the vessel Boucraa, appealed with the leave of the Appeal Committee of the House of Lords
given on 5 July 1993 from the decision of the Court of Appeal (Sir Thomas Bingham MR and Kennedy LJ (Beldam LJ dissenting)) ([1993] 3 All ER 686,
[1993] 3 WLR 266) delivered on 7 April 1993 dismissing the charterer’s appeal from the decision of Saville J given on 2 February 1993 allowing the
appeal of L’Office Cherifien des Phosphates and Unitramp SA, the owners of the vessel, against the interim final award dated 13 August 1992 of the
single arbitrator, Michael Baker-Harber, dismissing the shipowners’ claim for want of prosecution pursuant to s 13A of the Arbitration Act 1950. The
facts are set out in the opinion of Lord Mustill.
Richard Aikens QC and Edmund Broadbent (instructed by Ince & Co) for the charterers.
Jonathan Gaisman and Alistair Schaff (instructed by Herbert Smith) for the shipowners.
LORD TEMPLEMAN. My Lords, on 26 September 1984 the appellants chartered the vessel Boucraa to carry a cargo of sulphur which was discharged
at its destination on 24 November 1984. On 5 August 1985 the respondent owners of the vessel began arbitration proceedings under the charter
agreement claiming damages for corrosion to the vessel alleged to have been caused by the cargo. The Courts and Legal Services Act 1990 was enacted
on 1 November 1990. Section 102 made an amendment to the Arbitration Act 1950 and the amendment came into force on 1 January 1992. The
amendment inserted the following section in the 1950 Act and, so far as material, provides as follows:
‘13A.—(1) Unless a contrary intention is expressed in the arbitration agreement, the arbitrator or umpire shall have power to make an award
dismissing any claim in a dispute referred to him if it appears to him that the conditions mentioned in subsection (2) are satisfied.
(2) The conditions are—(a) that there has been an inordinate and inexcusable delay on the part of the claimant in pursuing the claim; and (b)
that the delay—(i) will give rise to a substantial risk that it is not possible to have a fair resolution of the issues in that claim; or (ii) has caused, or is
Preamble
likely to cause or to have caused, serious prejudice to the respondent …’
On 13 January 1992 the charterers applied to the arbitrator under s 13A of the 1950 Act. On 13 August 1992 the arbitrator dismissed the owners’
claim for damages in the arbitration for want of prosecution. The owners concede that the arbitrator had jurisdiction to make the order. The owners
submit that the 22 arbitrator made an error of law: he took into account delay between 5 August 1985 when the owners began the arbitration
proceedings and 1 January 1992 when s 13A came into force; he should have confined himself to deciding whether the delay between 1 January 1992,
when s 13A came into force, and 13 January 1992, when the charterers applied for the claim to be dismissed, was ‘inordinate and inexcusable’. If he had
asked himself that question he would have been bound to allow this stale claim to proceed.
The provisions of s 13A admittedly afford no support for the owners’ submissions. The owners rely on the presumption against attributing to
Parliament an intention that a statute shall have retrospective effect. My Lords, the owners never had a right to render impossible the fair resolution of the
arbitration issues or a right to cause serious prejudice by inordinate and inexcusable delay. The 1990 Act could not, therefore, retrospectively deprive the
owners of any such right. Before 1 January 1992 the charterer had no remedy if the owners rendered a fair resolution of the issues impossible or caused
serious prejudice by inordinate and inexcusable delay; after 1 January 1992 the charterers possessed the remedy afforded by s 13A and that remedy has
been granted to them.
For these reasons and for the reasons given by my noble and learned friend Lord Mustill I would allow this appeal.
LORD GOFF OF CHIEVELEY. My Lords, for the reasons given in the speech to be delivered by my noble and learned friend Lord Mustill, which I
have had the opportunity of reading in draft and with which I agree, I would allow this appeal.
Lord Mustill. For the reasons he gives I, too, would allow this appeal.
LORD BROWNE-WILKINSON. My Lords, for the reasons given in the speech to be delivered by my noble and learned friend Lord Mustill I, too,
would allow this appeal.
LORD MUSTILL. My Lords, on 26 September 1984 Yamashita-Shinnihon Steamship Co Ltd chartered from L’Office Cherifien des Phosphates and
Unitramp SA (it makes no difference which) the vessel Boucraa to carry a cargo of sulphur from Vancouver to Aqaba. I will call the parties ‘the
shipowners’ and ‘the charterers’ respectively. The vessel loaded very soon afterwards and on completion of the voyage towards the end of November
1984 discharged the cargo at Aqaba. Within two days the shipowners complained that the vessel’s cargo holds had been damaged due to excess moisture
caused by watering of the cargo whilst it was shipped at Vancouver. If such excess was indeed present there was a risk that the vessel would suffer severe
corrosion. This complaint was followed up by a letter from the shipowners’ solicitors on 17 July 1985, and within three weeks the parties had agreed to
appoint Mr M J Baker-Harber as the sole arbitrator, pursuant to a clause in the charterparty which provided that disputes thereunder should be arbitrated
in London. Points of claim were delivered promptly, and points of defence were forthcoming on 28 February 1986, together with a request for further and
better particulars of the points of claim. The shipowners responded with their own request for particulars, and, some months later, points of reply. This
was good going, and there was no 23 reason why the dispute should not have come to a hearing in proper time. Sadly, apart from some desultory
correspondence about security in the course of which the charterers first of all put their solicitors in funds for such security and then having heard nothing
took the moneys back, nothing happened until April 1991, when the shipowners’ new solicitors wrote to the arbitrator proposing a preliminary issue on
the meaning of a clause in the charterparty.
So far, the story would have caused regret but not undue surprise to anyone practising arbitration during the concluding decades of the twentieth
century. What would, however, have caused great remark was that on 13 January 1992 the charterers applied to the arbitrator to dismiss the shipowners’
claim for want of prosecution. Such an application, if made during the 1970s or 1980s, would have been rejected out of hand, yet it happened that in
August of the same year the arbitrator by an interim award, under powers recently conferred by the new s 13A of the Arbitration Act 1950, which had
been introduced into the existing legislation by s 102 of the Courts and Legal Services Act 1990, dismissed the shipowners’ claim. The grounds stated in
the award were that the shipowners had been guilty of inordinate and inexcusable delay in advancing the arbitration which had created a real risk of an
unfair resolution of the dispute. If these had been proceedings in the High Court the decision of the arbitrator would I believe have been unassailable.
The important question has, however, been raised by the shipowners whether the arbitrator was entitled to take into account any part of the delay which
preceded the coming into force of the new powers, for if he was not it was plain that the award could not be sustained. Leave to appeal to the High Court
was properly granted, and the appeal was heard in the Commercial Court by Saville J. The judge concluded that the antecedent delay should not have
been taken into account and varied the award so as to reject the application to dismiss the claim. Against this decision the charterers appealed. In the
Court of Appeal Sir Thomas Bingham MR and Kennedy LJ agreed with Saville J, whilst Beldam LJ was of the opposite view (see [1993] 3 All ER 686,
[1993] 3 WLR 266). The charterers now appeal to your Lordships’ House.
This difference of opinion, expressed as it is in the arbitrator’s reasons and four judgments, all of great weight and clarity, show that the point is
finely balanced. Two very able arguments from counsel have further illuminated the question without making it any more easy to answer. In the end,
however, I have concluded that the issue may be decided without recourse to any great weight of doctrine and that the arbitrator was right to treat it as
essentially a matter of impression. I also agree with him that the statute did enable him to take into account delays occurring before it came into force.
To explain my reasons, I must first set out the legislative history of the new powers.
Those practising law in England are well aware of the jurisdiction to dismiss stale actions for want of prosecution created by the courts during the
past 25 years. As the present case illustrates, however, many participants in English arbitration come from abroad. To such persons the concept may be
wholly unfamiliar, and the idea that it might be applied in the field of arbitration may seem on first acquaintance very strange. For this reason, and not
only because the High Court practice forms an indispensable background to the practice of the new legislation, it is necessary to sketch the history of this
jurisdiction.
For present purposes we may begin with the year 1968. Until then it had been taken for granted that the remedy for dilatory progress in legal
proceedings lay in the rules of court which enabled a defendant offended by slow progress to 24 apply for a peremptory order requiring the plaintiff to
set affairs in motion or suffer the consequences. It was also a convention amongst practitioners that such an order would not be sought unless notice of
what the defendant had in mind was first given to the plaintiff’s advisers. Exponents of this mild regime were given an unwelcome surprise by Allen v Sir
Alfred McAlpine & Sons Ltd, Bostic v Bermondsey and Southwark Group Hospital Management Committee, Sternberg v Hammond [1968] 1 All ER 543,
[1968] 2 QB 229, where an entirely new set of principles, derived not from the rules of court but from judicial law-making, were brought into existence.
It was no longer a sufficient answer for the plaintiff to say that since the defendant had not complained he could have had nothing to complain about.
Instead, the logic of the adversarial system created a doctrine which left it to the party whose turn it was to make the next move to make that move. It was
not the task of his opponent to summon him to action. The defendant could simply remain silent. Then, if through prolonged inactivity on the part of the
Preamble
plaintiff a stage was reached where the delay had made a fair trial impossible, the defendant could invoke the inherent jurisdiction of the court to prevent
abuse of the legal process, and thereby bring the action to an end without being met by the answer that he was just as much to blame as the plaintiff.
The law thus devised was the subject of a number of inconsistent decisions in the Court of Appeal, and Birkett v James [1977] 2 All ER 801, [1978]
AC 297 was carried to your Lordships’ House to resolve the conflicts. It is unnecessary to enter into the details of this important decision. For present
purposes it is sufficient to recall that one of the principal issues was whether it was permissible to dismiss an action at a time when the statutory period of
limitation had not yet expired. The House held that it was not, absent exceptional circumstances. An order for dismissal did not amount to the rejection
of the claim on the merits, but merely disposed of the pending suit; the plaintiff was therefore free to start a new action to replace the one which had been
dismissed; and this made it pointless to dismiss the existing action. At the same time the House made it clear that whilst a plaintiff could not be regarded
as acting wrongfully in allowing most of the time for starting proceedings (usually six years) to pass without forwarding his claim, once he has set his
action on foot a late start made it necessary for him to proceed with all due speed. A delay which might have been acceptable if the writ had been issued
promptly could be seen as inordinate in the context of the time which had already elapsed.
The past quarter of a century has amply shown the benefits of this new jurisdiction. Many actions still take far too long to come to trial, but dilatory
lawyers acting for plaintiffs now live under the threat that their clients’ actions will be dismissed for want of prosecution and that they will be held to
blame. Nevertheless, it is undeniable that this judge-made law has left behind it a legacy of theoretical and practical difficulties yet to be resolved. Some
of these are currently before the House in Roebuck v Mungovin.
It was not long before litigating lawyers began to reflect on whether the powers thus ascribed to the judge at common law might also be possessed by
an arbitrator. For a while the notion was current in arbitration circles that since an arbitrator is appointed to decide the substantive dispute between the
parties in a manner which is procedurally just, his mandate extends to deciding in the same manner as the judge whether the conduct of the claimant has
made it impossible for justice to be done once the hearing of the arbitration is eventually 25 reached; and, if he concludes that it cannot, to make an
order kindred to the dismissal of a suit for want of prosecution. However, in Crawford v A E A Prowting Ltd [1972] 1 All ER 1199, [1973] QB 1 the
court took the view that an arbitrator is appointed to decide disputes, not to refuse to decide them. This proposition was questioned in a few subsequent
cases but was decisively upheld by the Court of Appeal and the House of Lords in Bremer Vulkan Schiffbau Und Maschinenfabrik v South India Shipping
Corp [1980] 1 All ER 420, [1981] 1 All ER 289, [1981] AC 909 and cannot now be doubted.
After Crawford v A E A Prowting Ltd those concerned with the practice of arbitration cast around for other means of bringing stale arbitrations to an
end and brought to light four possibilities.
(1) The first was that even if the arbitrator was powerless to dismiss a claim for want of prosecution the court did possess such a power, by virtue of
an inherent jurisdiction to supervise the conduct of arbitrators. As in many other legal systems the court does, of course, have certain limited powers to
make a reference to arbitration more effective by interim measures of protection and the like, but these are mainly statutory in origin, and the absence of
any general and inherent power to control the conduct of a pending reference was treated as so obvious that no attempt was made to assert it in modern
times until Exormisis Shipping SA v Oonsoo [1975] 1 Lloyd’s Rep 432, where a party unsuccessfully sought to persuade the court to substitute its own
discretion for that of the arbitrator regarding an adjournment of the proceedings in the arbitration. The traditional approach was however very firmly
re-established by the majority in the House of Lords and is now beyond doubt. Indeed, the criticism which has been directed to some aspects of the
Bremer Vulkan case should not distract attention from the fundamental importance of the case in proclaiming the first principle that the court has no
inherent general power to intervene in the conduct of a reference to arbitration.
(2) The second approach relied upon the express general power to grant injunctions conferred by s 45 of the Supreme Court of Judicature
(Consolidation) Act 1925. This attempt to secure a free-standing injunction was however frustrated by the absence of any independent legal right on
which it could be founded: see Siskina (cargo owners) v Distos Cia Naviera SA, The Siskina [1977] 3 All ER 803, [1979] AC 210 and the Bremer Vulkan
case [1981] 1 All ER 289 at 296, [1981] AC 909 at 979.
(3) Next, it was suggested that the right of each party to ask the arbitrator to proceed to an award is in the nature of a power, which will lapse unless
exercised within a reasonable time. This invocation of a lapsing power has however been rejected as inconsistent with the decision in the Bremer Vulkan
case: see eg Excomm Ltd v Guan Guan Shipping (Pte) Ltd, The Golden Bear [1987] 1 Lloyd’s Rep 330.
(4) The final possibility employed a contractual analysis, suggesting that an inordinate and inexcusable delay might bring the contract to arbitrate to
an end, by frustration, wrongful repudiation, or mutual abandonment. However, the possibility that prolonged delay by a claimant was an external
supervening event capable of yielding a frustration was laid to rest in Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal, The Hannah
Blumenthal [1983] 1 All ER 34, [1983] 1 AC 854. The concept of a consensual abandonment is sound in theory (ibid) but largely useless in practice,
given the difficulty of extracting a consensual termination of the agreement to arbitrate from a situation in which, ex hypothesi, neither party has done
anything. The possibility that by delaying 26 the arbitration to such an extent that a just resolution of the dispute was no longer possible the claimant
had repudiated the arbitration agreement and thus entitled the respondent to bring it to an end appeared at first sight to be much more promising, but was
extinguished by the majority of the House of Lords in the Bremer Vulkan case. In that case the majority expressly rejected the concept that either party is
obliged to do anything in furtherance of the arbitration beyond what is ordered by the arbitrator, and went on to hold that the mutual obligation on both
parties to progress the dispute extends no further than to co-operate in requiring the arbitrator to order procedural steps to be taken if the reference has
come to a standstill: see The Hannah Blumenthal [1983] 1 All ER 34 at 45, [1983] 1 AC 854 at 911 per Lord Brandon. I will suggest the relevance of this
distinction to the present appeal at a later stage.
My Lords, the effect of the decision of the House in the Bremer Vulkan case, coupled with the inability of the courts to furnish any alternative
remedy which might provide a remedy for the abuse of stale claims, aroused a chorus of disapproval, which was forceful, sustained and (so far as I am
aware) virtually unanimous. There is no need to elaborate. The criticisms came from every quarter. Several Commonwealth countries hastily introduced
legislation conferring on the court, or on the arbitrator, a jurisdiction to dismiss stale claims in arbitration. The history of the matter, and the reasons why
the question was not as easy as it might have appeared, were summarised in an article by Sir Thomas Bingham ‘The problem of delay in arbitration’
(1989) 5 Arb Int 333, and there is no need to rehearse them here. Taking account of these difficulties the departmental advisory committee on arbitration
hesitated for a time both as to the principle and as to whether the power to dismiss should be vested in the court or the arbitrator, but the pressure from all
quarters became irresistible and in 1990 the Courts and Legal Services Act inserted, through the medium of s 102, a new s 13A in the Arbitration Act
1950. This provided:
‘(1) Unless a contrary intention is expressed in the arbitration agreement, the arbitrator or umpire shall have power to make an award dismissing
any claim in a dispute referred to him if it appears to him that the conditions mentioned in subsection (2) are satisfied.
(2) The conditions are—(a) that there has been inordinate and inexcusable delay on the part of the claimant in pursuing the claim; and (b) that
the delay—(i) will give rise to a substantial risk that it is not possible to have a fair resolution of the issues in that claim; or (ii) has caused, or is
likely to cause or to have caused, serious prejudice to the respondent.
(3) For the purpose of keeping the provision made by this section and the corresponding provision which applies in relation to proceedings in
the High Court in step, the Secretary of State may by order made by statutory instrument amend subsection (2) above.
(4) Before making any such order the Secretary of State shall consult the Lord Chancellor and such other persons as he considers appropriate.
Preamble
(5) No such order shall be made unless a draft of the order has been laid before, and approved by resolution of, each House of Parliament.’
An important feature of the new regime was that it did not take effect immediately on the passing of the statute which brought it into existence (ie on
1 November 1990), as did some other provisions of the 1990 Act, but was appointed by s 124(3) to come into force at a date to be set by ministerial order.
Either by oversight, or because the position was thought to be obvious, the 27 statute did not include any relevant transitional provision. In the event
it was not until 1 January 1992 that, by virtue of the Courts and Legal Services Act 1990 (Commencement No 7) Order 1991, SI 1991/2730, the
arbitrators were vested with the new powers. There was thus an interval of 14 months, which I will call ‘the interregnum’, during which anyone who
cared to consider the matter could see that powers to dismiss stale claims were imminent, albeit they were not yet in existence.
Returning to the present case, within a very few days after the new procedure came into force the charterers applied to the arbitrator for an order
dismissing the claim under s 13A. The parties and the arbitrator very sensibly agreed that he should in the first place rule on whether he was entitled,
when considering the issue of ‘inordinate and inexcusable delay’, to take into account any lapse of time before 1 January 1992. The arbitrator with
commendable despatch heard argument and reached a conclusion on this issue, and made an award declaring that such a lapse would indeed be taken into
account. He then proceeded to hear evidence on the question whether the delay was inordinate and inexcusable, and on whether it had the adverse
consequences stipulated by s 13A. On these issues he decided in favour of the charterers and made an award dismissing the claim. Given his premise as
to the meaning of s 13A, it seems to me quite clear that the decision of the arbitrator on the facts was unassailable. The issue which has given rise to these
successive appeals is whether the premise was right.
My Lords, I must begin with an argument which, in the opinion of the arbitrator, provided a short answer to the problem.
‘As I see it, as from January 1992, I am bound to read the Arbitration Act 1950 as if Section 13a was incorporated into it. That, as it seems to
me, is the clearest possible indication that the legislation has retrospective effect. It requires a tribunal, from January 1992, to proceed on the basis
that the power has been there since 1950. The position is so clear that I do not need to analyse the numerous cases cited in the submissions.’
This approach has an attractive simplicity but I cannot accept it. The legislative technique of adding a new section or sections to an existing statute
is now more common than in the past. As I understand it, the purpose is to make complex legislation more manageable, so that instead of having to
assemble the original statute and all the amending Acts and then piece them together the reader need do more than obtain a copy of the Act as amended.
It does not at all follow that all parts of the composite Act are to be treated as having come in force simultaneously with the original Act, and it is
common to find that the amendment is expressed, either in the new section itself or in a transitional provision of the amending legislation, to take effect
only in the future. Furthermore, if the addition of s 13A were fully retrospective in the sense proposed by the arbitrator, it would follow that there had
been since 1950 a power to dismiss an arbitral claim for want of prosecution although no such power was recognised to exist in the High Court until 18
years later; and it would also follow that if in for example 1986 an arbitrator in ignorance of Crawford v A E A Prowting Ltd and the Bremer Vulkan case
had made an award purporting to dismiss the claim for want of prosecution the award would have been wholly ineffective, yet (if the effect of the 1990
Act was to write back the s 13A powers to the year 1950) the parties would find that the arbitrator was retrospectively vested with the powers which he
had wrongly asserted, with the 28 consequence that the arbitration would be deemed with effect from 1 January 1992 to have been brought to an end
in 1986.
My Lords, it is I believe plain that Parliament cannot have contemplated such a strange result. The real contest on the present appeal was not
whether s 13A was retrospective in the ordinary sense, but whether a provision which was undeniably prospective in the conferring of powers enabled
those powers to be exercised by reference to acts or omissions which had taken place before the new section came into force. All the judges who have so
far considered this matter have approached it in the light of a presumption expressed in the following manner by leading works of reference helpfully
cited by Sir Thomas Bingham MR ([1993] 3 All ER 686 at 692, [1993] 3 WLR 266 at 273):
‘Upon the presumption that the legislature does not intend what is unjust rests the leaning against giving certain statutes a retrospective
operation. They are construed as operating only in cases or on facts which come into existence after the statutes were passed unless a retrospective
effect is clearly intended. It is a fundamental rule of English law that no statute shall be construed to have a retrospective operation unless such a
construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication.’ (See Maxwell The Interpretation of
Statutes (12th edn, 1969) p 215.)
‘[A statute is retrospective] which takes away or impairs any vested right acquired under existing laws, or creates a new obligation, or imposes a
new duty, or attaches a new disability in respect to transactions or considerations already past.’ (See Craies on Statute Law (7th edn, 1971) p 387.)
These passages, or principles closely akin to those which they embody, have in modern times received high judicial indorsement: for example in Yew
Bon Tew v Kenderaan Bas Mara [1982] 3 All ER 833 at 836, [1983] 1 AC 553 at 558 and Arnold v Central Electricity Generating Board [1987] 3 All ER
694 at 703–704, [1988] AC 228 at 275 per Lord Bridge of Harwich.
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 29 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.
My Lords, my purpose in stressing this point is not to suggest that the courts below approached the question in a mechanistic way. Their careful
judgments show that this was not the case. It is simply to explain why I do not find it necessary to cite and analyse the numerous authorities on
retrospective effect, but prefer to proceed directly to the ascertainment of the intention which Parliament intended s 13A to achieve, by a reference to the
following statement by Staughton LJ in Secretary of State for Social Security v Tunnicliffe [1991] 2 All ER 712 at 724 (quoted by Sir Thomas Bingham
MR in the present case ([1993] 3 All ER 686 at 693, [1993] 3 WLR 266 at 274):
Preamble
‘In my judgment the true principle is that Parliament is presumed not to have intended to alter the law applicable to past events and transactions
in a manner which is unfair to those concerned in them, unless a contrary intention appears. It is not simply a question of classifying an enactment
as retrospective or not retrospective. Rather it may well be a matter of degree—the greater the unfairness, the more it is to be expected that
Parliament will make it clear if that is intended.’
Precisely how the single question of fairness will be answered in respect of a particular statute will depend on the interaction of several factors, each
of them capable of varying from case to case. Thus, the degree to which the statute has retrospective effect is not a constant. Nor is the value of the
rights which the statute affects, or the extent to which that value is diminished or extinguished by the retrospective effect of the statute. Again, the
unfairness of adversely affecting the rights, and hence the degree of unlikelihood that this is what Parliament intended, will vary from case to case. So
also will the clarity of the language used by Parliament, and the light shed on it by consideration of the circumstances in which the legislation was
enacted. All these factors must be weighed together to provide a direct answer to the question whether the consequences of reading the statute with the
suggested degree of retrospectivity is so unfair that the words used by Parliament cannot have been intended to mean what they might appear to say.
My Lords, whilst the approach which I propose involves a single indivisible question, to be answered largely as a matter of impression, it is
convenient for the moment to look separately at the various factors. I begin therefore by considering to what degree the statute is retrospective if it bears
the meaning for which the shipowners contend. That it has this character to some extent is not in question, since the parties agree that the new powers
apply to agreements made before 18 January 1992. Thus, whilst parties who agreed in 1986 to arbitrate their disputes in London could at the time have
been confident that they could never be penalised by slow progress, this tacit immunity was deleted from the agreement on 1 January 1992; and what is
more the deletion will have an effect, not only by giving a new character to delays after that date, but also (by analogy with the law developed in the High
Court) by attaching significance to delays already past; for even if, as the shipowners contend, the earlier delays are not directly penalised, they create a
situation in which the claimant is required to proceed with particular dispatch at a later stage. So much the shipowners concede, to my mind rightly; for
Parliament cannot have intended that this important law reform should lie completely dormant until sufficient 30 time had passed for arbitration
agreements to be made, disputes to arise, references made to arbitration, and long periods of delay to elapse. On any view therefore, s 13A occupies an
intermediate position, being neither fully prospective nor fully retrospective. The only question is whether the retrospective effect is as limited as the
shipowners are prepared to concede.
My Lords, the problem of a statute which creates powers exercisable in the future by reference to a continuous period of time antecedent to their
exercise, and which comes into force whilst that period is running is not new: as witness the discussion in Bennion Statutory Interpretation (1984) s 192,
pp 448–450; (2nd edn, 1992) s 99, pp 220–221. The cases show that the presumption against retrospectivity does not necessarily entail that the period
antecedent to the statute should be left out of account. R v Inhabitants of St Mary, Whitechapel (1848) 12 QB 120, 116 ER 811 provides an example. A
pauper widow had been resident with her husband in the parish of St Mary until her husband’s death on 6 June 1846. On the poor laws as they then stood
the widow was immediately removable to the parish of St Mary Magdalen, the place of her legal settlement. She was not however removed until 3
September 1846, by which time the Poor Removal Act 1846 had come into effect on 11 August, whereby no woman residing in a parish at the time of the
death could be removed from that parish for 12 months from the death. In answer to an objection by the churchwardens and overseers of St Mary
Magdalen that the widow was by statute irremovable on 3 September, it was argued for the removing parish that the right of removal was akin to a vested
right of action which should not be taken away retrospectively. The Court of Queen’s Bench rejected this argument in a judgment delivered by Lord
Denman CJ (12 QB 120 at 127, 116 ER 811 at 814):
‘It was said that the operation of the statute was confined to persons who had become widows after the Act passed, and that the presumption
against a retrospective statute being intended supported this construction: but we have before shewn that the statute is in its direct operation
prospective, as it relates to future removals only, and that it is not properly called a retrospective statute because a part of the requisites for its action
is drawn from time antecedent to its passing.’
The decision in this case is not directly in point here. The question in issue was whether the statute applied at all to those already widowed, whereas it is
accepted here that parties to arbitration agreements made, and references commenced, before 1 January 1992 are capable of being affected by an order
under s 13A. Nevertheless the passage quoted is germane, because it reveals an assumption that a person newly qualifying for relief may have that relief
assessed in terms of events occurring before the relief became available. Moreover, the group of cases arising under s 1 of the 1846 Act, decided by the
Court of Queen’s Bench in 1848 and reported in the same volume as R v Inhabitants of St Mary, Whitechapel, show that for the purpose of computing the
period of five years’ residence which made a pauper irremovable, time elapsing before as well as after the passage of the Act would be taken into account:
see especially R v Inhabitants of Harrow on the Hill (1848) 12 QB 103, 116 ER 805. Other examples of cases where ‘a part of the requisites for [the
action of a statute] is drawn from time antecedent to its passing’ are collected in Bennion Statutory Interpretation (1984) s 192; (2nd edn, 1992) s 99 and
44 Halsbury’s Laws (4th edn) para 921.
31
These cases do not point directly to a conclusion, but they do demonstrate that where an intermediate type of retrospectivity is in issue the purpose of
the legislation and the hardship of the result contended for are of particular importance. I therefore turn to consider next the nature of the claimant’s
rights on which the retrospective legislation will impinge. As I see the matter there are three such rights. The first, existing only if the claim is well
founded in fact and law, is the right to be compensated by the respondent for the breach of contract or other wrong of which the claimant complains. The
second is the contractual right to submit the claim to arbitration, and to call upon the arbitrator to make an award which, if favourable, will enable the
claimant to enforce his right to compensation. The third right (or perhaps more accurately ‘liberty’) is to press for an award notwithstanding a long period
of inactivity, provided that the claimant has not thereby been in breach of any order by the arbitrator. None of these rights will be directly taken away if
the section is given the limited retrospective effect now in issue, but the curtailment of the third will leave its mark on the second, and thence on the first.
Plainly, the value of the right to be compensated is diminished by the legislation if the ability to enforce it is impaired.
My Lords, at this point a strictly orthodox approach to the problem of retrospection would call up a line of authority, reaching back beyond Wright v
Hale (1860) 30 LJ Ex 40 and comprising amongst others Republic of Costa Rica v Erlanger (1876) 3 Ch D 62 at 69, Gardner v Lucas (1878) 3 App Cas
582 at 603, Re Athlumney, ex p Wilson [1898] 2 QB 547 at 551–552, [1895–9] All ER Rep 329 at 331–332, Colonial Sugar Refining Co Ltd v Irving
[1905] AC 369 and A-G v Vernazza [1960] 3 All ER 97, [1960] AC 965, which applies different rules for ascertaining the retrospective effect of statutes
by reference to a distinction between accrued substantive and procedural rights. This distinction is so firmly embedded in the law as to lead easily to an
assumption that every right can be characterised uniquely as either substantive or procedural, and that the assignment of a particular right to one category
rather than the other will automatically yield an answer to the question whether a particular statute can bear upon it retrospectively. If this assumption
were correct, it would call up an elaborate discussion, in the light of numerous reported cases, of whether the rights potentially affected by s 13A are
properly regarded as substantive or procedural. My Lords, I believe that such a discussion would be unprofitable, partly because the distinction just
Preamble
mentioned is misleading, since it leaves out of the account the fact that some procedural rights are more valuable than some substantive rights, and partly
because I doubt whether it is possible to assign rights such as the present unequivocally to one category rather than another. Thus, whilst keeping the
distinction well in view, I prefer to look to the practical value and nature of the rights presently involved as a step towards an assessment of the unfairness
of taking them away after the event.
Dealing first with the value of the rights, we are concerned here not with the merits of the particular case, but with the generality of rights which
Parliament must have contemplated would suffer if the section took effect retrospectively. So understood it seems to me that such rights are in principle
and in practice of value, although the worth in terms of money will of course depend on the merits of the underlying dispute. I pass next to the nature of
these rights. Ex hypothesi the situation contemplated by Parliament is that in their exercise the claimant has already been guilty of inordinate and
inexcusable delay. Here I must pause for a moment over the word ‘inexcusable’. The owners say that since under the Bremer Vulkan doctrine (see
Bremer Vulkan Schiffbau Und 32 Maschinenfabrik v South India Shipping Corp [1981] 1 All ER 289, [1981] AC 909) inactivity by the claimant
attracts no sanction it needs no excuse, particularly vis-à-vis respondents who are equally to blame for failing to co-operate in applying to the arbitrator
for an order setting the arbitration in motion. I cannot accept this submission. Quite apart from the known antecedents of s 13A, sub-s (3) thereof
demonstrates in the clearest way an intention to create for arbitrators a regime which reflects that which prevails in the High Court. This regime knows
nothing of mutual obligations to apply to the court for orders that the plaintiff shall proceed. The onus is firmly on the plaintiff to make things happen
without the need for an order and without the need for prompting by the defendant. If this were not enough, the language of sub-s (2) shows that the
concept of each party being equally to blame for delay has no part in the new regime. I set out the words again: ‘there has been an inordinate and
inexcusable delay on the part of the claimant in pursuing the claim …’ The claimant is to pursue the claim and needs an excuse if he does not do so. This
is nothing to do with Bremer Vulkan. Freed from the shackles of that doctrine the arbitrator is to be at liberty to consider whether, in terms of
practicalities rather than theories, the delay was the claimant’s fault. If the claimant puts up excuses, and the arbitrator rejects them, the delay must be
inexcusable within the intendment of Parliament.
Finally, s 13A contemplates a situation in which the claimant has been so remiss in exercising his right to call for an award that the award when
ultimately rendered may be the outcome of an unfair process. A right which the claimant regards so poorly that he has taken no trouble to enforce it is far
removed from those which the courts have been so alert to protect; and in my view the presumption that Parliament did not intend to affect it is
correspondingly weak.
In this light I turn to the language of s 13A construed, in case of doubt, by reference to its legislative background. The crucial words are: ‘(a) …
there has been inordinate and inexcusable delay …’ Even if read in isolation these words would I believe be sufficient, in the context of s 13A as a
whole, to demonstrate that the delay encompasses all the delay which has caused the substantial risk of unfairness. If there were any doubt about this the
loud and prolonged chorus of complaints about the disconformity between practices in arbitration and in the High Court, and the increasing impatience for
something to be done about it, show quite clearly that s 13A was intended to bite in full from the outset. If the position were otherwise it would follow
that, although Parliament has accepted the advice of all those who had urged that this objectionable system should be brought to an end, and has grasped
the nettle and provided a remedy, it has reconciled itself to the continuation of arbitral proceedings already irrevocably stamped with a risk of injustice. I
find it impossible to accept that Parliament can have intended any such thing, and with due respect to those who have suggested otherwise I find the
meaning of s 13A sufficiently clear to persuade me that in the interests of reform Parliament was willing to tolerate the very qualified kind of hardship
implied in giving the legislation a partially retrospective effect. Accordingly I agree with Beldam LJ that the arbitrator did have the powers to which he
purported to exercise. I would therefore allow the appeal and restore the award of the arbitrator.
Appeal allowed.
33
[1994] 1 All ER 34
Practice Note
(Commercial court: Alternative dispute resolution)
PRACTICE DIRECTIONS
QUEEN’S BENCH DIVISION (COMMERCIAL COURT)

CRESSWELL J
10 DECEMBER 1993
Commercial Court – Practice – Alternative dispute resolution – Role of Commercial Court – Encouragement of alternative dispute resolution –
Circumstances where alternative dispute resolution may be appropriate – Court clerk to keep list of individuals and bodies offering mediation,
conciliation and other alternative dispute resolution services – Legal advisers to ensure that parties fully informed of most cost effective means of
resolving particular dispute.
CRESSWELL J made the following statement at the sitting of the court. While emphasising the primary role of the Commercial Court as a forum for
deciding commercial cases the judges of the court wish to encourage parties to consider the use of alternative dispute resolution (ADR), such as mediation
and conciliation, as a possible additional means of resolving particular issues or disputes. The judges will not act as mediators or be involved in any ADR
process but will in appropriate cases invite parties to consider whether their case, or certain issues in their case, could be resolved by means of ADR. By
way of example only, ADR might be tried where the costs of litigation are likely to be wholly disproportionate to the amount at stake.
The Clerk to the Commercial Court will keep a list of individuals and bodies that offer mediation, conciliation and other ADR services. It would be
Preamble
inappropriate for the Commercial Court to recommend any individual or organisation for this purpose. The list will also include individuals and bodies
that offer arbitration services.
This practice statement will be drawn to the attention of all persons commencing proceedings in the Commercial List.
Appendix IV (information for the summons for directions) and App VI (pre-trial check list) to the Guide to Commercial Court Practice (see The
Supreme Court Practice 1993 vol 1, paras 72/A1–72/A31) will be amended to include additional questions to ensure that legal advisers in all cases
consider with their clients and other parties concerned the possibility of attempting to resolve the particular dispute or particular issues by mediation,
conciliation or otherwise.
While the Commercial Court will remain the appropriate forum for deciding most disputes in its list, legal advisers should ensure that parties are
fully informed as to the most cost effective means of resolving the particular dispute.
K Mydeen Esq Barrister.
34
[1994] 1 All ER 35
Cheese v Thomas
EQUITY
COURT OF APPEAL, CIVIL DIVISION

SIR DONALD NICHOLLS V-C, BUTLER-SLOSS AND PETER GIBSON LJJ
19, 20, 30 JULY 1993
Equity – Undue influence – Appropriate relief – Transaction held to be manifestly disadvantageous to plaintiff – Parties unable to be restored to original
positions – Elderly man and great-nephew – Both contributing to purchase price of house in which both to have interest – Plaintiff entitled to live in
house for rest of his life – House thereafter belonging to defendant – Transaction manifestly unfair to plaintiff – Transaction set aside – Restitution of
parties to original positions – Sale of house – House sold at loss – Whether distribution of proceeds of sale should be in same proportion as contributions
to purchase price.
In 1990 the plaintiff, who was born in 1904, and the defendant, who was the plaintiff’s great-nephew, agreed to buy a house for £83,000 for the purpose
of providing accommodation for the plaintiff for the remainder of his life. The plaintiff contributed £43,000 towards the purchase price and the defendant
contributed £40,000 by means of a building society mortgage. The house was purchased in the defendant’s sole name and it was agreed that the plaintiff
would live there until his death and it would thereafter belong to the defendant. The defendant failed to keep up the mortgage payments and the plaintiff,
who felt that his security was threatened, sought repayment of the £43,000 and brought proceedings against the defendant claiming, inter alia, that the
transaction should be set aside on the ground of undue influence. The judge held that the transaction was manifestly disadvantageous to the plaintiff and
ordered that the house be sold and the proceeds of sale divided between the plaintiff and the defendant in the same proportions as they had contributed to
the purchase price (ie 43:40) before the building society mortgage was repaid. The house was sold for £55,000, a loss of over £27,000 on the purchase
price. The plaintiff appealed from the judge’s order, contending that he was entitled to have restored to him the benefits he had passed to the defendant
under the impugned transaction regardless of the fall in value of the property, ie repayment of a sum equal to his contribution. The defendant
cross-appealed from the finding that the transaction was manifestly disadvantageous to the plaintiff.
Held – (1) When it ordered restitution the basic objective of the court was to restore the parties, as closely as possible, to their original positions,
consequent upon cancelling a transaction which the law would not permit to stand. Relief would be granted even if the parties could not be restored to
their precise original positions since the court would look at all the circumstances and do what was fair and just in practical terms. Since the transaction
between the plaintiff and the defendant had involved both parties making a financial contribution to the purchase of a house from which both were
intended to benefit, it was axiomatic that when the transaction was reversed practical justice should be achieved for both parties and not for the plaintiff
alone. Justice required that each party should be returned as near to his original position as was possible and that the defendant should not be required to
shoulder the whole of the loss brought about by the fall in the market value. Accordingly, 35 each party should get back a proportionate share of the
net proceeds of the house and the judge had correctly decided that the proceeds of sale should be divided between the parties in the proportions of 43:40.
The plaintiff’s appeal would therefore be dismissed (see p 40 d e, p 41 b to d, p 42 a b and p 43 d e h j, post); dictum of Lord Blackburn in Erlanger v
New Sombrero Phosphate Co [1874–80] All ER Rep 271 at 286 applied; dictum of Lord Scarman in National Westminster Bank plc v Morgan [1985] 1
All ER 821 at 831 considered.
(2) The transaction was clearly disadvantageous to the plaintiff as he had used all his money to purchase the right to live in a house for the remainder
of his life and that right was insecure and tied him to a particular house. The cross-appeal would therefore be dismissed (see p 39 b and p 43 h j, post).
Notes For undue influence, see 18 Halsbury’s Laws (4th edn) para 330–342, and for cases on the subject, see 25 Digest (Reissue) 178–190, 1430–1556.
Cases referred to in judgments
Bank of Credit and Commerce International SA v Aboody [1992] 4 All ER 955, [1990] 1 QB 923, [1989] 2 WLR 759, CA.
Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218, [1874–80] All ER Rep 271, HL.
National Westminster Bank plc v Morgan [1985] 1 All ER 821, [1985] AC 686, [1985] 2 WLR 588, HL.
Newbigging v Adam (1886) 34 Ch D 582, [1886–90] All ER Rep 975, CA; on appeal (1888) 13 App Cas 308, [1886–90] All ER Rep 986, HL.
O’Sullivan v Management Agency and Music Ltd [1985] 3 All ER 351, [1985] QB 428, [1984] 3 WLR 448, CA.
Spence v Crawford [1939] 3 All ER 271, HL.
Cases also cited or referred to in skeleton arguments
Preamble
Alati v Kruger (1955) 94 CLR 216, Aust HC.

Allcard v Skinner (1887) 36 Ch D 145, [1886–90] All ER Rep 90, CA.
Armstrong v Jackson [1917] 2 KB 822, [1916–17] All ER Rep 1117.
Balfour v Hollandia Ravensthorpe NL (1977) 18 SASR 240, S Aust SC, Full Ct.
Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd [1979] 3 All ER 522, [1980] QB 677.
Baylis v Bishop of London [1913] 1 Ch 127, [1911–13] All ER Rep 273, CA.
Brown v Smitt (1924) 34 CLR 160, Aust HC.
Diplock’s Estate, Re, Diplock v Wintle [1948] 2 All ER 318, [1948] Ch 465, CA; affd sub nom Ministry of Health v Simpson [1950] 2 All ER 1137,
[1951] AC 251, HL.
Fibrosa Spolka Akcyjyna v Fairbairn Lawson Combe Barbour Ltd [1942] 2 All ER 122, [1943] AC 32, HL.
Gillett v Peppercorne (1840) 3 Beav 78, 49 ER 31.
Goldsworthy v Brickell [1987] 1 All ER 853, [1987] Ch 378, CA.
Gordon v Douce [1983] 2 All ER 228, [1983] 1 WLR 563, CA.
Guinness plc v Saunders [1990] 1 All ER 652, [1990] 2 AC 663, HL.
Koustsonicolis v Principe (No 2) (1987) 48 SASR 328, S Aust SC.
Lipkin Gorman (a firm) v Karpnale Ltd [1992] 4 All ER 512, [1991] 2 AC 548, HL.
Lloyds Bank Ltd v Bundy [1974] 3 All ER 757, [1975] QB 326, CA.
Maskell v Horner [1915] 3 KB 106, [1914–15] All ER Rep 595, CA.
Moses v Macferlan (1760) 2 Burr 1005, [1558–1774] All ER Rep 581, 97 ER 676.
36
Pavlou (a bankrupt), Re [1993] 3 All ER 955, [1993] 1 WLR 1046.
Phipps v Boardman [1966] 3 All ER 721, [1967] 2 AC 46, HL.
Rhodes v Bate (1865) LR 1 Ch App 252.
Rothschild v Brookman (1831) 5 Bli NS 165, 5 ER 273, HL.
Tate v Williamson (1866) LR 2 Ch App 55.
Turton v Turton [1987] 2 All ER 641, [1988] Ch 542, CA.
Western Bank of Scotland v Addie (1867) LR 1 Sc & Div 145, HL.
Woolwich Equitable Building Society v IRC (No 2) [1992] 3 All ER 737, [1993] AC 70, HL.
Appeal and cross-appealThe plaintiff, Charles William Cheese, appealed from the judgment of Judge Oppenheimer sitting in Uxbridge County Court on
16 February 1993 whereby it was ordered that the proceeds of sale of 4 Jonson Close, Hayes, Middlesex, after deduction of the costs and expenses of sale
be divided between the plaintiff and the defendant, Aubrey Thomas, in the proportion 43:40 in favour of the plaintiff, that the plaintiff and the defendant
redeem the mortgage on the property in favour of the Halifax Building Society from the net value and that if and in so far as the defendant’s share of the
net value was insufficient to redeem the mortgage, the plaintiff’s contribution to the redemption of the mortgage should be reimbursed by the defendant.
By a respondent’s notice dated 31 March 1993 the defendant cross-appealed against the judge’s finding of undue influence exercised by the defendant in
the purchase of the property by the plaintiff and the defendant. The facts are set out in the judgment of Sir Donald Nicholls V-C.
Kenneth Hamer (instructed by K E Davis & Sons, Hayes) for the plaintiff.
Jonathan Ferris (instructed by Mackenzie Knight, Southall) for the defendant.
Cur adv vult
30 July 1993. The following judgments were delivered.
SIR DONALD NICHOLLS V-C. This is a most unfortunate case. It arises out of the all too familiar situation where different generations of a family
join to provide the older member with a home. Both sides have the best of intentions, but the arrangement breaks down. Difficulties then arise in
unravelling what has been done. Here, two members of a family have become involved in proceedings which ought never to have seen the door of a
court. Costs have been incurred over several full-day hearings in the county court, followed by an appeal to the Court of Appeal. On top of this the house
suffered a steep decline in value. It was bought in June 1990 at a cost of £83,000, and sold in 1993 at a net price of about £55,400, a loss of over £27,500.
The combined result of all this has been a financial disaster for one or other, or both, of the parties.
The plaintiff, Mr Cheese, is 88 years of age. In 1990 he was living in a flat at Peacehaven, Sussex. After the death of his brother Joe, he arranged to
move back to Hayes, Middlesex, where he had lived and where his wife and daughter were buried. In May 1990 he paid £43,000 to the defendant, Mr
Aubrey Thomas, in connection with the purchase of a house, 4 Jonson Close, Hayes. Mr Thomas is aged 36 and is Mr Cheese’s great-nephew. He owns
a freight consultancy business. The house was bought in his sole name. To cover the rest of the price 37 and the expenses, Mr Thomas borrowed
£40,000 from the Halifax Building Society on the security of a mortgage over the house.
In June 1990 Mr Cheese moved in and lived there. Mr Thomas continued to live in his own house at Bedfont. Over the next three or four months
Mr Thomas failed to pay the mortgage instalments. Mr Cheese found out about this, and he felt his security threatened. He decided he wanted to
withdraw, and he sought repayment of his £43,000. These proceedings ensued.
The case was tried by Judge Michael Oppenheimer sitting in the Uxbridge County Court. Both counsel paid tribute to the care and thoroughness
with which the judge conducted the trial. On this appeal neither party has challenged the judge’s findings of primary fact. In the proceedings Mr Cheese
claimed that he and Mr Thomas had agreed that the house should be jointly owned. The judge rejected this. He accepted the nephew’s case that Mr
Cheese knew and agreed that the house would be in Mr Thomas’s name. Mr Cheese agreed that on his death the house would belong to Mr Thomas. In
return Mr Cheese was to be entitled to live in the house for the rest of his life.
However, the judge accepted Mr Cheese’s alternative case, that the transaction should be set aside on the ground of undue influence. It was common
ground that the relationship between the two of them was of a fiduciary character: they were close, Mr Thomas was considerably younger, and he had
business experience and a degree of actual influence over Mr Cheese. Undue influence was therefore to be presumed. The judge held the transaction was
manifestly disadvantageous to Mr Cheese, who did not enter into the transaction after full, free and informed thought about it. He had insufficient advice
and understanding to make a proper judgment. Against that decision Mr Thomas has appealed.
Manifest disadvantage
Preamble
The necessity for a plaintiff to prove that the transaction was manifestly disadvantageous to him before he can succeed in a claim to set it aside for
undue influence finds recent expression in National Westminster Bank plc v Morgan [1985] 1 All ER 821, [1985] AC 686 and Bank of Credit and
Commerce International SA v Aboody [1992] 4 All ER 955, [1990] 1 QB 923. Here, Mr Cheese paid £43,000, and in return he had the right to live
rent-free for the rest of his life in a house approved by him, and which he himself could not afford to buy, in an area where he wished to live. But there
were drawbacks in the transaction so far as he was concerned.
The principal drawbacks were threefold. First, he paid over all his capital. The £43,000 represented the major part of the proceeds of his flat at
Peacehaven. He had no other money of his own. Second, if in future Mr Cheese needed or wished to live elsewhere, there was no way he could compel
Mr Thomas to sell the house or return his money or even some of it. At the time Mr Cheese was 85 years old. He might become less robust and need to
live in sheltered accommodation. He had moved house in 1985 and in 1986, and in 1990 he had in mind that he might wish to move again and not be
confined to Jonson Close for the rest of his days. Third, and importantly, Mr Cheese would be in jeopardy if Mr Thomas failed to keep up the mortgage
payments to the building society. When the house was acquired both Mr Thomas and his company were financially embarrassed. If Mr Thomas
defaulted, Mr Cheese had no money of his own with which to keep up the mortgage payments. If Mr Cheese were evicted by the building society, he
would have a claim against Mr 38 Thomas for damages for breach of contract. But that, for what it might be worth, would be poor consolation for all
the upset and worry and possible loss involved. Indeed, these proceedings were prompted by Mr Cheese’s concern when he opened a letter from the
building society in October 1990 and learned that Mr Thomas was four months in arrears with the mortgage payments. He became fearful and anxious
and disillusioned.
I agree with the judge that the transaction is properly to be described as manifestly, that is, clearly and obviously, disadvantageous to Mr Cheese. He
used all his money, and it was not an insignificant amount, in buying a right which was seriously insecure and which tied him to this particular house.
I add two points. First, their Lordships in the House of Lords are currently considering their judgments on two appeals where one of the issues is
whether manifest disadvantage is an essential ingredient of an undue influence claim. Having regard to the view I have reached, it is not necessary to
postpone giving judgment on this appeal until the outcome in those two cases is known. Mr Cheese has established manifest disadvantage whether or not,
as remains to be seen, this is a necessary prerequisite to success on this claim.
Second, a feature of importance is that, before the trial judge, Mr Thomas conceded that the presumption of undue influence applied on the facts of
this case. Mr Thomas did not seek to rebut the application of the presumption, for instance, by showing that Mr Cheese received independent advice. So
the only issue the judge was called upon to decide on this part of the claim was whether or not the transaction was clearly disadvantageous to Mr Cheese.
I mention this in fairness to Mr Thomas. Otherwise one might think Mr Thomas had behaved improperly, and sought to trick or take advantage of his
aged uncle. No conduct of this sort occurred. This point is also relevant on the next issue.
Setting aside the transaction

If, then, the transaction is to be set aside, the next step is the restoration of the parties to their original positions. Achieving this would mean sale of
the house and repayment of what each had paid over. Mr Cheese should get back his £43,000, and Mr Thomas should get back and repay to the building
society the money he borrowed for the purchase. The house has now been sold. Unhappily, as already mentioned, although £83,000 was spent in buying
the house, only £55,400 came from the sale. By the time of the sale the amount outstanding on the mortgage was about £37,700. On the sale the building
society had to be repaid first. It had a mortgage over the house. The effect of paying back the building society was, in substance, to restore Mr Thomas
to his original position, although he had paid some mortgage instalments. The net balance remaining from the sale proceeds was only £17,667. Clearly,
this sum has to be paid to Mr Cheese, but that will still leave him more than £25,000 out of pocket. The shortfall represents, in round figures, the amount
by which the house declined in value after its purchase in June 1990.
The question therefore arises: on whom should this loss fall? Mr Cheese contends he is entitled to look to Mr Thomas personally to make good the
whole of the shortfall. He paid £43,000 to Mr Thomas, and on the transaction being set aside he can look to Mr Thomas for repayment of a like sum.
The judge did not accept this. He held that the loss brought about by the fall in the market value of the house should be shared between the two of
them in the same proportions (43:40) as they had contributed to the price. He said that the parties went into a joint venture, investing approximately
similar sums in it: 39 they should bear the loss equally. In short, this would mean that Mr Cheese could look to Mr Thomas for a further £11,000. Mr
Cheese would then recover altogether about £28,700, leaving him £14,300 out of pocket compared with his original contribution of £43,000. For his part
Mr Thomas would be out of pocket by a similar but proportionately smaller amount. He would be out of pocket to the extent of £13,300, made up of the
£11,000 he would have to pay Mr Cheese and £2,300 he had paid to the building society, before the sale, in reduction of the principal owing on the
mortgage. From that decision Mr Cheese has appealed.
Restoring the parties to their original positions

I can summarise the thrust of Mr Hamer’s argument as follows. When the court sets aside the transaction between Mr Cheese and Mr Thomas, the
inflexible rule of equity which comes into play is that Mr Cheese is entitled to have restored to him the benefits he passed to Mr Thomas under the
impugned transaction. It matters not if, for reasons unconnected with the plaintiff, the property being returned to the defendant has declined in value: that
is irrelevant.
I approach the matter in this way. Restitution has to be made, not damages paid. Damages look at the plaintiff’s loss, whereas restitution is
concerned with the recovery back from the defendant of what he received under the transaction. If the transaction is set aside, the plaintiff also must
return what he received. Each party must hand back what he obtained under the contract. There has to be a giving back and a taking back on both sides,
as Bowen LJ observed in Newbigging v Adam (1886) 34 Ch D 582 at 595, [1886–90] All ER Rep 975 at 984. If, for this purpose, the transaction in this
case is analysed simply as a payment of £43,000 by Mr Cheese to Mr Thomas in return for the right to live in Mr Thomas’s house, there is a strong case
for ordering repayment of £43,000, the benefit received by Mr Thomas, regardless of the subsequent fall in the value of the house. In the ordinary way, if
a plaintiff is able to return to the defendant the property received from him under the impugned transaction, it matters not that the property has meanwhile
fallen in value. This is not surprising. A defendant cannot be heard to protest that such an outcome is unfair when he is receiving back the very thing he
persuaded the plaintiff, by undue influence or misrepresentation, to buy from him.
In my view the present case stands differently. Mr Cheese paid Mr Thomas £43,000, not outright, but as part of the purchase price of a house in
which both would have rights: Mr Cheese was to have sole use of the house for his life, and then the house would be Mr Thomas’s. Mr Thomas was not
free to dispose of the house, or use it, until then. In fact the money was handed over by Mr Cheese in the form of a banker’s draft, made payable to the
solicitors acting for Mr Thomas in the purchase of 4 Jonson Close. For his part Mr Thomas also contributed to the purchase of the house. He contributed
£40,000, by obtaining a building society loan of this amount. In other words, the transaction was that each would contribute a sum of money to buying a
house in which each was to have an interest.
This is the transaction which has to be reversed. Doing so requires, first, that the house should be sold and, second, that each party should receive
back his contribution to the price. There is no difficulty over the first requirement. Mr Cheese sought an order for sale, the judge so directed, and the sale
Preamble
has taken place. The second requirement is more difficult. Indeed, it cannot be achieved, 40 because under the transaction the money each
contributed was spent in buying a house which then lost one-third of its value.
This difficulty, rightly in my view, has not been allowed to stand in the way of setting aside the transaction. It is well established that a court of
equity grants this type of relief even when it cannot restore the parties precisely to the state they were in before the contract. The court will grant relief
whenever, by directing accounts and making allowances, it can do what is practically just: see Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas
1218 at 1278–1279, [1874–80] All ER Rep 271 at 286 per Lord Blackburn. Here justice requires that each party should be returned as near to his original
position as is now possible. Each should get back a proportionate share of the net proceeds of the house, before deducting the amount paid to the building
society. Thus the £55,400 should be divided between Mr Cheese and Mr Thomas in the proportions of 43:40. Mr Cheese should receive about £28,700
and Mr Thomas £26,700. To achieve this result Mr Thomas should pay £11,033 on top of the net proceeds, of £17,667, remaining after discharging the
mortgage.
This was the view of the judge, and I see no occasion to disturb his conclusion. On the contrary, I agree with him. It is interesting to note that this
result accords with the primary relief sought by Mr Cheese in the action. His primary claim was that the house belonged to them both in the proportions
of 43:40. Had that claim succeeded, Mr Cheese would have borne a proportionate share of the loss on the sale of the house.
Restitution for both parties

We were much pressed with an argument that there is no decided case in which a court has ever directed a sharing of the loss in this way. This is a
principle unknown to English law. The court has no discretion in this regard.
I have two observations on this argument. First, when considering what was the original position of the parties it is important to identify, and
properly characterise, the transaction being set aside. In a simple case of a purchase of property there is no difficulty. Before the transaction the plaintiff
had a sum of money and the defendant owned the property. By the transaction the money passed to the defendant, and the property was transferred to the
plaintiff. That is the transaction which has to be reversed. Likewise there is no difficulty with a simple case of a gift. The present case, as already noted,
is not so straightforward. Here the transaction involved both parties making a financial contribution to the acquisition of a new asset from which both
were intended to benefit. This was so even though Mr Cheese’s only interest in the house was as a contractual licensee, and even though Mr Thomas
regarded the house as an investment. It is axiomatic that, when reversing this transaction, the court is concerned to achieve practical justice for both
parties, not the plaintiff alone. The plaintiff is seeking the assistance of a court of equity, and he who seeks equity must do equity. Under the transaction
Mr Thomas parted with money, albeit borrowed, as well as Mr Cheese.
This situation is to be contrasted with the facts in Newbigging v Adam (1886) 34 Ch D 582, [1886–90] All ER Rep 975. There the plaintiff was
induced to enter into a partnership with the defendant by misrepresentations about the state of the business. The business foundered. On having the
transaction set aside, the court held the plaintiff was entitled to the return of the capital introduced by him and to an indemnity against the liabilities he
had assumed as a partner. In that case the transaction was akin to a sale of property, there a share in a 41 partnership. The defendant had to return the
capital sum introduced and reassume the burden of partnership debts which under the contract the plaintiff had taken upon himself.
My second observation is this. The basic objective of the court is to restore the parties to their original positions, as nearly as may be, consequent
upon cancelling a transaction which the law will not permit to stand. That is the basic objective. Achieving a practically just outcome in that regard
requires the court to look at all the circumstances, while keeping the basic objective firmly in mind. In carrying out this exercise the court is, of necessity,
exercising a measure of discretion in the sense that it is determining what are the requirements of practical justice in the particular case.
It is important not to lose sight of the very foundation of the jurisdiction being invoked. As Lord Scarman observed in National Westminster Bank
plc v Morgan [1985] 1 All ER 821 at 831, [1985] AC 686 at 709, a court in the exercise of this jurisdiction is a court of conscience. He noted:
‘There is no precisely defined law setting limits to the equitable jurisdiction of a court to relieve against undue influence … Definition is a poor
instrument when used to determine whether a transaction is or is not unconscionable: this is a question which depends on the particular facts of the
case.’
As with the jurisdiction to grant relief, so with the precise form of the relief to be granted, equity as a court of conscience will look at all the
circumstances and do what fairness requires. Lord Wright adverted to this in Spence v Crawford [1939] 3 All ER 271 at 288 which was a
misrepresentation case. He said regarding rescission and restitution:
‘The remedy is equitable. Its application is discretionary, and, where the remedy is applied, it must be moulded in accordance with the
exigencies of the particular case.’
The law reports are replete with examples of the way courts have applied this principle. These, and the reasoning underlying them, afford valuable
guidance when fairly comparable situations arise in the future. They are not immutable rules of law which must be applied irrespective of whether in the
particular case they will assist in achieving an outcome which is practically just.
A few examples will suffice. If the defendant has improved the property he is ordered to return, the plaintiff may be required to compensate him.
On the other hand, if the plaintiff has improved the property he seeks to return, he will not necessarily be entitled to a further payment from the defendant;
it may not be just to require the defendant to pay for improvements he does not want. If the plaintiff has permitted the property to deteriorate, he may be
required to make an allowance to the defendant for this when seeking an order compelling him to retake the property. If a joint business venture is
involved, such as an agreement between a pop star and a manager, and the agreement is set aside and an account directed of the profits received by the
defendant under the agreement, the court in its discretion may permit the defendant to retain some profits, if it would be inequitable for the plaintiff to
take the profits without paying for the expertise and work which produced them. In O’Sullivan v Management Agency and Music Ltd [1985] 3 All ER
351 at 372, [1985] QB 428 at 467, Fox LJ observed it was clearly necessary that the court should have power to 42 make an allowance to a fiduciary.
He continued ([1985] 3 All ER 351 at 372–373, [1985] QB 428 at 468):
‘Substantial injustice may result without it. A hard and fast rule that the beneficiary can demand the whole profit without an allowance for the
work without which it could not have been created is unduly severe. Nor do I think that the principle is only applicable in cases where the personal
conduct of the fiduciary cannot be criticised. I think that the justice of the individual case must be considered on the facts of that case.
Accordingly, where there has been dishonesty or surreptitious dealing or other improper conduct then, as indicated by Lord Denning MR, it might
be appropriate to refuse relief; but that will depend on the circumstances.’
What is true of profits must also be true of losses. In the ordinary way, when a sum of money is paid to a defendant under a transaction which is set
aside, the defendant will be required to repay the whole sum. There may be exceptional cases where that would be unjust. This may the more readily be
so where the personal conduct of the defendant was not open to criticism. Here, having heard the parties give evidence, the judge acquitted Mr Thomas
Preamble
of acting in a morally reprehensible way towards Mr Cheese. He described Mr Thomas as an innocent fiduciary. Here also, and I return to this feature
because on any view it was an integral element of the transaction, each party applied money in buying the house. In all the circumstances, to require Mr
Thomas to shoulder the whole of the loss flowing from the problems which have beset the residential property market for the last year or two would be
harsh. That is not an outcome a court of conscience should countenance.
Interest
The judge declined to order Mr Cheese to account for an occupation rent or to order Mr Thomas to pay interest on the sum being repaid to Mr
Cheese. There is obvious good sense in letting these matters offset each other. On appeal Mr Cheese has taken the point that he was not in occupation
after 20 May 1992. He became ill on that day, and went to stay with his son-in-law. He has continued to live there. I am not impressed with this point.
The period involved is about six months, until the judge gave judgment on 4 December 1992. The house remained available for Mr Cheese, and was not
used by Mr Thomas. The sensible, practically just outcome is not to treat this period differently from the earlier period of two years when Mr Cheese
lived in the house.
I would dismiss Mr Cheese’s appeal and Mr Thomas’s cross-appeal.
BUTLER-SLOSS LJ. I agree.
PETER GIBSON LJ. I also agree.
Appeal and cross-appeal dismissed. Leave to appeal to the House of Lords refused.
43
[1994] 1 All ER 44
R v Tower Bridge Metropolitan Stipendiary Magistrate, ex parte Chaudhry

CRIMINAL; Criminal Procedure: ADMINISTRATION OF JUSTICE; Judiciary
QUEEN’S BENCH DIVISION

KENNEDY LJ AND BELL J
30 JUNE, 1, 7 JULY 1993
Magistrates – Summons – Refusal to issue summons – Private prosecution – Private prosecution against defendant already charged in respect of same
matter – Driver charged with minor traffic offences in respect of collision in which applicant’s son killed – Applicant seeking issue of summons against
driver for causing death by reckless driving – Magistrate refusing to issue summons – Whether magistrate required to take into account existence of
prosecution by Crown Prosecution Service – Whether magistrate properly refusing to issue summons – Magistrates’ Courts Act 1980, s 1 – Prosecution
of Offences Act 1985, s 6.
The applicant’s son suffered fatal injuries when a van collided with his motor cycle at a junction. Statements made to the police in the course of their
inquiries indicated that the van driver had driven through red traffic lights controlling the junction. The file was submitted to the Crown Prosecution
Service, which laid informations against the van driver alleging three offences, namely driving without due care and attention, failing to comply with a
traffic sign and failing to ensure that his brake lights were clean and in working order. The applicant, who was concerned at the absence of any allegation
of causing death by reckless driving, laid an information alleging that offence before a stipendiary magistrate. The magistrate decided that since the
conduct of the case was being dealt with by the Crown Prosecution Service he was bound by authority to refuse to issue a summons for that offence and
that even if he was not so bound the Crown Prosecution Service would, in the exercise of its powers under the Prosecution of Offences Act 1985, take
over the applicant’s prosecution and it would not be in the interests of justice for a summons to be issued. The applicant applied for judicial review of the
magistrate’s decision.
Held – A magistrate when deciding whether to exercise his discretion under s 1a of the Magistrates’ Courts Act 1980 to issue a summons at the behest of
a private prosecutor was required to have regard to all the relevant circumstances of the case, including (i) whether the incident giving rise to the
information had already been investigated by a responsible prosecuting authority which was pursuing what it considered to be the appropriate charges
against the proposed defendant, (ii) the fact that if a summons for a more serious charge was issued the discretion of the Crown prosecutor would be
overridden in a way which might appear to the defendant to be oppressive and (iii) the fact that the Director of Public Prosecutions could, and in reality
might, take over the prosecution under s 6(2)b of the 1985 Act. Although it was not the case that a magistrate should never issue a summons for a private
prosecution when the Crown Prosecution Service had already laid informations in respect of the same matter, it would only be in special circumstances,
such as apparent bad faith on 44 the part of the public prosecutor, that the issuing of a summons for a private prosecution would be justified. On the
facts, the magistrate had properly had regard to the action already taken by the Crown Prosecution Service and to the power of Director of Public
Prosecutions pursuant to s 6(2) of the 1985 Act to take over and bring to end any prosecution. The application would therefore be dismissed (see p 51 f to
p 52 e g, post).
________________________________________
a Section 1, so far as material, is set out at p 47 f to j, post
Preamble
b Section 6 is set out at p 48 b c, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
R v West London Justices, ex p Klahn [1979] 2 All ER 221 and R v Stafford Justices, ex p Customs and Excise Comrs [1991] 2 All ER 201
considered.
R v Ealing Magistrates’ Court, ex p Dixon [1989] 2 All ER 1050 distinguished.
Notes
For the jurisdiction of justices to issue summonses, see 29 Halsbury’s Laws (4th edn) paras 223, 321, and for cases on the subject, see 33 Digest (Reissue)
124, 821–828.
For the Magistrates’ Courts Act 1980, s 1, see 27 Halsbury’s Statutes (4th edn) (1992 reissue) 149.
For the Prosecution of Offences Act 1985, s 6, see 12 Halsbury’s Statutes (4th edn) (1989 reissue) 939.

Beresford, Re (1952) 36 Cr App R 1, Assizes.
Gouriet v Union of Post Office Workers [1977] 3 All ER 70, [1978] AC 435, [1977] 3 WLR 300, HL.
R v Bros (1901) 85 LT 581, DC.
R v Ealing Magistrates’ Court, ex p Dixon [1989] 2 All ER 1050, [1990] 2 QB 91, [1989] 3 WLR 1098, DC.
R v Gateshead Justices, ex p Tesco Stores Ltd, R v Birmingham Justices, ex p D W Parkin Construction Ltd [1981] 1 All ER 1027, [1981] QB 470, [1981]
2 WLR 419, DC.
R v Nuneaton Justices, ex p Parker [1954] 3 All ER 251, [1954] 1 WLR 1318, DC.
R v Stafford Justices, ex p Customs and Excise Comrs [1991] 2 All ER 201, [1991] 2 QB 339, [1990] 3 WLR 656, DC.
R v West London Justices, ex p Klahn [1979] 2 All ER 221, [1979] 1 WLR 933, DC.
R v Wilson, ex p Battersea BC [1947] 2 All ER 569, [1948] 1 KB 43, DC.
Raymond v A-G [1982] 2 All ER 487, [1982] QB 839, [1982] 2 WLR 849, CA.
Sammy-Joe v GPO Mount Pleasant Office [1966] 3 All ER 924, [1967] 1 WLR 370.
Cases also cited

Hill v Anderton [1982] 2 All ER 963, sub nom R v Manchester Stipendiary Magistrate, ex p Hill [1983] 1 AC 328, HL.
Snodgrass v Topping (1952) 116 JP 332, DC.
Applications for judicial review and for leave to apply for judicial review
Mrs Brigitte Chaudhry applied, with the leave of Otton J given on 28 January 1992, for judicial review by way of orders of certiorari to quash the
decisions made by Mr A T Evans, a metropolitan stipendiary magistrate sitting in the Tower Bridge Magistrates’ Court on 5 July 1991, (i) refusing to
allow the applicant to lay an information before him relating to a prosecution against Nicholas Sansom for causing death by reckless driving contrary to s
1 of the Road Traffic Act 1988, (ii) declining to issue a summons pursuant to the information and (iii) permitting the Tower Bridge Magistrates’ Court to
proceed to accept a plea of guilty from Nicholas Sansom to a charge of driving 45 without due care and attention contrary to s 3 of the Road Traffic
Act 1988. The applicant, having been refused leave by Hidden J on 22 June 1993, also renewed her application for leave to apply for judicial review by
way of an order of certiorari to quash the decision of the Tower Bridge Magistrates’ Court on 5 July 1991 to accept a plea of guilty by Nicholas Sansom
to the charge of driving without due care and attention and the sentence pertaining thereto. The facts are set out in the judgment of Kennedy LJ.
Anthony Scrivener QC and Christa Fielden (instructed by Bloom Camillin) for the applicant.
Stephen Robbins (instructed by the Treasury Solicitor) for the magistrate.
Peter Hunt (instructed by Jeffrey Gordon & Co) for Mr Sansom.
Cur adv vult
KENNEDY LJ. This is an application for judicial review of a decision of a metropolitan stipendiary magistrate, Mr Evans, dated 5 July 1991, when he
refused to issue a summons, an information having being laid before him which alleged that Nicholas Sansom had, on 27 October 1990, caused the death
of Mansoor Chaudhry by reckless driving.
The background facts are simple and tragic. On 27 October 1990 Mansoor Chaudhry, the only son of Mrs Brigitte Chaudhry, was riding his motor
cycle across the junction of Lambeth Road with St George’s Road, London SE1, when he was in collision with a van driven by Nicholas Sansom, and as a
result Mansoor Chaudhry sustained injuries from which he died. The police made inquiries and took statements from witnesses, some at least of which
statements clearly indicated that at the material time the traffic lights controlling the junction were green for the motor cyclist and red for the van driver.
In the normal way the file was submitted to the Crown Prosecution Service, and on 22 April 1991 informations were laid and summonses were issued
against the van driver, alleging three offences, namely: (1) driving without due care and attention, contrary to s 3 of the Road Traffic Act 1988 and Sch 2
to the Road Traffic Offenders Act 1988; (2) failing to comply with a traffic sign, namely traffic lights; (3) failing to ensure that brake lights were clean
and in working order.
Mr Sansom was due to appear before Tower Bridge Magistrates’ Court to answer those summonses on 5 July 1991 but Mrs Chaudhry was very
disturbed by the absence of any summons alleging causing death by reckless driving, and on 4 July 1991 solicitors acting on her behalf advised the court
that on the following day, on her instructions, counsel would lay an information and invite a magistrate to issue a summons alleging that offence. So the
matter came before Mr Evans. For present purposes it is accepted that he received the information, and that he was not informed as to the intentions of
Mr Sansom in relation to the existing summons. The magistrate heard submissions by counsel for Mrs Chaudhry, and there is before us an affirmation of
the magistrate, paras 5 and 6 of which read:
‘5. I was aware that the prosecution of Nicholas Sansom on a charge of driving without due care and attention and other road traffic offences
was listed to be heard before a lay bench at Tower Bridge Magistrates’ Court on 46 5 July 1991. So far as the Court’s records went, they
Preamble
indicated that the case was listed so that a date for trial as a contested case could be set. The case was being dealt with by the Crown Prosecution
Service.
6. I considered the case and the decision in ex parte Dixon ([1989] 2 All ER 1050, [1990] 2 QB 91). In my Judgment, ex parte Dixon was
binding authority upon me preventing me from issuing a Summons in these circumstances where the Crown Prosecution Service had conduct of the
case. Even if that were wrong, it seemed to me that if a Summons were issued, the Crown Prosecution Service would, in the exercise of its powers
under the Prosecution of Offences Act 1985, take over Mrs Chaudhry’s prosecution. It did not therefore appear to me to be in the interests of
Justice that a Summons should be issued even if I were wrong about the applicability of the decision in ex parte Dixon. I therefore refused to issue
a Summons.’
Before us Mr Scrivener QC submits that the decision of the magistrate was wrong because: (1) he was not bound by the decision of this court in R v
Ealing Magistrates’ Court, ex p Dixon [1989] 2 All ER 1050, [1990] 2 QB 91; (2) the magistrate’s alternative ground of decision was equally flawed,
because he should not have speculated as to whether the Crown Prosecution Service would take over Mrs Chaudhry’s prosecution; (3) had the magistrate
approached his task as he should have done, he would have concluded that there was no reason not to issue a summons.
The statutory provisions which are relevant in this case are to be found in s 1 of the Magistrates’ Courts Act 1980 and in ss 3, 6, 15 and 23 of the
Prosecution of Offences Act 1985.
Section 1 of the 1980 Act, so far as it is relevant, provides:
‘(1) Upon an information being laid before a justice of the peace for an area to which this section applies that any person has, or is suspected of
having, committed an offence, the justice may, in any of the events mentioned in subsection (2) below … issue a summons …
(2) A justice of the peace for an area to which this section applies may issue a summons … under this section—(a) if the offence was committed
or is suspected to have been committed within the area, or (b) if it appears to the justice necessary or expedient, with a view to the better
administration of justice, that the person charged should be tried jointly with, or in the same place as, some other person who is charged with that
offence, and who is in custody, or is being or is to be proceeded against, within the area, or (c) if the person charged resides or is, or is believed to
reside or be, within the area, or (d) if under any enactment a magistrates’ court for the area has jurisdiction to try the offence, or (e) if the offence
was committed outside England and Wales and, where it is an offence exclusively punishable on summary conviction, if a magistrates’ court for the
area would have jurisdiction to try the offence if the offender were before it …’
Section 3(2) of the 1985 Act, so far as it is relevant, provides:
‘It shall be the duty of the Director … (a) to take over the conduct of all criminal proceedings, other than specified proceedings, instituted on
behalf of the police force (whether by a member of that force or by any other person) …’
47
It is common ground that proceedings under the Road Traffic Act 1988 are not ‘specified proceedings’ for the purposes of s 3(2) of the 1985 Act.
Section 6 of the 1985 Act states:
‘(1) Subject to subsection (2) below, nothing in this Part shall preclude any person from instituting any criminal proceedings or conducting any
criminal proceedings to which the Director’s duty to take over the conduct of proceedings does not apply.
(2) Where criminal proceedings are instituted in circumstances in which the Director is not under a duty to take over their conduct, he may
nevertheless do so at any stage.’
Both ss 3 and 6 of the 1985 Act fall within Pt I of that Act, in relation to which s 15(2)(a) states:
‘For the purposes of this Part, proceedings in relation to an offence are instituted—(a) where a justice of the peace issues a summons under
section 1 of the Magistrates’ Courts Act 1980, when the information for the offence was laid before him …’
Finally, s 23 provides that where the Director of Public Prosecutions has the conduct of proceedings for an offence he can, by notice, discontinue.
Ex p Dixon was concerned with alleged infringements of copyright. When executing a search warrant, the police were accompanied by Mr Dixon
and another employee of the Federation Against Copyright Theft Ltd (FACT). When the defendants were charged, Mr Dixon was present and signed the
charge sheet as the person charging. The charge sheet was also signed by the custody officer as the officer taking the charge. He read out the charge and
the defendants were granted bail. Against that background the Divisional Court held that for the purposes of s 15(2) of the Prosecution of Offences Act
1985 proceedings were instituted on behalf of a police force when the charge was read out, and by virtue of s 3 (2) of that Act, it then became the duty of
the Director of Public Prosecutions to take over the conduct of the criminal proceedings.
Consequently, the magistrates were right to hold that before them the solicitor for Mr Dixon and FACT could not conduct the prosecution.
In R v Stafford Justices, ex p Customs and Excise Comrs [1991] 2 All ER 201, [1991] 2 QB 339 a differently constituted Divisional Court had to
consider a somewhat similar situation where the customs officer was described as ‘the person charging’. The court declined to follow the decision in Ex p
Dixon, which it said was wrongly decided. In the present case the attention of the magistrate was not invited to the decision in the Stafford Justices case,
but in my judgment neither Divisional Court decision was really of any assistance to the magistrate in relation to the issue that he had to decide. I
therefore conclude that Mr Scrivener is right in his submission that the magistrate was not bound by the decision in Ex p Dixon.
Before us Mr Hunt for Mr Sansom tried to place some further reliance on s 3(2)(a) of the 1985 Act, and on the decision in Ex p Dixon, by submitting
that once the Director of Public Prosecutions is, as he put, it ‘seised of the matter’ (meaning in this case the traffic accident) she must take over all
criminal proceedings arising out of it. In my judgment s 3(2)(a) cannot be stretched that far. It simply defines the duty of the Director of Public
Prosecutions in relation to criminal proceedings instituted on behalf of a police force.
48
I deal with the second and third submissions made by Mr Scrivener together. As he pointed out, the jurisdiction which the magistrate was being
asked to exercise is to be found in s 1(1) and (2) of the Magistrates’ Courts Act 1980. At first sight the words of s 1(1) confer an unfettered discretion,
which has to be exercised within the framework of s 1(2). In the present case the offence alleged satisfied the requirements of s 1(2)(a), and accordingly,
Mr Scrivener submits, the magistrate had no option but to issue the summons. He accepts that, in deciding whether or not to issue a summons, the
magistrate is making a judicial determination (see R v Gateshead Justices, ex p Tesco Stores Ltd, R v Birmingham Justices, ex p D W Parkin Construction
Ltd [1981] 1 All ER 1027, [1981] QB 470), but he contends that the magistrate can only have regard to those matters set out in s 1(2) and to the question
Preamble
of whether the issue of a summons can be vexatious. In support of that proposition, he invited our attention to the decision of this court in R v Nuneaton
Justices, ex p Parker [1954] 3 All ER 251, [1954] 1 WLR 1318, where the court held that the chairman of the justices was wrong to refuse a summons for
driving without due care to a police inspector, it being the opinion of the magistrate that the summons should be for dangerous driving. Reference was
made to the fact that in Re Beresford (1952) 36 Cr App R 1 Devlin J had observed that when death resulted from dangerous driving there should normally
be a charge of manslaughter, but, said Lord Goddard CJ in Parker’s case [1954] 1 WLR 1318 at 1319, cf [1954] 3 All ER 251 at 252, that was only a
recommendation to the police, not to the magistrates: ‘It must be for the Director of Public Prosecutions or the police to decide what charges should be
preferred.’ Lynskey J agreed, saying ([1954] 1 WLR 1318 at 1320, cf [1954] 3 All ER 251 at 252–253):
‘It must not be thought that it is laid down that in every case where death occurs it should be manslaughter, or in every case where there is some
defect it should be dangerous driving; it is a matter for the prosecution. On the other hand, the offence of dangerous driving or careless driving is a
very serious one, and the police ought always, in my view, where the facts support it, to bring the more serious charge rather than the lighter charge;
but they are not bound to bring the more serious charge where the evidence will not support that charge.’
Parker’s case is of some interest on its facts, but in my judgment it does not really assist Mr Scrivener’s case. All that it does is to warn magistrates
not to exceed their discretion by using it to usurp the discretion of the prosecuting authorities and the police.
The next authority which we were invited to consider is Sammy-Joe v GPO Mount Pleasant Office [1966] 3 All ER 924, [1967] 1 WLR 370. There
maintenance payments had been deducted from a postman’s wages pursuant to an order of the magistrates’ court. The postman sued the Post Office and
the magistrate to recover the money on the basis that the magistrate had exceeded his jurisdiction, and Pennycuick J found the claim against the
magistrate to be hopeless, because all the magistrate did was to issue a summons. As Pennycuick J said ([1966] 3 All ER 924 at 929, [1967] 1 WLR 370
at 374):
‘That is merely a document which brings the proceedings into being. It is clearly not the duty of the magistrate who issues a summons to make
any inquiry on his own into the facts on which the summons is based.’
49
So, as Mr Scrivener points out, Sammy-Joe’s case is authority for the proposition that there is no duty on the magistrate to make inquiries on his own,
but it does not follow that he must ignore material circumstances of which he is aware.
In R v West London Justices, ex p Klahn [1979] 2 All ER 221, [1979] 1 WLR 933 a defendant in a civil action wanted a summons issued against the
plaintiff’s solicitor alleging perjury. The magistrate refused to hear counsel on behalf of the solicitor, and the Divisional Court upheld his decision. Lord
Widgery CJ said ([1979] 2 All ER 221 at 222–223, [1979] 1 WLR 933 at 935–936):
‘The duty of a magistrate in considering an application for the issue of a summons is to exercise a judicial discretion in deciding whether or not
to issue a summons. As Lord Goddard CJ stated in R v Wilson [1947] 2 All ER 569 at 570, [1948] 1 KB 43 at 46–47: “A summons is the result of a
judicial act. It is the result of a complaint which has been made to a magistrate on which he must bring his judicial mind to bear and decide whether
or not on the information or complaint before him he is justified in issuing a summons.” It would appear that he should at the very least ascertain:
(i) whether the allegation is of an offence known to the law and if so whether the essential ingredients of the offence are prima facie present; (ii)
that the offence alleged is not “out of time”; (iii) that the court has jurisdiction; (iv) whether the informant has the necessary authority to prosecute.
In addition to the specific matters it is clear that he may and indeed should consider whether the allegation is vexatious: see R v Bros (1901) 85 LT
581. Since the matter is properly within the magistrates’ discretion, it would be inappropriate to attempt to lay down an exhaustive catalogue of
matters to which consideration should be given. Plainly he should consider the whole of the relevant circumstances. In the overwhelming majority
of cases, the magistrate will not need to consider material beyond that provided by the informant. In my judgment, however, he must be able to
inform himself of all relevant facts. Counsel who appeared as amicus curiae, and to whom the court is indebted for his assistance, submitted that
the magistrate has a residual discretion to hear a proposed defendant if he felt it necessary for the purpose of reaching a decision. We would accept
this contention. The magistrate must be able to satisfy himself that this is a proper case in which to issue a summons. There can be no question,
however, of conducting a preliminary hearing. Until a summons has been issued there is no allegation to meet: no charge has been made. A
proposed defendant has no locus standi and no right at this stage to be heard. Whilst it is conceivable that a magistrate might seek information from
him in exceptional circumstances it must be entirely within the discretion of the magistrate whether to do so.’ (Lord Widgery CJ’s emphasis.)
Mr Scrivener submits that in the present case the magistrate must have been able to satisfy himself quite readily as to the four factors which Lord
Widgery CJ identified as the minimum that he should ascertain and no one suggests that the allegation he was asked to consider was vexatious. So,
submits Mr Scrivener, it being conceded that vexatiousness is not an issue, if the magistrate had confined himself, as he should have done, to what
appeared on the information, he would have felt constrained to issue the summons. But I can find nothing in Klahn’s case which requires a magistrate to
adopt that sort of tunnel vision. On the contrary, it says in terms that he should consider ‘the 50 whole of the relevant circumstances’ and may need to
consider information beyond that provided by the informant, in order to decide if it is a proper case in which to issue a summons, provided of course, that
he does not go so far as to conduct a preliminary hearing.
Underlying all of Mr Scrivener’s submissions is of course the individual’s right to prosecute, and before us no one has questioned it. In Gouriet v
Union of Post Office Workers [1977] 3 All ER 70 at 79, [1978] AC 435 at 477 Lord Wilberforce paid tribute to it, saying:
‘This historical right which goes right back to the earliest days of our legal system, though rarely exercised in relation to indictable offences,
and though ultimately liable to be controlled by the Attorney-General (by taking over the prosecution and, if he thinks fit, entering a nolle prosequi)
remains a valuable constitutional safeguard against inertia or partiality on the part of authority.’
It is also allowed for by the wording of s 6(1) of the Prosecution of Offences Act 1985, but I see no conflict between the existence of that right and of
the discretion of a magistrate to decide whether or not to issue a summons. After all, as Mr Scrivener recognises, an individual prosecutor does not have
the unfettered right to pursue his prosecution to trial. By virtue of s 6(2) of the 1985 Act the Director of Public Prosecutions may, at any stage, take over
in order to abort (see Raymond v A-G [1982] 2 All ER 487, [1982] QB 839), and he may even bring the magistrates’ court proceedings to an end by notice
pursuant to s 23 of the 1985 Act. So, as it seems to me, in any given case, a private prosecutor will have two hurdles to surmount. He will have to
persuade a magistrate to issue a summons, and thereafter, if he wishes to retain control of the case, he may have to persuade the Director of Public
Prosecutions not to take it over. But in reality, the criteria applied by the magistrate and the Director will be different. The magistrate should have regard
to all of the relevant circumstances of which he is aware (see Klahn’s case), such as whether the incident giving rise to the information which he is
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considering has already been investigated by a responsible prosecuting authority which is pursuing what it considers to be the appropriate charges against
the same proposed defendant. If so, as Mr Hunt pointed out, the magistrate may have in mind the provisions of the Guide for Crown Prosecutors issued
under s 10 of the Prosecution of Offences Act 1985, which requires the Crown Prosecution Service generally to charge the most serious offence revealed
by the evidence but to have regard to the public interest, the interests of the victim, and the prospects on the available evidence of securing a conviction
(which may not be very high where recklessness is alleged). If a summons for a more serious charge is issued on the application of a private prosecutor,
the discretion of the Crown prosecutor is overridden in a way which may well appear to the defendant and to those who represent him to be oppressive,
and so, whilst I would not go so far as to suggest that a magistrate should never at the behest of a private prosecutor issue a summons against a defendant
who, in respect of the same matter, already has to answer one or more informations laid by the Crown, it seems to me that unless there are special
circumstances, such as apparent bad faith on the part of the public prosecutor, the magistrate should be very slow to take that step. He will be all the more
hesitant because he knows that the Director can, and in reality may well, take over the proceedings of the private prosecutor. That too is a relevant factor
even if, as Mr Scrivener contends, the magistrate in the present case was 51 to some extent guessing when he said that it seemed to him that the
Crown Prosecution Service would take over Mrs Chaudhry’s prosecution.
If a magistrate does decide to issue a summons, the Director in deciding whether or not to exercise her powers under s 6(2) of the 1985 Act will no
doubt look at the evidence in a way that the magistrate was not expecting to do when he decided to issue the summons, so the functions are different, but I
do not accept that the discretion of the magistrate is anything like so confined as Mr Scrivener would have us accept. In my judgment the magistrate in
the present case, albeit he was wrong to regard himself as bound by Dixon’s case, was right to have regard to the action already taken by the Crown
Prosecution Service and to the Director’s powers under s 6(2) of the 1985 Act, and accordingly this court cannot and should not interfere with his
conclusion, arrived at in the exercise of his discretion, that in the interests of justice a summons should not be issued.
I appreciate that my conclusion will disappoint Mrs Chaudhry, but, as Mr Robbins for the magistrate pointed out, it would be an odd situation if,
where a killing occurs, or a serious sexual offence is committed, and the Director, after anxious consideration, decides to charge an offence other than the
most serious offence which can be contemplated in the circumstances, that decision can, in effect, be overridden by a member of the public. The
magistrate, if Mr Scrivener is right, can do nothing to stop it. He must issue the summons and the defendant must answer to it unless and until the
Director decides to exercise her powers under s 6(2) to intervene. That alternative is so unattractive that in my judgment it reinforces the conclusion at
which I have arrived as to the extent of the magistrate’s discretion as set out in s 1(1) of the 1980 Act. Accordingly, I would dismiss the substantive
application for judicial review of the decision of the metropolitan stipendiary magistrate, and refuse leave to move for judicial review of the subsequent
decision of the lay justices. At the end of the hearing it was agreed that if the substantive application should fail, the application for leave to move must
also fail.
We have also before us an application on behalf of the magistrates to strike out parts of the applicant’s evidence as scandalous. That application was
not pursued, and it too is therefore dismissed.
BELL J. I agree.
Applications dismissed.
30 July. The court refused leave to appeal to the House of Lords but certified, under s 1(2) of the Administration of Justice Act 1960, that the following
point of law of general public importance was involved in the decision: whether a magistrate, in exercising his discretion whether or not to issue a
summons on an information laid by a private citizen, is entitled to take into consideration that (1) criminal proceedings have been already instituted by
the Crown Prosecution Service against the same defendant arising out of the same facts and (2) if a fresh summons is issued the Director of Public
Prosecutions will have power pursuant to s 6(2) of the Prosecution of Offences Act 1985 to take over the conduct of the case in order to abort it, or
whether the magistrate’s discretion is so confined that if the offence in respect of which a summons is sought was committed or is suspected to have been
committed within the area, and the application for a summons is not vexatious, a summons must be issued.
Dilys Tausz Barrister.
52
[1994] 1 All ER 53
Cambridge Water Co Ltd v Eastern Counties Leather plc

TORTS; Nuisance

SIR STEPHEN BROWN P, MANN AND NOLAN LJJ
27–29 OCTOBER, 2–3, 19 NOVEMBER 1992
HOUSE OF LORDS
LORD TEMPLEMAN, LORD GOFF OF CHIEVELEY, LORD JAUNCEY OF TULLICHETTLE, LORD LOWRY AND LORD WOOLF
11–14, 18–19 OCTOBER, 9 DECEMBER 1993
Nuisance – Escape in consequence of non-natural use of land – Foreseeability of damage – Ultra-hazardous operations on land – Water containing
solvent percolating 1·3 miles from tannery to borehole used for extraction of domestic water supply – Water supply contaminated by solvent –
Contamination resulting from regular spillages of relatively small amounts of solvent onto tannery floor and seepage into sub-strata – Whether tannery
owners liable for contamination – Whether foreseeability of damage if there was an escape of dangerous things from land a prerequisite of liability.
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The defendant was an old-established leather manufacturer which used a chemical solvent in its tanning process. In the course of the process there were
regular spillages of relatively small amounts of the solvent onto the concrete floor of the tannery prior to a change of method in 1971, the total spillage
over a period of years being at least 1,000 gallons. The spilled solvent, which was not readily soluble in water, seeped through the tannery floor into the
soil below until it reached an impermeable strata 50 metres below the surface from where it percolated along a plume at the rate of about 8 metres a day
until it reached the strata from which the plaintiffs extracted water for domestic use via a borehole. The distance between the plaintiffs’ borehole and the
defendants’ tannery was 1·3 miles and time taken for the solvent to seep from the tannery to the borehole was about 9 months. The plaintiffs brought an
action against the defendants claiming damages in negligence and nuisance and under the rule in Rylands v Fletcher for contamination of the water
extracted from the borehole. The source of the contamination was not disputed. The judge dismissed the plaintiffs’ claim on the grounds that the actions
in negligence and nuisance failed because the defendants could not reasonably have foreseen, in or before 1976, that repeated spillages of small quantities
of solvent would enter the underground strata or that, having done so, detectable quantities would be found down-catchment and thereby lead to any
environmental hazard in water taken down-catchment, and the action under Rylands v Fletcher failed because the use of the solvent in the defendants’
tanning business constituted, in the circumstances, a natural use of their land. On appeal by the plaintiffs, the Court of Appeal held that the defendants
were strictly liable for the contamination of the water percolating under the plaintiffs’ land and awarded damages of over £1m against the defendants.
The defendants appealed to the House of Lords.
Held – Irrespective of whether the rule in Rylands v Fletcher was treated as an aspect of nuisance or as special rule pertaining to strict liability for damage
53 caused by ultra-hazardous operations on land because of the extraordinary risk to others resulting from such operations, foreseeability of damage
of the relevant type if there was an escape from the land of things likely to do mischief was a prerequisite of liability. Accordingly, strict liability for the
escape from land of things likely to do mischief only arose if the defendant knew or ought reasonably to have foreseen that those things might if they
escaped cause damage. The rule was one of strict liability in the sense that the defendant could be held liable where there was an escape occurring in the
course of the non-natural use of land notwithstanding that he had exercised all due care to prevent the escape from occurring. Since the defendants could
not in the circumstances reasonably have foreseen that the seepage of the solvent through their tannery floor could have caused the pollution of the
plaintiffs’ borehole, they were not liable under the rule in Rylands v Fletcher. The appeal would therefore be allowed (see p 63 b, p 70 f to j, p 73 f g, p
75 e to g , p 76 g to p 77 a e to g, p 78 a and p 80 a to c, post).
Fletcher v Rylands (1866) LR 1 Ex 265 and Rylands v Fletcher [1861–73] All ER Rep 1 considered.
Per curiam. The storage of substantial quantities of chemicals on industrial premises is an almost classic case of non-natural use even in an industrial
complex (see p 63 b and p 80 a to c, post); Rickards v Lothian [1911–13] All ER Rep 71 and Read v J Lyons & Co Ltd [1946] 2 All ER 471 considered.
Notes
For the rule in Rylands v Fletcher, see 34 Halsbury’s Laws (4th edn) paras 339–344.
Cases referred to in judgments and opinions

Baird v Williamson (1863) 15 CBNS 376, 143 ER 831.
Ballard v Tomlinson (1885) 29 Ch D 115, CA; rvsg (1884) 26 Ch D 194.
Bamford v Turnley (1862) 3 B & S 62, [1861–73] All ER Rep 706, 122 ER 25, Ex Ch.
Chasemore v Richards (1859) 7 HL Cas 349, [1843–60] All ER Rep 77, 11 ER 140, HL.
Goldman v Hargrave [1966] 2 All ER 989, [1967] 1 AC 645, [1966] 3 WLR 513, PC.
Humphries v Cousins (1877) 2 CPD 239, [1877–80] All ER Rep 313, CPD.
Leakey v National Trust for Places of Historic Interest or Natural Beauty [1980] 1 All ER 17, [1980] QB 485, [1980] 2 WLR 65, CA.
Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd, The Wagon Mound [1961] 1 All ER 404, [1961] AC 388, [1961] 2 WLR 126, PC.
Rainham Chemical Works Ltd v Belvedere Fish Guano Co Ltd [1921] 2 AC 465, [1921] All ER Rep 48, HL; rvsg [1920] 2 KB 487, CA.
Read v J Lyons & Co Ltd [1946] 2 All ER 471, [1947] AC 156, HL.
Rickards v Lothian [1913] AC 263, [1911–13] All ER Rep 71, PC.
Ross v Fedden (1872) 26 LT 966.
Rylands v Fletcher (1868) LR 3 HL 330, [1861–73] All ER Rep 1; affg Fletcher v Rylands (1866) LR 1 Ex 265.
Sedleigh-Denfield v O’Callagan [1940] 3 All ER 349, [1940] AC 880, HL.
Smith v Kenrick (1849) 7 CB 515, [1843–60] All ER Rep 273, 137 ER 205.
Wagon Mound, The (No 2), Overseas Tankship (UK) Ltd v Miller Steamship Co Pty Ltd [1966] 2 All ER 709, [1967] 1 AC 617, [1966] 3 WLR 498, PC.
West v Bristol Tramways Co [1908] 2 KB 14, [1908–10] All ER Rep 215, CA.
Wilson v Waddell (1876) 2 App Cas 95, HL.
54
Appeal
Cambridge Water Co Ltd (CWC) appealed from the decision of Ian Kennedy J delivered on 31 July 1991 dismissing CWC’s claim against Eastern
Counties Leatherwork plc (ECL) for injunctive relief and damages in respect of the pollution of groundwater which prevented CWC from using water
pumped at their borehole at Sawston Mill, Cambridgeshire, for the purpose of providing a public water supply. The facts are set out in the judgment of
the court.
Piers Ashworth QC and Lawrence West (instructed by Barlow Lyde & Gilbert) for CWC.
P I F Vallance QC and David Hart (instructed by Berrymans) for ECL.
Cur adv vult
19 November 1992. The following judgment of the court was delivered.
MANN LJ. This is an appeal from a decision of Ian Kennedy J given on 31 July 1991. The decision was to dismiss a claim by Cambridge Water Co Ltd
(CWC) against Eastern Counties Leatherwork plc (ECL) for injunctive relief and damages in respect of the pollution of groundwater. The pollution had
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prevented CWC from continuing to use water pumped at its Sawston Mill borehole for the purpose of providing a public water supply. On the same day
and in the course of the same judgment, the learned judge dismissed a similar claim brought in a separate action against Hutchings and Hardings Ltd.
There is no appeal against his decision in that action and it is unnecessary to say more about it than the claim failed because the judge found the defendant
was not proved ‘to have produced any measurable effect’ on the water pumped at Sawston Mill.
CWC is a statutory water company with the responsibility of providing a public water supply within an area of approximately 453 square miles
which includes the city of Cambridge. The population supplied is approximately 275,000. All of the water which CWC supplies is obtained by
abstraction from underground strata and in particular from the middle and lower chalk. In 1976 CWC purchased premises which had previously been
used for paper making which are situate about 1.3 miles north–west of the village of Sawston and are known as Sawston Mill. The premises included a
borehole to a depth of 30m by means of which water could be pumped from the chalk aquifer. The abstraction was authorised by a licence under (what
was then) the Water Resources Act 1963. The authorisation was for an abstraction of 1·5m gallons in any one day subject to an annual total take
equivalent to an average daily take of 1·27m gallons. CWC’s object in purchasing the mill was to enable it to use the borehole to provide water for the
public supply. The pumping station was commissioned in June 1979 and its yield came to represent about 12·5% of CWC’s total resources.
CWC satisfied itself before purchasing Sawston Mill that the water from the borehole was ‘wholesome’ in accordance with the then current standards
of water quality. The concept of wholesomeness in relation to a public water supply is an important one and it was considered in the late 1970s and early
1980s by both the World Health Organisation and the Council of the European Communities. On 15 July 1980 the Council issued a directive relating to
the quality of Water intended for Human Consumption (80/778/EEC). The directive required member States to fix values applicable to water so intended
by reference to specified parameters and provided (in effect) 18 July 1985 as the 55 compliance date. One of the parameters was of the maximum
admissible concentration of organochlorine compounds and a guide figure of one microgram per litre (1µg/litre) was given. The water industry in
England and Wales was informed of the directive by Department of the Environment circular 20/82 dated 19 August 1982. On 10 November 1983 the
industry was informed by the Department that the maximum admissible concentration of the organochlorine called tetrachloroethane was to be the lower
standard of 10µg/litre. This standard is now to be found in item 10 of table D of Sch 2 to the Water Supply (Water Quality) Regulations 1989, SI
1989/1147, which have effect as if made by the Secretary of State under the Water Industry Act 1991, Pt III, Ch III. Tetrachloroethene is also referred to
as perchloroethene and we shall refer to it, in company with the judge, as ‘PCE’. It is an artificial compound.
In 1976 when Sawston Mill was purchased, the presence of PCE in a public water supply was not a matter of concern and water was not tested with
PCE in mind. The Council directive altered the situation. A method of detecting the presence of PCE was devised for the Anglian Water Authority
which at that time was responsible for water quality, and tests were made of the water supplied by CWC. Early results showed PCE concentrations of
between 70 and 170µg/litre. Although the quantity of PCE was small, the concentrations were many times higher than either the European guide level or
the later figure given by the Department of the Environment. An investigation showed that PCE had entered the distribution system in water pumped
from the Sawston source. CWC ceased pumping for supply at Sawston on 13 October 1983 and ECL accepted CWC had no option to do otherwise. A
complex hydro-geological inquiry was then undertaken in order to determine the origin of the contamination. In the light of the information produced by
that inquiry, CWC claimed the PCE had originated from ECL’s premises in Sawston and it commenced proceedings on that basis.
Sawston is about 5 miles south of Cambridge and although described as a village it now has a resident population of approximately 7,300 people.
Tanneries have been located in the village for over 350 years and paper making has been carried on there for over 300 years. Additionally there are today
some other uses of a light industrial character. The judge described it as an ‘industrial village’. ECL was incorporated in 1879 and ever since that date
has carried on business as a producer of fine leather at premises in the village. About 100 people are employed in the business and live locally. ECL is of
high repute and its pride in its history is evidence by the book which was published to celebrate the centenary of incorporation.
Tanning necessarily involves the degreasing of pelts. Until 1991 ECL used organochlorines as solvents for degreasing. It was and still is common
practice so to do. The judge found that the solvent used until ‘about 1973’ was trichloroethene (TCE), and thereafter was PCE. He also found that until
‘about 1976’ first TCE and then PCE were delivered to the site in 40 gallon drums but that thereafter PCE was delivered in bulk and stored in a tank from
whence it was piped to the degreasing machines. There was no evidence as to the number of drums on site at any one time before the end of 1976, but by
reference to the amount of subsequent bulk deliveries the judge made the assumption that there would have been a maximum quantity of 25,000 litres
(5,500 gallons or 138 drums) at any one time. The drums were kept in storage and were carried when required by fork-lift truck from the storage area to
the degreasing machines. When the truck reached a particular machine the drum would be broached, 56 tilted and its contents allowed to flow into
the reservoir which acted as a supply for the machine. The judge said:
‘It is difficult to believe that drum after drum could be emptied in that way without accidents and regular spillages. Because PCE is less viscous
than water it could escape through the finest fissure in the concrete: equally a small amount could escape at the point of storage from suppocedly
emptied drums. I find that it was by such spillages that the major pollution of the aquifer with PCE and TCE occurred.’
The spillages must have occurred before the end of 1976. An understanding of the way by which they contaminated (and continue to contaminate)
the groundwater requires some knowledge of the chalk and of the characteristics of PCE. Chalk is a porous and naturally fissured material which locally
is underlaid by effectively impermeable layers of marl over gault clay. The pores contain water which is held in place by surface tension whilst the
fissures provide the means for the percolation of the groundwater which can be abstracted by pumping. PCE is a volatile compound but notwithstanding
this characteristic some of ECL’s spillages must have seeped below the surface of its premises and into the subjacent chalk. The seepage would have
sunk through the chalk until it met the interface with the impermeable material where it would have tended to pond. It would also have ponded at any less
permeable place in the chalk itself. Although PCE is not readily miscible with water it will mix, and so PCE will slowly have dissolved into the
percolating flows of groundwater and then been carried down catchment at an estimated rate of 7 metres a day towards the Sawston Mill borehole 1·3
miles away. The flows would have contaminated the pore-water by the process of equalisation, and this process was or is available to operate in reverse
when the concentration of PCE in the flows begins to fall below the concentration in the pore-water. Accordingly even although there has been no
spillage since the end of 1976, the judge found that ‘apart from such pools of PCE as may be at various horizons in the aquifer, there remains a significant
reservoir within the chalk itself’. The amount is conjectural and the period at the end of which PCE will have disappeared from the aquifer is at present
an indefinite one.
After an interim arrangement to which we need not refer, CWC made good the deficiency in its resources resulting from the shut down of Sawston
Mill, by the development of a borehole at Hinton Grange which is up catchment from ECL’s premises. The net cost of making good (that is to say the
cost after allowing for some over-design) was found by the judge to be £956,937. Had he held ECL liable he would have awarded as damages both that
sum (less an allowance of £60,000 for the residual operating benefit of the Sawston Mill premises) together with the costs of a pilot plant and of pumping
to waste in an unsuccessful attempt to purge the aquifer of PCE.
None of the facts which we have stated is now in dispute although at the trial there was a great deal of dispute over technical matters. The disputes
were resolved with clarity in Ian Kennedy J’s judgment and no complaint is made about his findings.
CWC contended at trial that ECL was liable in negligence, in nuisance or under the rule of law known as the rule in Rylands v Fletcher (see Rylands
v Fletcher (1868) LR 3 HL 330, [1861–73] All ER Rep 1; affg Fletcher v Rylands (1866) LR 1 Ex 265). The principal arguments seem to have been as to
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the application of the rule in Rylands v Fletcher . The contentions in negligence and in nuisance failed because the judge found ECL’s employees could
not have reasonably 57 foreseen in 1976 or before, that the spillages would result in detectable quantities of PCE being found in the aquifer let alone
that those quantities would have a sensible effect upon water abstracted from down catchment. There is no appeal against that finding, but whether it is a
finding which is properly decisive of CWC’s claim in nuisance is a question which we will have to consider.
The judge rejected liability under the rule in Rylands v Fletcher on a single ground. His starting point was to observe:
‘... the rigours of the rule in Rylands v Fletcher have been mitigated with the passing years, not by introduction of any concept of fault but by a
development of Lord Cairns’s contrast of natural and non-natural user. Whether or not Lord Cairns intended his phrase to be definitive as opposed
to descriptive (as to which either view might be held), the rule has been qualified by centring upon and giving a more liberal interpretation to the
words natural user.’
He next considered at length some of the authorities and concluded:
‘In my judgment, in considering whether the storage of organochlorines as an adjunct to a manufacturing process is a non-natural use of land, I
must consider whether that storage created special risks for adjacent occupiers and whether the activity was for the general benefit of the
community. It seems to me inevitable that I must consider the magnitude of the storage and the geographical area in which it takes place in
answering the question. Sawston is properly described as an industrial village, and the creation of employment is clearly for the benefit of that
community. I do not believe that I can enter upon an assessment of the point on a scale of desirability that the manufacture of wash leathers comes,
and I content myself with holding that this storage in this place is a natural use of land. The Plaintiffs have not sought to make any particular point
on the proximity of either works to residential areas. HHL’s works are clearly close by residential properties, but there is no evidence to suggest
that their siting is inappropriate to the processes carried on there. I hold that the storage of these chemicals did not amount to a non-natural user of
land.’
Mr Ashworth QC for CWC challenged this conclusion and argued that if it is correct, then ‘far from the rule in Rylands v Fletcher remaining in full
force (as the judge expressly held) it has been emasculated to the point of extinction’. This challenge raised the questions as to whether it is a requirement
for the establishment of liability under the rule that the defendant’s use of his land must have been a ‘non-natural use’ and if so, what is meant by
‘non-natural use’.
Mr Vallance QC for ECL defended the judge’s conclusion on natural use. He also sought to uphold the decision on the ground that ECL neither
knew nor ought to have known that PCE if it escaped from ECL’s premises, was likely to cause damage of the type which in fact it did. This argument
denies the sufficiency for the purpose of establishing liability under the rule in Rylands v Fletcher , of the escaped thing having caused the damage which
it did through the operation of ordinary natural processes such as those which we have endeavoured to describe.
The questions raised by Mr Ashworth and Mr Vallance are fundamental ones in regard to the rule in Rylands v Fletcher , but they would not arise if
CWC could establish its claim under the heading of nuisance. Nuisance, as Lord Macmillan has said in Read v J Lyons & Co Ltd [1946] 2 All ER 471 at
477, [1947] AC 156 at 58 173, is a congener of the rule in Rylands v Fletcher, but the former usually focuses on the acts of the defendant whilst the
latter always focuses on the event of an escape of some mischievous thing which the defendant brought onto his land. CWC’s claim in nuisance failed for
a reason which assumes the circumstances were such that ECL could be liable for the consequences of its accidental spillage of PCE only if it had broken
a duty to avoid foreseeable damage of a particular kind. The parties seem to have been content that the judge should proceed on this assumption. The
basis for it is not explicit in the judgment.
In Goldman v Hargrave [1966] 2 All ER 989 at 992, [1967] 1 AC 645 at 657 Lord Wilberforce said ‘the tort of nuisance, uncertain in its boundary,
may comprise a wide variety of situations, in some of which negligence plays no part, in others of which it is decisive’. The situation in the present case
is one where CWC alleged an interference with a right enjoyed as an incident of its ownership of Sawston Mill. Rights which the courts have identified
as an incident of the ownership of land have often been described, especially by judges in the nineteenth century, as ‘natural’ rights. One of the rights is
the right of an owner in regard to naturally occurring water which comes beneath his land by percolation through undefined underground channels. The
owner’s right is to have such of the water as he appropriates by abstraction come to him in an uncontaminated condition (Clerk and Lindsell on Torts
(16th edn, 1989) p 1394, para 24-54; Coulson and Forbes Waters (6th edn, 1952) pp 238–241).
The leading authority upon the right and the protection of it is Ballard v Tomlinson (1885) 29 Ch D 115. In that case the plaintiff and the defendant
were adjacent landowners who each owned a well sunk into a chalk aquifer. The plaintiff pumped water from his well for the purposes of his brewery but
the defendant came to use his well as a receptacle for the sewage and refuse from his printing house. The sewage and refuse contaminated the water in
the chalk to an extent that the water which the plaintiff pumped became unusable in the brewing process. His claim for an injunction and damages failed
before Pearson J (see 26 Ch D 194) but succeeded in this court. Brett MR said that the proposition of law raised by the case seemed to the court to be
clear (see 29 Ch D 115 at 119). He described an aquifer as a ‘common source’ and said (at 121–122):
‘… it seems to me that although nobody has any property in the common source, yet everybody has a right to appropriate it, and to appropriate
it in its natural state, and no one of those who have a right to appropriate it has a right to contaminate that source so as to prevent his neighbour
from having the full value of his right of appropriation … Neither does it matter whether the parties are or not contiguous neighbours. If it can be
shewn in fact that the Defendants have adulterated or fouled the common source, it signifies not how far the Plaintiff’s land is from their land.’
Cotton LJ said (at 124):
‘Then why has not the Plaintiff a right of action? The Defendants, not by exercising a natural right incident to the ownership of land, but by
putting filth on their land, interfere with the exercise by the Plaintiff of a natural right incident to the ownership of his own land, and although while
dirty water is in the stratum under the Defendant’s land, or even, perhaps, while it is under the Plaintiff’s land, so long as he is not desiring to
appropriate and use it, the Plaintiff has no right of action, yet as soon as the act of the Defendants interferes with the beneficial use by the Plaintiff
of that right, 59 incident to the ownership of the land, in my opinion he has a right of action. Of course if what the Defendants were doing was
a natural use of their land—that is to say, an exercise of a natural right incident to ownership—the Plaintiff could not complain. But the Defendants
are not doing that. No one can say that putting filth on your land in such a position and with such little care that it gets down to the stratum where
the water is common to you and to your neighbour, or to any other owner of land, is a natural use of the land.’
In referring to the situation where a plaintiff could not complain because the defendant had done no more than properly exercise a natural right of his
own, Cotton LJ may have had in mind Smith v Kenrick (1849) 7 CB 515, [1843–60] All ER Rep 273, which had been cited in argument. That was a
mining case where the defendant had worked his mine in a proper manner but with the consequence that water which naturally percolated into his mine
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was able to flow downward into the plaintiff’s mine. Cresswell J in delivering the judgment of the Court of Common Pleas said (7 CB 515 at 564,
[1843–60] All ER 273 at 278):
‘… it would seem to be the natural right of each of the owners of two adjoining coal mines,—neither being subject to any servitude to the
other,—to work his own in the manner most convenient and beneficial to himself, although the natural consequence may be, that some prejudice
will accrue to the owner of the adjoining mine, so long as that does not arise from the negligent or malicious conduct of the party.’
A similar case was Wilson v Waddell (1876) 2 App Cas 95 esp at 99 but a contrasting one also cited in Ballard v Tomlinson is Baird v Williamson
(1863) 15 CBNS 376, 143 ER 831 where the plaintiff complained of water which flowed into his mine from the defendants’ superior mine and which the
defendants had pumped to their mine from elsewhere. The plaintiff succeeded because the natural right to mine gave ‘no right to be active agents in
sending water into the lower mine’ (see 15 CBNS 376 at 391, 143 ER 831 at 837 per Erle CJ). We suspect Cotton LJ would have proposed that the
defendants in that case had not made a ‘natural use’ of their land because they had not acted in the exercise of a natural right. Someone who regarded the
case in that way might express his view by stating the user in Smith v Kenrick was ‘natural’ whilst those in Baird v Williamson and (later) Ballard v
Tomlinson were ‘non-natural’. The statement does not cause difficulty provided the recipient understands both that it is an abbreviation and that it always
predicates a prior determination of the real question. That question is whether the user was or was not the violation of a right of the plaintiff.
The third member of the court in Ballard v Tomlinson was Lindley LJ, who said (at 126–127):
‘… underground water which supplies a well may not be the property of the owner of the well, but he has a right to take and use such water, and
upon principle he appears to me to have a right of action against those who poison what he has a right to get. If indeed the well owner had no right
to get unpolluted water he would have no right of action, but it lies upon those who deny this right to maintain their position. Primâ facie, at all
events, the right of a man to get water from his well is to get the water as nature supplies it, and if any one contends that he has a right to pollute the
natural supply he must establish such right. A right to foul a stream may be 60 acquired by prescription; and possibly a right to foul an
underground basin of water might be similarly acquired; but no such question arises in this case.’
Ballard v Tomlinson was referred to by Ian Kennedy J but he did not use it for any purpose beyond that of identifying CWC’s right. In particular he
did not use it to compel the conclusion that the interference with CWC’s ‘natural’ right which resulted from ECL’s spillage of PCE was actionable as a
nuisance. Indeed it would appear that he was not asked to do so. In this court neither Mr Ashworth nor Mr Vallance could offer any reason which we
find ourselves able to formulate as to why Ballard v Tomlinson is not determinate in CWC’s favour. Mr Ashworth was of course content that it should be,
and indeed had stated in his skeleton argument that the decision is ‘scarcely distinguishable from this case on the facts.’
In our judgment the case is not distinguishable and the judge was wrong not to apply it. That CWC and ECL were not adjacent landowners is
immaterial because the same aquifer was beneath the surface of each ownership. It is also immaterial that Tomlinson’s filth was deliberately put into his
well whilst the PCE was spilt by accident. The judgments contain no warrant for distinguishing between a deliberate act and spillages which (as the judge
found) were inherently likely to occur. It was sufficient that the defendant’s act caused the contamination. Nor do the judgments contain any warrant for
attaching importance to the reasonableness of ECL’s inability to foresee that spillages would have the kind of consequence which they did. It does not
appear from the report whether Tomlinson either knew or ought to have known of any risk of damage attendant on his actions, but none of the judges in
this court was concerned with his state of actual or imputed knowledge. The situation is one in which negligence plays no part.
Ballard v Tomlinson decided that where the nuisance is an interference with a natural right incident to ownership then the liability is a strict one.
The actor acts at his peril in that if his actions result by the operation of ordinary natural processes in an interference with the right then he is liable to
compensate for any damage suffered by the owner. In the present case the PCE was found to have been spilt by the actions of ECL’s servants and the
damage which was suffered by CWC resulted from the operation of ordinary natural processes. Accordingly in our judgment Ballard v Tomlinson is
determinate in favour of CWC. We should add we cannot attach any importance to the fact that CWC suffered damage only when quality standards were
raised three years after its abstraction commenced and many years after ECL had ceased to spill PCE. Mr Vallance drew attention to this fact, but he did
not suggest it had any legal relevance, and we suspect he did so only in order to excite sympathy for ECL which although historically a spiller of PCE,
now regards itself as potentially the victim of liability without fault.
Our conclusion makes it unnecessary to consider the fundamental questions relating to the rule in Rylands v Fletcher which were elaborately argued
before us. However, whatever the answers to those questions may be, we think that the rule is inapposite in the present case. It is a rule which makes a
person liable for the event of an escape rather than for his actions. This case is one where liability attached by reason of actions of ECL in spilling PCE.
Had the chemical escaped into the aquifer through cracks in a storage tank which had been negligently fabricated by an apparently competent contractor,
then the case would have required an examination of the conditions for liability under the rule. The conditions are stated in the familiar and classic
passage in the 61 judgment of the Exchequer Chamber delivered by Blackburn J in Fletcher v Rylands (1866) LR 1 Ex 265 at 279–280. The
statement was expressly approved in the speeches of Lord Cairns LC and Lord Cranworth in the House of Lords (see Rylands v Fletcher (1868) LR 3 HL
330 at 340, [1861–73] All ER Rep 1 at 13–14; for the identity of the third member of the House see the note in 86 LQR 160). In our opinion it is doubtful
whether in an earlier part of his speech (LR 3 HL 330 at 338–339, [1861–73] All ER Rep 1 at 12–13) Lord Cairns LC had intended to attach a further
condition, that is to say that the thing which escaped must have been brought onto the defendant’s land in the course of a ‘non-natural’ use of it. In the
earlier part Lord Cairns was dealing with the ‘simple principles’ which he derived from Smith v Kenrick and Baird v Williamson (which we have
discussed) and which he regarded as affording of themselves a sufficient ground for deciding in favour of the plaintiff. However, Viscount Simon has
stated obiter that Lord Cairns added another condition (Read v J Lyons & Co Ltd [1946] 2 All ER 471 at 473, [1947] AC 156 at 166), and there are many
statements or decisions which assume the rule has a condition or qualification relating to ‘non-natural’ use (see Clerk and Lindsell pp 1425–1426). None
of the authorities very satisfactorily explains what the word means in this context and Megaw LJ once remarked on the ‘anomalies if not absurdities of
this supposed doctrine’ (Leakey v National Trust for Places of Historic Interest or Natural Beauty [1980] 1 All ER 17 at 32, [1980] QB 485 at 521). The
court may have to consider on a future occasion both whether it is bound to hold there is a condition or qualification and if so what it means (the first
issue is illuminated by Professor F H Newark in ‘Non-natural user and Rylands v Fletcher’ (1961) 24 MLR 557). Mr Vallance’s argument as to foresight
of the kind of damage caused by an escape will also have to await a future occasion. The decision in West v Bristol Tramways Co [1908] 2 KB 14,
[1908–10] All ER Rep 215 may then be important.
Mr Vallance and in response MrAshworth, each submitted what they described as an argument on policy in support of their respective causes. Mr
Vallance was concerned to demonstrate how modern legislation in regard to both resource management and control of pollution makes it no longer either
just or convenient that the common law should intervene to impose a strict liability for the pollution of an aquifer. Mr Ashworth responded with the
maxim ‘the polluter should pay’ which is now embodied as a principle in art 130R of the EEC Treaty. However, where the law which is binding on this
court is clear, as we think here it is, then the court’s decision cannot be affected by policy considerations. Others must consider whether Ballard v
Tomlinson accords with contemporary opinion. Some of them may say that it does.
For the reasons which we have given this appeal is allowed.
Preamble
Appeal allowed. Judgment for CWC for £1,064,886 with interest. Leave to appeal to the House of Lords refused.
Bebe Chua Barrister.
Appeal
ECL appealed to the House of Lords with the leave of the Appeal Committee of the House of Lords given on 18 March 1993.
P I F Vallance QC and David Hart (instructed by Berrymans) for ECL.

62
Piers Ashworth QC and Lawrence West (instructed by Barlow Lyde & Gilbert) for CWC.
LORD TEMPLEMAN. My Lords, for the reasons given in the speech by my noble and learned friend Lord Goff of Chieveley I would allow this
appeal.
LORD GOFF OF CHIEVELEY. My Lords, this appeal is concerned with the question whether the appellant company, Eastern Counties Leather plc
(ECL), is liable to the respondent company, Cambridge Water Co (CWC), in damages in respect of damage suffered by reason of the contamination of
water available for abstraction at CWC’s borehole at Sawston Mill near Cambridge. The contamination was caused by a solvent known as
perchloroethene (PCE), used by ECL in the process of degreasing pelts at its tanning works in Sawston, about 1·3 miles away from CWC’s borehole, the
PCE having seeped into the ground beneath ECL’s works and thence having been conveyed in percolating water in the direction of the borehole. CWC’s
claim against ECL was based on three alternative grounds, viz negligence, nuisance and the rule in Rylands v Fletcher (see Rylands v Fletcher (1868) LR
3 HL 330, [1861–73] All ER Rep 1; affg Fletcher v Rylands (1866) LR 1 Ex 265). The judge, Ian Kennedy J, dismissed CWC’s claim on all three
grounds—on the first two grounds, because (as I will explain hereafter) he held that ECL could not reasonably have foreseen that such damage would
occur, and on the third ground because he held that the use of a solvent such as PCE in ECL’s tanning business constituted, in the circumstances, a natural
use of ECL’s land. The Court of Appeal, however, allowed CWC’s appeal from the decision of the judge, on the ground that ECL was strictly liable for
the contamination of the water percolating under CWC’s land, on the authority of Ballard v Tomlinson (1885) 29 Ch D 115, and awarded damages against
ECL in the sum assessed by the judge, viz £1,064,886 together with interest totalling £642,885, and costs. It is against that decision that ECL now
appeals to your Lordships’ House, with leave of this House.
The factual background to the case has been set out, not only in the judgments in the courts below, but also in lucid detail in the agreed statement of
facts and issues helpfully prepared by counsel for the assistance of the Appellate Committee. These reveal the remarkable history of events which led to
the contamination of the percolating water available at CWC’s borehole, which I think it desirable that I myself should recount in some detail.
ECL was incorporated in 1879, and since that date has continued in uninterrupted business as a manufacturer of fine leather at Sawston. ECL
employs about 100 people, all or whom live locally. Its present works are, as the judge found, in general modern and spacious, and admit of a good
standard of housekeeping.
The tanning process requires that pelts shall be degreased; and ECL, in common with all other tanneries, has used solvents in that process since the
early 1950s. It has used two types of chlorinated solvents—organochlorines known as TCE (trichloroethene) and PCE. Both solvents are cleaning and
degreasing agents; and since 1950 PCE has increasingly been in common, widespread and everyday use in dry-cleaning, in general industrial use (eg as a
machine cleaner or paint-thinner), domestically (eg in ‘Dab-it-off’) and in 63 tanneries. PCE is highly volatile, and so evaporates rapidly in air; but it
is not readily soluble in water.
ECL began using TCE in the early 1950s and then changed over to PCE, probably sometime in the 1960s, and continued to use PCE until 1991. The
amount so used varied between 50,000 and 100,000 litres per year. The solvent was introduced into what were (in effect) dry-cleaning machines. This
was done in two different ways. First, from the commencement of use until 1976, the solvent was delivered in 40 gallon drums; as and when the solvent
was needed, a drum was taken by forklift truck to the machine and tipped into a tank at the base of the machine. Second, from 1976 to 1991, the solvent
was delivered in bulk and kept in a storage tank, from which it was piped directly to the machine.
There was no direct evidence of the actual manner in which PCE was spilled at ECL’s premises. However, the judge found that the spillage took
place during the period up to 1976, principally during the topping up process described above, during which there were regular spillages of relatively
small amounts of PCE onto the concrete floor of the tannery. It is known that, over that period, the minimum amount which must have been spilled (or
otherwise have entered the chalk aquifer below) was some 3,200 litres (1,000 gallons); it is not possible even to guess at the maximum. However, as the
judge found, a reasonable supervisor at ECL would not have foreseen, in or before 1976, that such repeated spillages of small quantities of solvent would
lead to any environmental hazard or damage—ie that the solvent would enter the aquifer or that, having done so, detectable quantities would be found
down-catchment. Even if he had foreseen that solvent might enter the aquifer, he would not have foreseen that such quantities would produce any
sensible effect upon water taken down-catchment, or would otherwise be material or deserve the description of pollution. I understand the position to
have been that any spillage would have been expected to evaporate rapidly in the air, and would not have been expected to seep through the floor of the
building into the soil below. The only harm that could have been foreseen from a spillage was that somebody might have been overcome by fumes from a
spillage of a significant quantity.
I turn to CWC. CWC was created under its own Act of Parliament in 1853 (the Cambridge University and Town Waterworks Act 1853 (16 & 17
Vict c xxiii), and is a licensed supplier of water following implementation of the Water Act 1989. Its function is to supply water to some 275,000 people
in the Cambridge area. It takes all its water by borehole extraction from underground strata, mainly the middle and lower chalk prevalent in the area.
Since 1945 public demand for water has multiplied many times, and new sources of supply have had to be found. In 1975 CWC identified the borehole at
Sawston Mill as having the potential to meet a need for supply required to avert a prospective shortfall, and to form part of its long term provision for
future demand. It purchased the borehole in September 1976. Before purchase, tests were carried out on the water from the borehole; these tests
indicated that, from the aspect of chemical analysis, the water was a wholesome water suitable for public supply purposes. Similar results were obtained
from tests carried out during the period 1979–83. At all events CWC, having obtained the requisite statutory authority to use the borehole for public
sector supply, proceeded to build a new pumping station at a cost of £184,000; and Sawston Mill water entered the main supply system in June 1979.
Preamble
64
Meanwhile, in the later 1970s concern began to be expressed in scientific circles about the presence of organic chemicals in drinking water, and their
possible effects. Furthermore, the development of, inter alia, high resolution gas chromatography during the 1970s enabled scientists to detect and
measure organochlorine compounds (such as PCE) in water to the value of micrograms per litre (or parts per billion) expressed as µg/litre.
In 1984 the World Health Organisation (WHO) published a Report on Guidelines for Drinking Water Quality (vol 1: recommendations). Although
not published until 1984, the Report was the product of discussion and consultation during several years previously, and its recommendations appear to
have formed the basis of an earlier EEC Directive, as well as of later UK Regulations. Chapter 4 of the Report is concerned with ‘Chemical and Physical
Aspects’, and Ch 4.3 deals with organic contaminants, three of which (including TCE and PCE) were assigned a ‘Tentative Guideline Value’. The value
so recommended for TCE was 30µg/litre, and for PCE 10µg/litre.
The EEC Directive relating to the Quality of Water intended for Human Consumption (80/778/EEC) was issued on 15 September 1980. Member
states were required to bring in laws within two years of notification, and to achieve full compliance within five years. The Directive distinguished
between ‘Maximum Admissible Concentration’ (MAC) values and ‘Guide Level’ (GL) values, the former being minimum standards which had to be
achieved, and the latter being more stringent standards which it was desirable to achieve. TCE and PCE were assigned a GL value of only 1µg/litre, ie 30
times and 10 times respectively lower than the WHO Tentative Guideline Values.
The United Kingdom responded to the Directive by Department of the Environment circular 20/82 dated 15 August 1982. The effect was that, as
from 18 July 1985, drinking water containing more than 1µg/litre of TCE or PCE would not be regarded as ‘wholesome’ water for the purpose of
compliance by water authorities with their statutory obligations under the Water Act 1973. However, following a regulation made in 1989 (SI 1989/1147)
the prescribed maximum concentration values for TCE and PCE have been respectively 30µg/litre and 10µg/litre, so that since 1 September 1989 the
United Kingdom values have been brought back into harmony with the WHO Tentative Guideline Values.
CWC employed Huntingdon Research Laboratories (HRL) to test its water for the purpose of compliance with the European Directive. In August
1983 Dr McDonald, an analytical chemist employed by HRL, decided to test tap water at his home in St Ives, Cambridge. He discovered PCE in the
water. Samples then taken of his own and his neighbours’ water disclosed an average PCE concentration of 38·5µg/litre. As a result, CWC caused
investigations to be made to discover the source of the contaminant, which was identified as the Sawston Mill borehole. The borehole was taken out of
commission on 13 October 1983. The Anglian Water Authority then instituted what was to become a prolonged and exhaustive programme of
investigation, principally conducted by the British Geological Survey (BGS), to discover the source and path of the PCE in the borehole water. This
investigation yielded, between 1987 and 1989, a number of published papers which have become the UK source material on the behaviour and
characteristics of chlorinated organic industrial solvents in groundwater, and the behaviour of groundwater in a fissure-flow, anisostropic (ie where
permeability is higher in one direction rather than constant in all directions) chalk aquifer. Before publication of these papers little was known about
either of these subjects.
65
The conclusions reached by BGS, and by the expert witnesses instructed by CWC and ECL in the present litigation, were as follows. Neat PCE had
travelled down through the drift directly beneath ECL’s premises, and then vertically downwards through the chalk aquifer until arrested by a relatively
impermeable layer of chalk marl at a depth of about 50 metres. Thus arrested, the neat PCE had formed pools which were dissolving slowly in the
groundwater and being carried down aquifer in the direction of Sawston Mill at the rate of about 8 metres per day, the travel time between pool and
Sawston Mill being about 9 months, and the migration of the dissolved phase PCE being along a deep, comparatively narrow, pathway or ‘plume’. On
the balance of probabilities, this narrow plume had reached Sawston Mill and been at least materially responsible for the PCE concentrations found there.
Sawston Mill had been taken out of supply in October 1983. As an interim measure, CWC brought forward a pre-existing proposal to construct a
new pumping station at Duxford Airfield. This new source, which came on stream in the summer of 1984, made up for the loss of the Sawston supply.
CWC still needed to make use of the Sawston catchment, but it rejected methods of treatment of the water there as unproven at that time. Instead it
proceeded with the development of a new source of supply at Hinxton Grange. The damages assessed by the judge, and awarded by the Court of Appeal,
against ECL consisted of £956,937 in respect of the development of Hinxton Grange (less £60,000, being the residual value to CWC of Sawston Mill)
together with certain incidental expenses. In fact, by 1990 CWC felt sufficiently confident in carbon filtration technology to build a treatment plant at
Sawston Mill, for the purpose of treating water from Duxford Airfield to remove concentrations of an organic herbicide from the water there. This plant
is capable of removing PCE from Sawston Mill water as and when required.
From the foregoing history, the following relevant facts may be selected as being of particular relevance.
(1) The spillage of PCE, and its seepage into the ground beneath the floor of the tannery at ECL’s works, occurred during the period which ended in
1976, as a result of regular spillages of small quantities of PCE onto the floor of ECL’s tannery.
(2) The escape of dissolved phase PCE, from the pools of neat PCE which collected at or towards the base of the chalk aquifers beneath ECL’s
works, into the chalk aquifers under the adjoining land and thence in the direction of Sawston Mill, must have begun at some unspecified date well before
1976 and be still continuing to the present day.
(3) As held by the judge, the seepage of the PCE beneath the floor of ECL’s works down into the chalk aquifers below was not foreseeable by a
reasonable supervisor employed by ECL, nor was it foreseeable by him that detectable quantities of PCE would be found down-catchment, so that he
could not have foreseen, in or before 1976, that the repeated spillages would lead to any environmental hazard or damage. The only foreseeable damage
from a spillage of PCE was that somebody might be overcome by fumes from a substantial spillage of PCE on the surface of the ground.
(4) The water so contaminated at Sawston Mill has never been held to be dangerous to health. But under criteria laid down in the UK Regulations,
issued in response to the EEC Directive, the water so contaminated was not ‘wholesome’ and, since 1985, could not lawfully be supplied in this country
as drinking water.
66
The decision of Ian Kennedy J

The judge dismissed the claims against ECL in nuisance and negligence in the following passage:
‘That there should now be an award of damages in respect of the 1991 impact of actions that were not actionable nuisances or negligence when
they were committed 15 years before is to my mind not a proposition which the common law would entertain.’
I feel, with respect, that this passage requires some elucidation.

It is not to be forgotten that both nuisance and negligence are, historically, actions on the case; and accordingly in neither case is the tort complete,
so that damages are recoverable, unless and until damage has been caused to the plaintiff. It follows that, in this sense (which I understand to be the
relevant sense), there could not be an actionable nuisance by virtue of the spillage of solvent on ECL’s land, but only when such spillage caused damage
Preamble
to CWC, ie when water available at its borehole was rendered unsaleable by reason of breach of the Regulations. It also follows that, in theory, the fact
that the Regulations came into force after the relevant spillage on ECL’s land, though before the relevant contamination of the water, would not of itself
mean that there was no actionable nuisance committed by ECL, unless there is some applicable principle of law which would in such circumstances
render the damage not actionable as a nuisance. The two possible principles are either (1) that the user of ECL’s land resulting in the spillage was in the
circumstances a reasonable user or (2) that ECL will not be liable in the absence of reasonable foreseeability that its action may cause damage of the
relevant type to CWC. In the present case, there does not appear to have been any reliance by ECL, in its pleaded case or in argument, on the principle of
reasonable user. I therefore infer that the basis upon which the judge rejected CWC’s claim in nuisance must have derived from his finding of lack of
reasonable foreseeability of damage of the relevant type, which is basically the same ground on which he dismissed CWC’s claim in negligence. This is
however a point to which I will return at a later stage, when I come to consider liability on the facts of the present case under the rule in Rylands v
Fletcher.
The decision of the Court of Appeal: Ballard v Tomlinson

There was no appeal by CWC against the judge’s conclusion on nuisance and negligence. CWC pursued its appeal to the Court of Appeal relying
only on the rule in Rylands v Fletcher, on which point the judge had decided against it on the ground that the relevant operations of ECL constituted
natural use of its land. The Court of Appeal however held ECL to be strictly liable in damages to CWC in respect of the contamination of the percolating
water available for extraction by CWC from its borehole at Sawston Mill. This they did on the basis of the decision of the Court of Appeal in Ballard v
Tomlinson (1885) 29 Ch D 115.
In that case the plaintiff and the defendant, whose properties were separated only by a highway, each had on his land a well sunk into the chalk
aquifer below. The plaintiff had a brewery on his land, for the purpose of which he used water drawn from his well. A printing house was built on the
defendant’s land, and the defendant constructed a drain from a water closet attached to the printing house, by means of which the sewage from the closet
and the refuse from the printing house found their way into the defendant’s well. The sewage and refuse which entered the defendant’s well polluted the
common source of percolating water so that the water which the plaintiff drew from his well was 67 unusable for brewing purposes. The Court of
Appeal, reversing the decision of Pearson J (see (1884) 26 Ch D 194), held that the plaintiff was entitled to judgment against the defendant for an
injunction and for damages.
The principal argument advanced by the defendant was based on the proposition that the plaintiff had no property in the water percolating beneath
his land, and therefore had no cause of action for the pollution of that water. The judgments of the Court of Appeal, which were unreserved, were largely
directed to the rejection of that argument. This they did on the basis that the plaintiff had a right to extract water percolating beneath his land, and the
defendant had no right to contaminate what the plaintiff was entitled to get. As Brett MR said (29 Ch D 115 at 121):
‘… no one of those who have a right to appropriate [the water] has a right to contaminate that source so as to prevent his neighbour from having
the full value of his right of appropriation.’
It appears that both Brett MR and Cotton LJ considered that the plaintiff’s cause of action arose under the rule in Rylands v Fletcher, which was the
basis upon which the plaintiff’s case was advanced in argument. Lindley LJ however treated the case as one of nuisance.
The Court of Appeal treated this decision as determining the present case against ECL. Mann LJ (who delivered the judgment of the court) said (see
p 61, ante):
‘It was sufficient that the defendant’s act caused the contamination. Nor do the judgments contain any warrant for attaching importance to the
reasonableness of ECL’s inability to foresee that spillages would have the kind of consequence which they did. It does not appear from the report
whether Tomlinson either knew or ought to have known of any risk of damage attendant on his actions, but none of the judges in this court was
concerned with his state of actual or imputed knowledge. The situation is one in which negligence plays no part. Ballard v Tomlinson decided that
where the nuisance is an interference with a natural right incident to ownership then the liability is a strict one. The actor acts at his peril in that if
his actions result by the operation of ordinary natural processes in an interference with the right then he is liable to compensate for any damage
suffered by the owner.’
In his judgment in Ballard v Tomlinson 29 Ch D 115 at 124 Cotton LJ spoke of the plaintiff’s right to abstract percolating water beneath his land as
‘a natural right incident to the ownership of his own land’. In the present context, however, this means no more than that the owner of land can, without a
grant, lawfully abstract water which percolates beneath his land, his right to do so being protected by the law of tort, by means of an action for an
injunction or for damages for nuisance: see Megarry and Wade Law of Real Property (5th edn, 1984) p 842, and Simpson History of Land Law (2nd edn,
1986) pp 263–264. There is no natural right to percolating water, as there may be to water running in a defined channel; see Chasemore v Richards
(1859) 7 HL Cas 349 at 379, [1843–60] All ER Rep 77 at 84 per Lord Cranworth, and 49 Halsbury’s Laws (4th edn) para 392. In the present case Mann
LJ stated that Ballard v Tomlinson decided that ‘where the nuisance is an interference with a natural right incident to ownership then the liability is a strict
one’. In my opinion, however, if in this passage Mann LJ intended to say that the defendant was held to be liable for damage which he could not
reasonably have foreseen, that conclusion cannot 68 be drawn from the judgments in the case, in which the point did not arise. As I read the
judgments, they disclose no more than that, in the circumstances of the case, the defendant was liable to the plaintiff in tort for the contamination of the
source of water supplying the plaintiff’s well, either on the basis of the rule in Rylands v Fletcher, or under the law of nuisance, by reason of interference
with the plaintiff’s use and enjoyment of his land, including his right to extract water percolating beneath his land. It follows that the question whether
such a liability may attach in any particular case must depend upon the principles governing liability under one or other of those two heads of the law. To
those principles, therefore, I now turn.
Nuisance and the rule in Rylands v Fletcher

As I have already recorded, there was no appeal by CWC to the Court of Appeal against the judge’s conclusion in nuisance. The question of ECL’s
liability in nuisance has really only arisen again because the Court of Appeal allowed CWC’s appeal on the ground that ECL was liable on the basis of
strict liability in nuisance on the principle laid down, as they saw it, in Ballard v Tomlinson. Since, for the reasons I have given, that case does not give
rise to any principle of law independent of the ordinary law of nuisance or the rule in Rylands v Fletcher, the strict position now is that CWC, having
abandoned its claim in nuisance, can only uphold the decision of the Court of Appeal on the basis of the rule in Rylands v Fletcher. However, one
important submission advanced by ECL before the Appellate Committee was that strict liability for an escape only arises under that rule where the
defendant knows or reasonably ought to have foreseen, when collecting the relevant things on his land, that those things might, if they escaped, cause
damage of the relevant kind. Since there is a close relationship between nuisance and the rule in Rylands v Fletcher, I myself find it very difficult to form
an opinion as to the validity of that submission without first considering whether foreseeability of such damage is an essential element in the law of
Preamble
nuisance. For that reason, therefore, I do not feel able altogether to ignore the latter question simply because it was no longer pursued by CWC before the
Court of Appeal.
In order to consider the question in the present case in its proper legal context, it is desirable to look at the nature of liability in a case such as the
present in relation both to the law of nuisance and the rule in Rylands v Fletcher, and for that purpose to consider the relationship between the two heads
of liability.
I begin with the law of nuisance. Our modern understanding of the nature and scope of the law of nuisance was much enhanced by Professor
Newark’s seminal article ‘The boundaries of nuisance’ (1949) 65 LQR 480. The article is avowedly a historical analysis, in that it traces the nature of the
tort of nuisance to its origins, and demonstrates how the original view of nuisance as a tort to land (or more accurately, to accommodate interference with
servitudes, a tort directed against the plaintiff’s enjoyment of rights over land) became distorted as the tort was extended to embrace claims for personal
injuries, even where the plaintiff’s injury did not occur while using land in his occupation. In Professor Newark’s opinion (at p 487), this development
produced adverse effects, viz that liability which should have arisen only under the law of negligence was allowed under the law of nuisance which
historically was a tort of strict liability; and that there was a tendency for ‘cross-infection to take place, and notions of negligence began to make an
appearance in the realm of nuisance proper’. But 69 in addition, Professor Newark considered (at pp 487–488), it contributed to a misappreciation of
the decision in Rylands v Fletcher:
‘This case is generally regarded as an important landmark, indeed a turning point—in the law of tort; but an examination of the judgments
shows that those who decided it were quite unconscious of any revolutionary or reactionary principles implicit in the decision. They thought of it as
calling for no more than a restatement of settled principles, and Lord Cairns went so far as to describe those principles as “extremely simple”. And
in fact the main principle involved was extremely simple, being no more than the principle that negligence is not an element in the tort of nuisance.
It is true that Blackburn J in his great judgment in the Exchequer Chamber never once used the word “nuisance”, but three times he cited the case of
fumes escaping from an alkali works—a clear case of nuisance—as an instance of liability, under the rule which he was laying down. Equally it is
true that in 1866 there were a number of cases in the reports suggesting that persons who controlled dangerous things were under a strict duty to
take care, but as none of these cases had anything to do with nuisance Blackburn J. did not refer to them. But the profession as a whole, whose
conceptions of the boundaries of nuisance were now becoming fogged, failed to see in Rylands v. Fletcher a simple case of nuisance. They
regarded it as an exceptional case—and the rule in Rylands v. Fletcher as a generalisation of exceptional cases, where liability was to be strict on
account of ‘the magnitude of danger, coupled with the difficulty of proving negligence’ [Pollock on Torts (14th edn, 1939) p 386] rather than on
account of the nature of the plaintiff’s interest which was invaded. They therefore jumped rashly to two conclusions: firstly, that the rule in Rylands
v Fletcher could be extended beyond the case of neighbouring occupiers; and secondly, that the rule could be used to afford a remedy in cases of
personal injury. Both these conclusions were stoutly denied by Lord Macmillan in Read v. J. Lyons & Co. Ltd. ([1946] 2 All ER 471, [1947] AC
156), but it remains to be seen whether the House of Lords will support his opinion when the precise point comes up for decision.’
We are not concerned in the present case with the problem of personal injuries, but we are concerned with the scope of liability in nuisance and in
Rylands v Fletcher. In my opinion it is right to take as our starting point the fact that, as Professor Newark considered, Rylands v Fletcher was indeed not
regarded by Blackburn J as a revolutionary decision: see eg his observations in Ross v Fedden (1872) 26 LT 966 at 968. He believed himself not to be
creating new law, but to be stating existing law, on the basis of existing authority; and, as is apparent from his judgment, he was concerned in particular
with the situation where the defendant collects things upon his land which are likely to do mischief if they escape, in which event the defendant will be
strictly liable for damage resulting from any such escape. It follows that the essential basis of liability was the collection by the defendant of such things
upon his land; and the consequence was a strict liability in the event of damage caused by their escape, even if the escape was an isolated event. Seen in
its context, there is no reason to suppose that Blackburn J intended to create a liability any more strict than that created by the law of nuisance; but even
so he must have intended that, in the circumstances specified by him, there should be liability for damage resulting from an isolated escape.
70
Of course, although liability for nuisance has generally been regarded as strict, at least in the case of a defendant who has been responsible for the
creation of a nuisance, even so that liability has been kept under control by the principle of reasonable user—the principle of give and take as between
neighbouring occupiers of land, under which ‘those acts necessary for the common and ordinary use and occupation of land and houses may be done, if
conveniently done, without subjecting those who do them to an action’: see Bamford v Turnley (1862) 3 B & S 62 at 83, [1861–73] All ER Rep 706 at
712 per Bramwell B. The effect is that, if the user is reasonable, the defendant will not be liable for consequent harm to his neighbour’s enjoyment of his
land; but if the user is not reasonable, the defendant will be liable, even though he may have exercised reasonable care and skill to avoid it. Strikingly, a
comparable principle has developed which limits liability under the rule in Rylands v Fletcher. This is the principle of natural use of the land. I shall
have to consider the principle at a later stage in this judgment. The most authorative statement of the principle is now to be found in the advice of the
Privy Council delivered by Lord Moulton in Rickards v Lothian [1913] AC 263 at 280, [1911–13] All ER Rep 71 at 80 when he said of the rule in
Rylands v Fletcher:
‘It is not every use to which land is put that brings into play that principle. It must be some special use bringing with it increased danger to
others, and must not merely be the ordinary use of the land or such a use as is proper for the general benefit of the community.’
It is not necessary for me to identify precise differences which may be drawn between this principle, and the principle of reasonable user as applied
in the law of nuisance. It is enough for present purposes that I should draw attention to a similarity of function. The effect of this principle is that, where
it applies, there will be no liability under the rule in Rylands v Fletcher; but that where it does not apply, ie where there is a non-natural use, the defendant
will be liable for harm caused to the plaintiff by the escape, notwithstanding that he has exercised all reasonable care and skill to prevent the escape from
occurring.
Foreseeability of damage in nuisance

It is against this background that it is necessary to consider the question whether foreseeability of harm of the relevant type is an essential element of
liability either in nuisance or under the rule in Rylands v Fletcher. I shall take first the case of nuisance. In the present case, as I have said, this is not
strictly speaking a live issue. Even so, I propose briefly to address it, as part of the analysis of the background to the present case.
It is, of course, axiomatic that in this field we must be on our guard, when considering liability for damages in nuisance, not to draw inapposite
conclusions from cases concerned only with a claim for an injunction. This is because, where an injunction is claimed, its purpose is to restrain further
action by the defendant which may interfere with the plaintiff’s enjoyment of his land, and ex hypothesi the defendant must be aware, if and when an
injunction is granted, that such interference may be caused by the act which he is restrained from committing. It follows that these cases provide no
guidance on the question whether foreseeability of harm of the relevant type is a prerequisite of the recovery of damages for causing such harm to the
Preamble
plaintiff. In the present case, we are not concerned with liability in damages in respect of a nuisance which has arisen through natural causes, or by the
act of a person for whose actions the defendant is not responsible, in which cases the applicable principles 71 in nuisance have become closely
associated with those applicable in negligence: see Sedleigh-Denfield v O’Callagan [1940] 3 All ER 349, [1940] AC 880 and Goldman v Hargrave
[1966] 2 All ER 989, [1967] 1 AC 645. We are concerned with the liability of a person where a nuisance has been created by one for whose actions he is
responsible. Here, as I have said, it is still the law that the fact that the defendant has taken all reasonable care will not of itself exonerate him from
liability, the relevant control mechanism being found within the principle of reasonable user. But it by no means follows that the defendant should be
held liable for damage of a type which he could not reasonably foresee; and the development of the law of negligence in the past sixty years points
strongly towards a requirement that such foreseeability should be a prerequisite of liability in damages for nuisance, as it is of liability in negligence. For
if a plaintiff is in ordinary circumstances only able to claim damages in respect of personal injuries where he can prove such foreseeability on the part of
the defendant, it is difficult to see why, in common justice, he should be in a stronger position to claim damages for interference with the enjoyment of his
land where the defendant was unable to foresee such damage. Moreover, this appears to have been the conclusion of the Privy Council in The Wagon
Mound (No 2), Overseas Tankship (UK) Ltd v Miller Steamship Co Pty Ltd [1966] 2 All ER 709, [1967] 1 AC 617. The facts of the case are too well
known to require repetition, but they gave rise to a claim for damages arising from a public nuisance caused by a spillage of oil in Sydney Harbour. Lord
Reid, who delivered the advice of the Privy Council, considered that, in the class of nuisance which included the case before the Board, foreseeability is
an essential element in determining liability. He then continued ([1966] 2 All ER 709 at 717, [1967] 1 AC 617 at 640):
‘It could not be right to discriminate between different cases of nuisance so as to make foreseeability a necessary element in determining
damages in those cases where it is a necessary element in determining liability, but not in others. So the choice is between it being a necessary
element in all cases of nuisance or in none. In their Lordships’ judgment the similarities between nuisance and other forms of tort to which The
Wagon Mound (No. 1) [see Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd, The Wagon Mound [1961] 1 All ER 404, [1961]
AC 388] applies far outweigh any differences, and they must therefore hold that the judgment appealed from is wrong on this branch of the case. It
is not sufficient that the injury suffered by the respondents’ vessels was the direct result of the nuisance if that injury was in the relevant sense
unforeseeable.’
It is widely accepted that this conclusion, although not essential to the decision of the particular case, has nevertheless settled the law to the effect
that foreseeability of harm is indeed a prerequisite of the recovery of damages in private nuisance, as in the case of public nuisance. I refer in particular to
the opinion expressed by Professor Fleming in his book on Torts (8th edn, 1992) pp 443–444. It is unnecessary in the present case to consider the precise
nature of this principle; but it appears from Lord Reid’s statement of the law that he regarded it essentially as one relating to remoteness of damage.
Foreseeability of damage under the rule in Rylands v Fletcher

It is against this background that I turn to the submission advanced by ECL before your Lordships that there is a similar prerequisite of recovery of
damages under the rule in Rylands v Fletcher (1866) LR 1 Exch 265.
72
I start with the judgment of Blackburn J in Fletcher v Rylands itself. His celebrated statement of the law is to be found where he said (at 279–280):
‘We think that the true rule of law is, that the person who for his own purposes brings on his lands and collects and keeps there anything likely
to do mischief if it escapes, must keep it in at his peril, and, if he does not do so, is prima facie answerable for all the damage which is the natural
consequence of its escape. He can excuse himself by showing that the escape was owing to the plaintiff’s default; or perhaps that the escape was
the consequence of vis major, or the act of God; but as nothing of this sort exists here, it is unnecessary to inquire what excuse would be sufficient.
The general rule, as above stated, seems on principle just. The person whose grass or corn is eaten down by the escaping cattle of his neighbour, or
whose mine is flooded by the water from his neighbour’s reservoir, or whose cellar is invaded by the filth of his neighbour’s privy, or whose
habitation is made unhealthy by the fumes and noisome vapours of his neighbour’s alkali works, is damnified without any fault of his own; and it
seems but reasonable and just that the neighbour, who has brought something on his own property which was not naturally there, harmless to others
so long as it is confined to his own property, but which he knows to be mischievous if it gets on his neighbour’s, should be obliged to make good
the damage which ensues if he does not succeed in confining it to his own property. But for his act in bringing it there no mischief could have
accrued, and it seems but just that he should at his peril keep it there so that no mischief may accrue, or answer for the natural and anticipated
consequences. And upon authority, this we think is established to be the law whether the things so brought be beasts, or water, or filth, or
stenches.’
In that passage Blackburn J spoke of ‘anything likely to do mischief if it escapes’; and later he spoke of something ‘which he knows to be
mischievous if it gets on to his neighbour’s [property]’, and the liability to ‘answer for the natural and anticipated consequences’. Furthermore, time and
again he spoke of the strict liability imposed upon the defendant as being that he must keep the thing in at his peril; and, when referring to liability in
actions for damage occasioned by animals, he referred (at 282) to the established principle ‘that it is quite immaterial whether the escape is by negligence
or not’. The general tenor of his statement of principle is therefore that knowledge, or at least foreseeability of the risk, is a prerequisite of the recovery of
damages under the principle; but that the principle is one of strict liability in the sense that the defendant may be held liable notwithstanding that he has
exercised all due care to prevent the escape from occurring.
There are however early authorities in which foreseeability of damage does not appear to have been regarded as necessary (see eg Humphries v
Cousins (1877) 2 CPD 239, [1877–80] All ER Rep 313). Moreover, it was submitted by Mr Ashworth for CWC that the requirement of foreseeability of
damage was negatived in two particular cases, the decision of the Court of Appeal in West v Bristol Tramways Co [1908] 2 KB 14, [1908–10] All ER Rep
215, and the decision of this House in Rainham Chemical Works Ltd v Belvedere Fish Guano Co Ltd [1921] 2 AC 465, [1921] All ER Rep 48.
In West v Bristol Tramways Co the defendant tramway company was held liable for damage to the plaintiff’s plants and shrubs in his nursery garden
adjoining a road where the defendant’s tramline ran, the damage being caused by fumes from creosoted wooden blocks laid by the defendants between the
73 rails of the tramline. The defendants were so held liable under the rule in Rylands v Fletcher, notwithstanding that they were exonerated from
negligence, having no knowledge of the possibility of such damage; indeed the evidence was that creosoted wood had been in use for several years as
wood paving, and no mischief had ever been known to arise from it. The argument that no liability arose in such circumstances under the rule in Rylands
v Fletcher was given short shrift, both in the Divisional Court and in the Court of Appeal. For the Divisional Court, it was enough that the creosote had
been found to be dangerous by the jury, Phillimore J holding that creosote was like the wild animals in the old cases. The Court of Appeal did not call
upon the plaintiffs, and dismissed the appeal in unreserved judgments. Lord Alverstone CJ relied upon a passage from Garrett on Nuisances (2nd edn,
1897) p 129, and rejected a contention by the defendant that, in the case of non-natural use of land, the defendant will not be liable unless the thing
introduced onto the land was, to the knowledge of the defendant, likely to escape and cause damage. It was however suggested, both by Lord Alverstone
Preamble
CJ (with whom Gorell Barnes P agreed) and by Farwell LJ that, by analogy with cases concerning liability for animals, the defendant might escape
liability if he could show that, according to the common experience of mankind, the thing introduced onto the land had proved not to be dangerous.
The Rainham Chemicals case arose out of a catastrophic explosion at a factory involved in the manufacture of high explosive during the First World
War, with considerable loss of life and damage to neighbouring property. It was held that the company carrying on the business at the premises was liable
for the damage to neighbouring property under the rule in Rylands v Fletcher; but the great question in the case, at least so far as the appellate courts were
concerned, was whether two individuals, who were shareholders in and directors of the company, could be held personally responsible on the same
principle. The grounds on which the trial judge (Scrutton LJ, sitting as an additional judge on the Queen’s Bench Division) and the majority of the Court
of Appeal (Lord Sterndale MR and Atkin LJ) held the two individuals liable were all different and were all held to be erroneous by your Lordships’
House. The dissentient member of the Court of Appeal, Younger LJ, concluded that no liability could attach to them on any established principle, and
plainly feared that they were being treated as scapegoats because they were making money out of the venture (see [1920] 2 KB 487 at 521–523). The
explosion at the factory appears to have originated in an ingredient used in the manufacture of the explosive, viz dinitrophenol (DNP), which had
formerly been used in dyeing; this exploded as a result of a fire, the cause of which was not established. Before Scrutton LJ, it appears to have been
admitted that the person in possession of the DNP was liable under the rule in Rylands v Fletcher for the consequences of the explosion. This was despite
the fact that DNP had never been known to explode before and, as Younger LJ pointed out, exactly the same fire and explosion might have occurred if the
DNP had been stored at a dyeworks and was not being used in any way in the manufacture of explosives. In the Court of Appeal, Atkin LJ was of the
opinion that the fact that the work was known to be dangerous by the contractors and the company was, if relevant, established (see [1920] 2 KB 487 at
505); but it seems clear that no such knowledge could be imputed to either of the two individual defendants. The point appears to have been briefly relied
on by counsel in the Court of Appeal, but not to have been pursued by Sir John Simon KC on their behalf in the House of Lords. However, this House
dismissed their appeal on a point of some technicality, viz that their Lordships 74 could not satisfy themselves that the two individuals had
sufficiently divested themselves of the occupation of the premises, so as to substitute the occupation of the company in the place of their
own—notwithstanding that the company itself was also in occupation (see [1921] 2 AC 465 at 478–479, 480, 483–484, 491 and 492, 493–494, [1921] All
ER Rep 48 at 53–54, 56, 59–61 per Lord Buckmaster, Lord Sumner, Lord Parmoor and Lord Carson).
I feel bound to say that these two cases provide a very fragile base for any firm conclusion that foreseeability of damage has been authoritatively
rejected as a prerequisite of the recovery of damages under the rule in Rylands v Fletcher. Certainly, the point was not considered by this House in the
Rainham Chemicals case. In my opinion, the matter is open for consideration by your Lordships in the present case, and, despite recent dicta to the
contrary (see eg Leakey v National Trust for Places of Historic Interest or Natural Beauty [1980] 1 All ER 17 at 30, [1980] QB 485 at 519 per Megaw
LJ), should be considered as a matter of principle. Little guidance can be derived from either of the two cases in question, save that it seems to have been
assumed that the strict liability arising under the rule precluded reliance by the plaintiff on lack of knowledge or the means of knowledge of the relevant
danger.
The point is one on which academic opinion appears to be divided: cf Salmond and Heuston on Torts (20th edn, 1992) pp 324–325, which favours
the prerequisite of foreseeability, and Clerk and Lindsell on Torts (16th edn, 1989) para 25.09, which takes a different view. However, quite apart from
the indications to be derived from the judgment of Blackburn J in Fletcher v Rylands LR 1 Exch 265 itself, to which I have already referred, the historical
connection with the law of nuisance must now be regarded as pointing towards the conclusion that foreseeability of damage is a prerequisite of the
recovery of damages under the rule. I have already referred to the fact that Blackburn J himself did not regard his statement of principle as having broken
new ground; furthermore, Professor Newark has convincingly shown that the rule in Rylands v Fletcher was essentially concerned with an extension of
the law of nuisance to cases of isolated escape. Accordingly since, following the observations of Lord Reid when delivering the advice of the Privy
Council in The Wagon Mound (No 2) [1966] 2 All ER 709 at 717, [1967] 1 AC 617 at 640, the recovery of damages in private nuisance depends on
foreseeability by the defendant of the relevant type of damage, it would appear logical to extend the same requirement to liability under the rule in
Rylands v Fletcher.
Even so, the question cannot be considered solely as a matter of history. It can be argued that the rule in Rylands v Fletcher should not be regarded
simply as an extension of the law of nuisance, but should rather be treated as a developing principle of strict liability from which can be derived a general
rule of strict liability for damage caused by ultra-hazardous operations, on the basis of which persons conducting such operations may properly be held
strictly liable for the extraordinary risk to others involved in such operations. As is pointed out in Fleming on Torts (8th edn, 1992) pp 327–328, this
would lead to the practical result that the cost of damage resulting from such operations would have to be absorbed as part of the overheads of the relevant
business rather than be borne (where there is no negligence) by the injured person or his insurers, or even by the community at large. Such a development
appears to have been taking place in the United States, as can be seen from § 519 of the Restatement of Torts (2d) vol 3 (1977). The extent to which it has
done so is not altogether clear; and I infer from para 519, and the comment on that paragraph, that the 75 abnormally dangerous activities there
referred to are such that their ability to cause harm would be obvious to any reasonable person who carried them on.
I have to say, however, that there are serious obstacles in the way of the development of the rule in Rylands v Fletcher in this way. First of all, if it
was so to develop, it should logically apply to liability to all persons suffering injury by reason of the ultra-hazardous operations; but the decision of this
House in Read v J Lyons & Co Ltd [1946] 2 All ER 471, [1947] AC 156, which establishes that there can be no liability under the rule except in
circumstances where the injury has been caused by an escape from land under the control of the defendant, has effectively precluded any such
development. Professor Fleming has observed that ‘the most damaging effect of the decision in Read v Lyons is that it prematurely stunted the
development of a general theory of strict liability for ultra-hazardous activities’ (see Fleming on Torts (8th edn, 1992) p 341). Even so, there is much to
be said for the view that the courts should not be proceeding down the path of developing such a general theory. In this connection, I refer in particular to
the Report of the Law Commission on Civil Liability for Dangerous Things and Activities (Law Com no 32) 1970. In paras 14–16 of the report the Law
Commission expressed serious misgivings about the adoption of any test for the application of strict liability involving a general concept of ‘especially
dangerous’ or ‘ultra-hazardous’ activity, having regard to the uncertainties and practical difficulties of its application. If the Law Commission is
unwilling to consider statutory reform on this basis, it must follow that judges should if anything be even more reluctant to proceed down that path.
Like the judge in the present case, I incline to the opinion that, as a general rule, it is more appropriate for strict liability in respect of operations of
high risk to be imposed by Parliament, than by the courts. If such liability is imposed by statute, the relevant activities can be identified, and those
concerned can know where they stand. Furthermore, statute can where appropriate lay down precise criteria establishing the incidence and scope of such
liability.
It is of particular relevance that the present case is concerned with environmental pollution. The protection and preservation of the environment is
now perceived as being of crucial importance to the future of mankind; and public bodies, both national and international, are taking significant steps
towards the establishment of legislation which will promote the protection of the environment, and make the polluter pay for damage to the environment
for which he is responsible—as can be seen from the WHO, EEC and national regulations to which I have previously referred. But it does not follow
from these developments that a common law principle, such as the rule in Rylands v Fletcher, should be developed or rendered more strict to provide for
liability in respect of such pollution. On the contrary, given that so much well-informed and carefully structured legislation is now being put in place for
this purpose, there is less need for the courts to develop a common law principle to achieve the same end, and indeed it may well be undesirable that they
should do so.
Preamble
Having regard to these considerations, and in particular to the step which this House has already taken in Read v Lyons to contain the scope of
liability under the rule in Rylands v Fletcher, it appears to me to be appropriate now to take the view that foreseeability of damage of the relevant type
should be regarded as a prerequisite of liability in damages under the rule. Such a conclusion can, as I have already stated, be derived from Blackburn J’s
original statement of the law; and I can see no good reason why this prerequisite should not be recognised under the rule, as it has been in the case of
private nuisance. In particular, I do not regard the two authorities cited to your Lordships, West v Bristol Tramways 76 Co [1908] 2 KB 14, [1908–10]
All ER Rep 215 and Rainham Chemical Works Ltd v Belvedere Fish Guano Co Ltd [1921] 2 AC 465, [1921] All ER Rep 48, as providing any strong
pointer towards a contrary conclusion. It would moreover lead to a more coherent body of common law principles if the rule were to be regarded
essentially as an extension of the law of nuisance to cases of isolated escapes from land, even though the rule as established is not limited to escapes
which are in fact isolated. I wish to point out, however, that in truth the escape of the PCE from ECL’s land, in the form of trace elements carried in
percolating water, has not been an isolated escape, but a continuing escape resulting from a state of affairs which has come into existence at the base of
the chalk aquifer underneath ECL’s premises. Classically, this would have been regarded as a case of nuisance; and it would seem strange if, by
characterising the case as one falling under the rule in Rylands v Fletcher, the liability should thereby be rendered more strict in the circumstances of the
present case.
The facts of the present case

Turning to the facts of the present case, it is plain that, at the time when the PCE was brought onto ECL’s land, and indeed when it was used in the
tanning process there, nobody at ECL could reasonably have foreseen the resultant damage which occurred at CWC’s borehole at Sawston.
However, there remains for consideration a point adumbrated in the course of argument, which is relevant to liability in nuisance as well as under the
rule in Rylands v Fletcher. It appears that, in the present case, pools of neat PCE are still in existence at the base of the chalk aquifer beneath ECL’s
premises, and the escape of dissolved phase PCE from ECL’s land is continuing to the present day. On this basis it can be argued that, since it has
become known that PCE, if it escapes, is capable of causing damage by rendering water available at boreholes unsaleable for domestic purposes, ECL
could be held liable, in nuisance or under the rule in Rylands v Fletcher, in respect of damage caused by the continuing escape of PCE from its land
occurring at any time after such damage had become foreseeable by ECL.
For my part, I do not consider that such an argument is well founded. Here we are faced with a situation where the substance in question, PCE, has
so travelled down through the drift and the chalk aquifer beneath ECL’s premises that it has passed beyond the control of ECL. To impose strict liability
on ECL in these circumstances, either as the creator of a nuisance or under the rule in Rylands v Fletcher, on the ground that it has subsequently become
reasonably foreseeable that the PCE may, if it escapes, cause damage, appears to me to go beyond the scope of the regimes imposed under either of these
two related heads of liability. This is because when ECL created the conditions which have ultimately led to the present state of affairs—whether by
bringing the PCE in question onto its land, or by retaining it there, or by using it in its tanning process—it could not possibly have foreseen that damage
of the type now complained of might be caused thereby. Indeed, long before the relevant legislation came into force, the PCE had become irretrievably
lost in the ground below. In such circumstances, I do not consider that ECL should be under any greater liability than that imposed for negligence. At
best, if the case is regarded as one of nuisance, it should be treated no differently from, for example, the case of the landslip in Leakey v National Trust for
Places of Historic Interest or Natural Beauty [1980] 1 All ER 17, [1980] QB 485.
I wish to add that the present case may be regarded as one of what is nowadays called historic pollution, in the sense that the relevant occurrence
77 (the seepage of PCE through the floor of ECL’s premises) took place before the relevant legislation came into force; and it appears that, under the
current philosophy, it is not envisaged that statutory liability should be imposed for historic pollution (see eg the Council of Europe’s Draft Convention on
Civil Liability for Damages Resulting from Activities Dangerous to the Environment (Strasbourg, 29 January 1993) art 5.1, and para 48 of the
Explanatory Report). If so, it would be strange if liability for such pollution were to arise under a principle of common law.
In the result, since those responsible at ECL could not at the relevant time
reasonably have foreseen that the damage in question might occur, the claim of CWC for damages under the rule in Rylands v Fletcher must fail.
Natural use of land

I turn to the question whether the use by ECL of its land in the present case constituted a natural use, with the result that ECL cannot be held liable
under the rule in Rylands v Fletcher. In view of my conclusion on the issue of foreseeability, I can deal with this point shortly.
The judge held that it was a natural use. He said:
‘In my judgment, in considering whether the storage of organochlorines as an adjunct to a manufacturing process is a non-natural use of land, I
must consider whether that storage created special risks for adjacent occupiers and whether the activity was for the general benefit of the
community. It seems to me inevitable that I must consider the magnitude of the storage and the geographical area in which it takes place in
answering the question. Sawston is properly described as an industrial village, and the creation of employment is clearly for the benefit of that
community. I do not believe that I can enter upon an assessment of the point on a scale of desirability that the manufacture of wash leathers comes,
and I content myself with holding that this storage in this place is a natural use of land.’
It is a commonplace that this particular exception to liability under the rule has developed and changed over the years. It seems clear that in Fletcher
v Rylands (1866) LR 1 Ex 265 itself Blackburn J’s statement of the law was limited to things which are brought by the defendant onto his land, and so did
not apply to things that were naturally upon the land. Furthermore, it is doubtful whether in the House of Lords in the same case Lord Cairns, to whom
we owe the expression ‘non-natural use’ of the land, was intending to expand the concept of natural use beyond that envisaged by Blackburn J. Even so,
the law has long since departed from any such simple idea, redolent of a different age; and, at least since the advice of the Privy Council delivered by
Lord Moulton in Rickards v Lothian [1913] AC 263 at 280, [1911–13] All ER Rep 71 at 80, natural use has been extended to embrace the ordinary use of
land. I ask to be forgiven if I again quote Lord Moulton’s statement of the law, which has lain at the heart of the subsequent development of this
exception:
‘It is not every use to which land is put that brings into play at that principle. It must be some special use bringing with it increased danger to
others, and must not merely be the ordinary use of the land or such a use as is proper for the general benefit of the community.’
Rickards v Lothian itself was concerned with a use of a domestic kind, viz the overflow of water from a basin whose runaway had become blocked.
But over the years the concept of natural use, in the sense of ordinary use, has been 78 extended to embrace a wide variety of uses, including not only
domestic uses but also recreational uses and even some industrial uses.
It is obvious that the expression ‘ordinary use of the land’ in Lord Moulton’s statement of the law is one which is lacking in precision. There are
Preamble
some writers who welcome the flexibility which has thus been introduced into this branch of the law, on the ground that it enables judges to mould and
adapt the principle of strict liability to the changing needs of society; whereas others regret the perceived absence of principle in so vague a concept, and
fear that the whole idea of strict liability may as a result be undermined. A particular doubt is introduced by Lord Moulton’s alternative criterion ‘or such
a use as is proper for the general benefit of the community’. If these words are understood to refer to a local community, they can be given some content
as intended to refer to such matters as, for example, the provision of services; indeed the same idea can, without too much difficulty, be extended to, for
example, the provision of services to industrial premises, as in a business park or an industrial estate. But if the words are extended to embrace the wider
interests of the local community or the general benefit of the community at large, it is difficult to see how the exception can be kept within reasonable
bounds. A notable extension was considered in your Lordships’ House in Read v J Lyons & Co Ltd [1946] 2 All ER 471 at 475, 478, [1947] AC 156 at
169–170, 174 per Viscount Simon and Lord Macmillan, where it was suggested that, in time of war, the manufacture of explosives might be held to
constitute a natural use of land, apparently on the basis that, in a country in which the greater part of the population was involved in the war effort, many
otherwise exceptional uses might become ‘ordinary’ for the duration of the war. It is however unnecessary to consider so wide an extension as that in a
case such as the present. Even so, we can see the introduction of another extension in the present case, when the judge invoked the creation of
employment as clearly for the benefit of the local community, viz ‘the industrial village’ at Sawston. I myself, however, do not feel able to accept that the
creation of employment as such, even in a small industrial complex, is sufficient of itself to establish a particular use as constituting a natural or ordinary
use of land.
Fortunately, I do not think it is necessary for the purposes of the present case to attempt any redefinition of the concept of natural or ordinary use.
This is because I am satisfied that the storage of chemicals in substantial quantities, and their use in the manner employed at ECL’s premises, cannot fall
within the exception. For the purpose of testing the point, let it be assumed that ECL was well aware of the possibility that PCE, if it escaped, could
indeed cause damage, for example by contaminating any water with which it became mixed so as to render that water undrinkable by human beings. I
cannot think that it would be right in such circumstances to exempt ECL from liability under the rule in Rylands v Fletcher on the ground that the use was
natural or ordinary. The mere fact that the use is common in the tanning industry cannot, in my opinion, be enough to bring the use within the exception,
nor the fact that Sawston contains a small industrial community which is worthy of encouragement or support. Indeed I feel bound to say that the storage
of substantial quantities of chemicals on industrial premises should be regarded as an almost classic case of non-natural use; and I find it very difficult to
think that it should be thought objectionable to impose strict liability for damage caused in the event of their escape. It may well be that, now that it is
recognised that foreseeability of harm of the relevant type is a prerequisite of liability in damages under the rule, the courts may feel less pressure to
extend the concept of natural use to 79 circumstances such as those in the present case; and in due course it may become easier to control this
exception, and to ensure that it has a more recognisable basis of principle. For these reasons, I would not hold that ECL should be exempt from liability
on the basis of the exception of natural use.
However, for the reasons I have already given, I would allow ECL’s appeal with costs before your Lordships’ House and in the courts below.
Lord Goff of Chieveley. I agree with it and for the reasons he gives I too would allow the appeal.
LORD LOWRY. My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Goff of Chieveley. I
agree with it and for the reasons he gives I too would allow the appeal.
LORD WOOLF. My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Goff of Chieveley. I
agree with it and for the reasons he gives I too would allow the appeal.
Appeal allowed.

[1994] 1 All ER 80
R v Criminal Injuries Compensation Board, ex parte P

CRIMINAL; Criminal Law

LEGGATT LJ AND MCCULLOUGH J
22, 28 APRIL 1993
Compensation – Criminal injury – Entitlement to compensation – Same roof rule – Victim not entitled to compensation for injuries inflicted before 1
October 1991 by member of family living under same roof – Scheme amended to provide compensation for injuries inflicted after 1 October 1991 by
member of family living under same roof – Applicant claiming compensation for sexual abuse by stepfather before 1 October 1991 – Board refusing to
entertain application – Whether board right to refuse application – Whether subsequent amendment of scheme showing it to be irrational before
amendment.
The applicant alleged that she had suffered serious injury as the result of sexual abuse inflicted on her by her stepfather between 1967 and 1976. He was
subsequently convicted of offences relating to three other girls but the Crown Prosecution Service decided not to prosecute him in respect of the offences
committed against the applicant. In 1990 the applicant applied for compensation under the Criminal Injuries Compensation Scheme but the Criminal
Injuries Compensation Board refused to entertain her application on the grounds that it had been made too long after the events complained of and in any
event no award could be made in respect of abuse that occurred before 1 80 October 1979, being the date up to which para 7 of the scheme, which
provided that injuries resulting from offences committed against a member of the offender’s family living with him at the time were excluded from the
Preamble
scheme, remained in force. The applicant applied for judicial review of the board’s decision.
Held – The scheme was not irrational at its inception in excluding applicants who lived under the same roof as the offender notwithstanding that it had
been amended to enable victims of sexual abuse occurring after 1 October 1979 to claim compensation. Since the making of a claim was a privilege, not
a right, the only legitimate expectation that a claimant could have was that of receiving an award under the scheme in force for the time being. The fact
that some claimants continued to be excluded from the scheme notwithstanding amendments made to it neither demonstrated that it was perverse nor
rendered it so. The application would therefore be refused (see p 83 j to p 84 a f to j, post).
Notes
For the Criminal Injuries Compensation Scheme, see 11(2) Halsbury’s Laws (4th edn reissue) paras 1499–1520.
Cases cited or referred to in skeleton arguments

DPP v Hutchinson [1990] 2 All ER 836, [1990] 2 AC 783, HL.
Kruse v Johnson [1898] 2 QB 91, [1895–9] All ER Rep 105, DC.
Amin v Entry Clearance Officer, Bombay [1983] 2 All ER 864, [1983] 2 AC 818, HL.
R v Immigration Appeal Tribunal, ex p Manshoora Begum [1986] Imm AR 385.
Application for judicial review

The applicant applied, with leave of the Court of Appeal (Purchas, Beldam and Nolan LJJ) given on 23 October 1991 following the refusal of leave by
Henry J on 19 April 1991, for judicial review of the decision of the chairman of the Criminal Injuries Compensation Board, Lord Carlisle QC, set out in a
letter of 31 October 1990 not to waive the time limit in respect of the applicant’s application to the board for compensation because the delay after the
events complained of occurred was too long and in any event the events complained of had occurred before 1 October 1979, the relief sought being an
order of certiorari to quash that decision and an order of mandamus requiring it to be reconsidered. The facts are set out in the judgment of Leggatt LJ.
Anthony Lester QC and Elizabeth Woodcraft (instructed by Evans Butler Wade, agents for Cecilia Stewart, Newcastle upon Tyne) for the applicant.
Michael Kent (instructed by the Treasury Solicitor) for the respondent.
Cur adv vult
28 April 1993. The following judgments were delivered.
LEGGATT LJ. The applicant moves for judicial review of a determination set out in a letter of 31 October 1990 from the Director of the Criminal
Injuries Compensation Board (the board) that the applicant’s application to the board for compensation would not be entertained (a) because it was too
long after the event complained of and (b) because the events occurred before 1 October 1979, and thus during a time when claims could not be made in
respect of injuries caused by an offender living in the same family as the claimant. By amendments 81 which we allowed relief is also sought in
respect of the further decision of the chairman of the board taken between 23 October and 17 December 1991 to affirm the earlier determination and the
failure of the chairman of the board in taking that decision to take into account medical reports submitted to the board. The applicant applies to quash
those decisions and for an order requiring the board to reconsider them.
The board was created by the Home Secretary under the royal prerogative, and the Criminal Injuries Compensation Scheme came into force in 1964.
Paragraph 7 of the scheme provided: ‘Offences committed against a member of the offender’s family living with him at the time will be excluded
altogether.’ That rule, or a variant of it, remained in force until 1 October 1979; hence the second reason given for refusing the applicant’s claim, namely
that the events occurred before that date.
The applicant claims to have suffered serious injury as a victim of offences involving sexual abuse committed against her by her stepfather between
1967 and 1976. Born in 1962, she therefore became 18 years old in 1980. Medical reports submitted on her behalf explain psychological reasons why
she suppressed the recollection of the offences committed against her until she learnt in December 1988 that young girls were going to her stepfather’s
home. It was then that she made a statement to the police about his abuse of her. In the following year her stepfather was charged with offences relating
to three girls. He pleaded guilty to two charges and was sentenced 18 months’ imprisonment, with 15 months suspended. In March 1990 the Crown
Prosecution Service gave to the applicant their reasons for deciding not to prosecute her stepfather for his offences against her. Her application to the
board for compensation was made on 2 July 1990. By a letter of 31 October 1990 the chairman’s reasoned decision refusing her application was set out.
It read in part:
‘The lapse of 10 years between 1980 and 1990 is so long a period in which to make a claim that I cannot at this late date accept the reason for
delay as grounds for regarding this as an exceptional case. Consequently, I am obliged to refuse to permit the application to be entertained. In any
event the applicant should know that, since the alleged incidents occurred before 1 October 1979, the incidents would have been considered under
the terms of 1969 Scheme. Under Paragraph 7 of that Scheme no compensation is payable where the victim and the offender were living together
as members of the same family. Thus, even if the time limit had been waived, the Board would have been unable to consider any award of
compensation in respect of the earlier of the incidents.’
On behalf of the applicant Mr Anthony Lester QC submits that the Secretary of State must exercise his discretion rationally, fairly, and according to
law, so as to enable the board as a public authority, for its part, to perform its duties and to exercise its powers rationally, fairly, and according to law. He
remarks that neither the Secretary of State nor the board has adduced any evidence to justify what he called the ‘same roof’ rule or its application in the
circumstances of the present case. His contention is a simple one: since it was adjudged unreasonable in 1979 to retain the rule for the future, there can
have been no justification for retaining it in relation to the previous period of operation of the scheme. The Eighth Report of the Board, published in
1972, recommended that the exclusion of applicants who were living together with the offender at the 82 time of the incident as members of the same
family should be reconsidered when the scheme was reviewed. In para 9 of the report the board said:
‘The exclusion of children who are assaulted by their parents or by the man living with their mother appears to us to be unjustified … we cannot
tell how many have failed to apply for the good reason that their claims are excluded by the present wording of Paragraph 7.’
Preamble
This report was followed in 1978 by the report of an inter-departmental working party who reviewed the scheme. At para 7.1 of their report they
said:
‘Paragraph 7 was included in the original Scheme principally for two reasons: the difficulties of establishing the facts and the difficulty of
ensuring that compensation does not benefit the offender. Though most witnesses recognised that these two reasons were still cogent, there was an
almost general feeling that it was unjust that the more seriously injured victims of intra-family violence should be prevented from obtaining
compensation under the Scheme.’
Giving their own views the working party said at para 7.3:
‘Violence within the family has become the focus of considerable public concern in the past few years and it is evident that numbers of women
and children in particular sustain injuries which would entitle them to compensation under the scheme were it not for the operation of paragraph 7.
In principle we agree with the view of the Board, which is echoed by the majority of witnesses giving evidence to the Working Party, that the
existing paragraph should not be retained. We are not suggesting that all family violence should lead to compensation; what we are suggesting is
that the Scheme should provide compensation in those cases where there is no doubt that:—(a) the applicant was the innocent victim of a crime of
violence; (b) serious injury was caused; and (c) there is no prospect of the assailant benefiting from the award.’
Mr Lester submits that although the Secretary of State has accepted these recommendations by amending the scheme with effect from 1 October
1979, he has continued to require the board to disqualify victims of family violence, such as the applicant, whose injuries occurred before that date. For
that category of victims, the Secretary of State has maintained in force an absolute and inflexible exclusionary rule which, according to Mr Lester’s
submission, is arbitrary, irrational and unfair, and unlawfully prevents the board from making an award in the circumstances of the applicant’s case. He
contends that the rule sweeps too broadly in its exclusions; it discriminates arbitrarily and unfairly between different classes of citizen, bearing in mind
that girls are more commonly than boys the victims of sexual abuse; and it lacks any rational nexus or proportionality between the Secretary of State’s
legitimate aims and the means employed to achieve those aims. The solution is simple: to waive the ‘same roof’ rule in relation to violence sustained
before October 1979.
As deployed by Mr Lester, these are formidable submissions. For the respondents Mr Kent’s answer was as brief as it was effective. He points to
the difficulty of reviewing the exercise of discretion under the prerogative. In most, if not all, of the reported cases on the topic there was a statutory
framework within which the court could assess what the minister’s duties were. But where, as in the present case, there was no identifiable pre-existing
obligation to provide compensation, there is no clear point of reference. Essentially Mr 83 Lester’s argument consists in looking at the scheme itself
and contending that improvements or refinements introduced from time to time should have been there from the outset.
In my judgment the reality is that the circumstances have been amended in which public money may be paid out to applicants, none of whom has
any entitlement to it. It is a manifestation of the bounty of the Crown. In this context amelioration of the scheme does not betoken any pre-existing
deficiency in it of which applicants are entitled to complain. The exclusion of claimants by force of the ‘same roof’ rule is no more irrational than was the
exclusion before the scheme came into force of all victims of crimes of violence, or the continuing exclusion since then of those injured other than
through crimes of violence.
The reasons for the exclusionary rule at the outset were sound. They could not then have been characterised as arbitrary or capricious, still less
perverse. As witnesses before the working party recognised the reasons for the rule were still cogent. That the recommendation was accepted that the
scheme should be extended so as to permit compensation to be paid at least to the more seriously injured victims of violence within the family does not
render objectionable the maintenance of the rule up to 1 October 1979. As the working party acknowledged at para 7.23 of their report ‘the practical and
financial consequences are difficult to estimate’. It is evident that the task of investigating and hearing such cases will increase with the lapse of time, and
in addition the cost of the awards themselves has to be taken into account. Paragraph 25 of the 1979 scheme introduced a provision designed to exclude
stale claims. It provided that ‘after 31 December 1979 applications relating to injuries incurred more than three years previously will be entertained only
where the Board consider it appropriate exceptionally to waive this time limit’.
In summary, Mr Lester argues that the failure to extend the benefit of the scheme to victims of pre-1979 injury is reviewable because no rational
basis has been suggested for not revoking altogether the original para 7, while introducing safeguards (including the three-year time limit) contained in the
1979 scheme. Although no complaint could be made of inability to claim before the scheme came into force in 1964, complaint can be made (on the
ground that it is arbitrary and capricious) about the adoption of any date during the currency of the scheme as a date before which a rule that has not
worked satisfactorily should thereafter continue to operate. The perversity consists in maintaining it in force, despite the applicability of the three-year
time limit.
In my judgment the scheme was not irrational at its inception and it has not been rendered so, in whole or in part, by subsequent amendments. The
making of a claim is not a right but a privilege. It follows that the only legitimate expectation that a claimant can have is of recovering an award in
accordance with the scheme in force for the time being. In short, as Mr Kent submitted, the fact that some claimants are or continue to be excluded from
the scheme by force of amendments made to it neither demonstrates that it is perverse nor renders it so. Like any essay in bounty it is tempered with
expedience. In my judgment therefore the exercise of discretion by the Secretary of State under prerogative power cannot in this instance be impugned.
It is right to record that, had the court upheld the applicant’s argument under this head, the board would have taken the matter back for reappraisal in the
light of our judgments. But since we are against the applicant on the first issue that course is not needed and related arguments do not arise. I would
dismiss the application.
McCULLOUGH J. I agree.
Application refused.
84
[1994] 1 All ER 85
Preamble
Re St James Malden
ECCLESIASTICAL
SOUTHWARK CONSISTORY COURT

CHANCELLOR R M K GRAY QC
18 MAY 1993
Ecclesiastical law – Faculty – Practice – Disposal of proceedings by written representations – Circumstances in which appropriate to dispose of
proceedings for faculty by written representations – Faculty Jurisdiction Rules 1992, r 25.
Ecclesiastical law – Faculty – Costs – Disposal of proceedings by written representations – Hostile order for costs not normally to be made where
proceedings for faculty disposed of by written representations – Faculty Jurisdiction Rules 1992, r 25.
Ecclesiastical law – Faculty – Grant – Matters to be considered – Approach of court in deciding whether to grant faculty – Refusal of petition unless
good reasons for grant – Grant of petition unless good reasons for refusal – Which approach more apt.
The circumstances in which it may be appropriate to dispose of a petition for a faculty using the written representation procedure provided for by r 25a of
the Faculty Jurisdiction Rules 1992 include: (i) where any objection to the petition is likely to be one where no aesthetic ground is raised; (ii) where no
proposal is made to alter a listed building; (iii) where the basic difference between the parties is one of firmly held opinion rather than a series of disputed
facts; (iv) where oral evidence and cross-examination is unlikely to add anything to the written representations of the parties; (v) where the written
representations contain all the information necessary to a determination of the issues raised by the parties; and (vi) where the chancellor does not consider
that any judge’s witness is necessary under r 24 of the 1992 rules (see p 89 a to c, post).
________________________________________
a Rule 25 is set out at p 88 b to h, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Where parties agree to dispose of genuine differences of opinion as to the granting of a petition for a faculty by written representations under r 25 of
the 1992 rules, it will generally be wrong in principle to make any hostile order as to costs (see p 90 a, post).
There are two possible approaches open to the consistory court in deciding whether to grant a petition for a faculty: the first is that the petition should
be refused unless there are good reasons for granting it, and the second is that the petition should be granted unless there are good reasons for refusing it.
The second approach will, however, usually be more apt (see p 90 b c, post).
NotesFor the hearing of a petition for a faculty, see 14 Halsbury’s Laws (4th edn) para 1326.
For the principles and practice of the faculty jurisdiction, see ibid para 1310, and for cases on the subject, see 19 Digest (Reissue) 442–458,
3519–3603.
For costs of faculty proceedings, see 14 Halsbury’s Laws (4th edn) para 1328.
Case referred to in judgmentCombe v De la Bere (1881) 22 Ch D 316, CA.
85
Petition for facultyBy a petition dated 29 November 1991 the incumbent of the parish of St James Malden in the diocese of Southwark, and Delia Orme,
the secretary of the parochial church council, sought a faculty to refurbish and restore the parish church’s existing Bryceson pipe organ, which had been
out of use for some 27 years. Following citation of the petition on 4 November 1992 six objections were received, but all were withdrawn save that of Mr
M Davies, whose particulars of objection were dated 9 December 1992. With the agreement of the parties the chancellor gave a direction on 9 March
1993 that, pursuant to r 25 of the Faculty Jurisdiction Rules 1992, SI 1992/2882, the proceedings be determined on consideration of written
representations instead of by a hearing in court. Judgment was given by the chancellor at the Central Criminal Court by permission of the Recorder of
London. The facts are set out in the judgment.
THE CHANCELLOR. The judgment which I am about to give orally arises from a petition which is, with the written consent of parties, being
determined on written representations. Those representations have only been completed recently, but, as I have reached a firm conclusion as to what that
determination should be, I have decided, with the consent of the parties, that I should give that determination orally here rather than delay to write a
judgment in chambers which would involve the parties waiting unnecessarily.
I should like to record the thanks of the Consistory Court to the Recorder of London and to the staff of the Central Criminal Court, who have, with
characteristic generosity, made the facilities available.
I have recorded the consent of the parties to my giving judgment here because legal historians might recall the decision in Combe v De la Bere
(1881) 22 Ch D 316. I must confess that the views of Jessel MR (at 338) struck a sympathetic cord when I reminded myself of them earlier today and I
wonder whether a technical point of the kind argued in that case would make any headway in 1993; I rather think that it would not; however, happily, as I
say, the parties have consented to the present course.
The case is of rather wider than parochial interest because I have to consider what general observations I should properly make about the disposal of
proceedings by written representations so far as this diocese is concerned, and I shall attempt to do so in a moment or two. I hope it is of no disservice to
the parties if I prefer expedition to elegance because it will be clear from the dates when I look at them that the petition has taken some time to reach the
stage it has and the parties should not be kept waiting any longer. They have been told they need not attend today.
The parish church of St James Malden is about 60 years old. The building is unlisted. On 29 November 1991 the incumbent, the Rev Christopher
Davies, and Mrs Delia Orme, the secretary of the parochial church council, petitioned this court for a faculty to refurbish and restore the existing
Bryceson pipe organ, which, at the date of the petition, had been out of use for some 27 years.
During that period the church has used an electronic organ by Copeman Hart which now needs replacement. The cost of the refurbishment is
£49,614 and the parish has already raised a sum of £30,474·71, as of 31 December 1992, towards that figure.
Preamble
86
The matter went to the parochial church council on 30 October 1991 and the proposal to go ahead was passed by a majority of ten to four. Over 300
members of the congregation (the electoral role numbers 318) have contributed financially to the proposed refurbishment. Citation was only issued on 4
November 1992 because the advice of the diocese advisory committee supporting the petition is dated 26 October 1992.
Following citation, six objections were received. However, all have now been withdrawn except for that of Mr M Davies, whose particulars of
objection are dated 9 December 1992. They may be summarised as follows. (1) Whilst Mr Davies considers that there is no doubt that funds for the
refurbishment can be raised, the upkeep of the organ, which he estimates will be between £150 and £2,000 per annum, will be an ongoing commitment
which the parish cannot afford, and that it will be difficult to find an organist worthy of the restored organ. (2) It would be much cheaper to replace the
electronic organ. (3) Mr Davies has been a member of the congregation for 36 years and recalls that the old organ, which was a beautiful organ and well
maintained, was replaced, although not removed, by an electronic organ because there was difficulty in providing enough volume of noise from the pipe
organ. (4) The organ sub-committee had concluded that a new pipe organ in a different position would be the best solution; a refurbishment would be
expensive and its success doubtful. (5) Mr Davies concludes by proposing a new pipe organ or a new electronic organ but at a price much less than the
cost of the proposed refurbishment.
The parochial church council summarised its response to Mr Davies’s objections under cover of a letter to the registry of 18 December 1992. I will
deal with their response by reference to, and in the same order as, the points made in Mr Davies’s objections summarised above. (1) Maintenance costs
are £200 per annum (1991 figures), with £5,000 for a major overhaul at approximately 30-year intervals. An electronic organ would have to be bought
and maintained and then replaced at a similar interval to the overhaul. (2) The parochial church council accepts that there are cheaper alternatives but the
congregation, as demonstrated by the widespread financial support, has shown that it wants refurbishment. The diocesan organ adviser has expressed the
view that the ‘instrument will last to the end of the next century, if the work is carried out to the highest specification’. (3) It is agreed that there was
difficulty with the volume of the pipe organ. The refurbishment will result in the improvement in the sound quality, and the specifications, as modified,
will achieve that improvement. (4) The organ sub-committee considered the alternatives, and came down in favour of the refurbishment incorporating the
improvements suggested by the diocesan organ adviser and the proposed organ builder, about whose professional expertise and integrity wide inquiries
have been made of other churches where he had done work, and all these inquiries had been satisfactory. (5) Mr Davies’s conclusion is misconceived.
The parochial church council conclude by recording the overwhelming support of the congregation demonstrated by its great generosity in raising
substantial funds.
The archdeacon was asked to report, and he did so on 25 February 1993, expressing a view that all options had been explored. The parish had raised
the money and, so to speak, given the most practical indorsement it could to its views. The church, the archdeacon points out, has a traditional choir
which would benefit from a refurbished pipe organ.
87
On 1 March 1993 the Faculty Jurisdiction Rules 1992, SI 1992/2882, made under the Care of Churches and Ecclesiastical Jurisdiction Measure 1991
came into force. Rule 25 of the 1992 rules reads as follows:
‘(1) Except in any case in which the chancellor is required to hear evidence in open court under section 17(4) of the Measure, the chancellor, if
he consider it expedient to do so and is satisfied that all the parties to the proceedings have agreed in writing, may order that the proceedings shall
be determined upon consideration of written representations instead of by a hearing in court.
(2) Where an order has been made by the chancellor under paragraph (1) above the registrar should give notice (a) that the petitioners shall
lodge at the registry and serve on each of the parties opponent within twenty-one days of the direction a written statement in support of their case
including the documentary or other evidence upon which they wish to rely; (b) that each of the parties opponent shall not more than twenty-one
days after the lodging of the petitioners’ statement lodge at the registry and serve on the petitioners a written statement in reply to the petitioners’
statement and in support of his case including any documentary or other evidence upon which he wishes to rely; (c) that the petitioners may not
more than fourteen days after the lodging of the statement of an opposing party lodge at the registry and serve on such opposing party a written
statement in response thereto.
(3) If any party does not comply with any such direction, the chancellor may declare him to be in default and may thereafter proceed to dispose
of the case without any further reference to such party.
(4) Any party against whom an order declaring him to be in default is made may at any time apply to the court to revoke that order, and the
chancellor may in his discretion revoke the order on such terms as to costs or otherwise as may be just.
(5) Notwithstanding the existence of an order that the proceedings shall be dealt with by written representations, the chancellor may if the thinks
fit at any stage revoke the order and direct that the proceedings shall be determined at an oral hearing and he shall thereupon give directions for the
future conduct of the proceedings.
(6) If no order has been made under paragraph (5), the chancellor shall determine the proceedings upon the pleadings and the written statements
and evidence submitted to him under this rule, and his decision thereon shall be as valid and binding on all parties as if it had been made after an
oral hearing.
(7) The chancellor or the registrar (if so authorised by the chancellor) may give such other directions as to him appear just and convenient for
the [expeditious] despatch of proceedings under this rule.’
This is not a case where the chancellor is required to hear evidence in open court under s 17(4) of 1991 Measure, and it appears that, given the
parties’ willingness that the matter should be disposed of by written representations (in particular, Mr M Davies specifically asked that there should be no
court hearing), I made a direction that these proceedings should be determined upon consideration of written representations instead of by a hearing in
court.
As it is the first time in this diocese that the parties have expressed a desire to use the written representation procedure, it would be helpful for me to
say in 88 general terms when, in this diocese, such an order for a determination on the basis of written representations is likely to be made. The
appropriate circumstances would be: (1) the objection is likely to be one where no aesthetic ground is raised; (2) no proposal is made to alter a listed
building; (3) the basic difference between the parties is one of firmly held opinion rather than a series of disputed facts; (4) oral evidence and
cross-examination is unlikely to add anything to the written representations of the parties; (5) the written representations contain all the information
necessary to a determination of the issues raised by the parties; (6) the chancellor does not consider that any judge’s witness is necessary under r 24.
This list, of course, is not exclusive, but is illustrative, and is intended to give guidance in other cases in this diocese.
It is worth adding that disposal by written representations is a welcome form of disposal; in the past, objectors with a serious point to make have very
often decided not to pursue it because they have been reluctant to force a hearing in open court with the formality and expense that such a hearing can
involve.
Preamble
In the present case all of the illustrative criteria listed above are satisfied and the direction was duly made.
In order to make sure that both parties had had the fullest opportunity to comment on each other’s point of view, it was further directed under r 25(7)
that both parties could make such final written representations as they thought fit.
The parties had already fleshed out in written representations the views that I have summarised, and it is a happy characteristic of both sets of
representations that both express a strong view that the congregation should not be divided by this issue.
Mr Davies took advantage of the direction to repeat that his main complaint is that, although Mr Woods, the proposed organ builder, would build ‘a
very nice organ’, it would be quieter and less flexible than the existing electronic organ, cost three times as much and face the parish with an ongoing
maintenance bill.
In reply, dated 23 April 1993, the parish drew attention to the financial support from over 300 members of the congregation at a church where the
electoral role is 318, and the fact that the parish finances were in a healthy state with an income surplus of £2,000 in the current year.
Both parties asked that there should be no order as to costs.
It is it clear from what I have said that there are differences of opinion as to whether the ‘beautiful organ’ should be refurbished at a substantial cost
or a new electronic organ provided at a much lower price.
The court is satisfied that the refurbishment of the old organ should be allowed to go ahead. Mr Davies acknowledges its beauty and, if refurbished,
it will incorporate the improvements recommended by the diocese organ adviser. I am satisfied that its performance will be generally superior, when
restored, to its performance when it went out of use 30 years or so ago. I am also satisfied that the overwhelming majority of the congregation actively
support the proposal, and I can well understand why it is that, with a traditional choir, a restored pipe organ should be wanted.
The parish has already raised substantial sums and I do not consider that the maintenance of the newly refurbished organ will be a stumbling block in
the future. The congregation is clearly active and has demonstrated in the most practical way possible its willingness to shoulder the burden.
89
There are two possible approaches to the granting of any faculty. The first approach is that the answer should be No unless there are good reasons
for saying Yes. The second is that the answer should be Yes unless there are good reasons for saying No.
The second approach must, in the view of this court, be more apt. However, in this case, there seem to be many good reasons for saying Yes and no
good reasons for saying No. A conditional faculty will therefore issue.
Both parties asked that there should no hostile order made as to the costs. Where parties agree to dispose of genuine differences of opinion by
written representations, it would generally be wrong in principle to make any such order. The whole reason why the parties in this case have dealt with
matters in writing is to keep their differences at low key and to maintain the happy unity of the congregation.
Mr Davies’s objection is a serious one and he has argued it very clearly and forcefully in the written representations which he has made. The fact
that my conclusion at end of the day is in favour of the petitioners does not detract from that, or from the carefully reasoned way in which the petitioners
supported their petition. There will therefore be no order, save that the parties will each bear their own costs, which, in the case of the petitioners will
include the costs of the petition.
Petition granted. No order for costs.
N P Metcalfe Esq Barrister.

[1994] 1 All ER 90
Re Smith (deceased)
ECCLESIASTICAL
CHESTER CONSISTORY COURT

CHANCELLOR HAROLD LOMAS
5 APRIL 1993
Ecclesiastical law – Faculty – Jurisdiction – Faculty for exhumation and reinterment of human remains – Circumstances in which faculty will be granted
– Onus on petitioner – Discretion of court to grant faculty – Presumption that burial intended to be final – Primary duty of court to protect remains of
deceased person buried in consecrated ground.
During her lifetime the petitioner’s wife expressed a strong desire to be buried in the churchyard of the church in Bolton which she and the petitioner had
attended from an early age and where they had been married in 1938. Both had been members of the choir at the church; she had also been a Sunday
school teacher there, and he had been a member of its parochial church council for 26 years, serving variously as secretary, sidesman, warden and
treasurer. The petitioner had been employed by a bank and although he was moved on a number of occasions he and his wife had always been able to
live in Bolton until, in 1960, he was appointed to Crewe. When the petitioner’s wife died in 1984 there were no grave spaces available in the Bolton
churchyard and she was buried in the churchyard of their local parish church. In 1987, on his retirement, the petitioner moved back to Bolton. When
some grave spaces became 90 available in the Bolton churchyard, the petitioner sought a faculty for the exhumation of his wife’s body in order that it
might be reinterred in the Bolton churchyard.
Held – There was nothing provisional in the forms of service for the burial of the dead authorised for use in the Church of England, and where a burial
had taken place in ground consecrated in accordance with the rites of the Church of England it was clear that the intention of all those taking part was that
the earthly remains of the deceased were to be finally laid at rest once and for all. However, situations would arise where even something intended to be
as final as burial might have to be reviewed in the light of new circumstances, and for that reason the court had a discretion, which was to be exercised
sparingly and only in special circumstances, to authorise the exhumation of human remains. On the facts, the passage of over 8 years since the burial
Preamble
placed a particularly heavy onus on the petitioner, and strong and compelling circumstances would be required for the court to exercise its discretion to
grant a faculty for the exhumation of the deceased’s remains rather than to uphold the principle that the court’s primary duty was to protect the remains of
a deceased person buried in consecrated ground in accordance with the rites of the Church of England. Since the petitioner had shown no such
circumstances, the relief sought by the petition would be refused (see p 93 e h to p 94 b and p 95 f g j, post); Re Atkins [1989] 1 All ER 14 and Re St
Luke’s, Holbeach Hurn, Watson v Howard [1990] 2 All ER 749 followed.
Per curiam (1) It is not the case that provided a petitioner complies with certain formalities the grant of a faculty seeking the exhumation of human
remains for their reinterment elsewhere is something to which he is entitled as a matter of course. Whilst the consistory court clearly has a discretion to
authorise the exhumation of human remains, it is equally clear that the court should only exercise its discretion in special circumstances and that the grant
of a faculty for such a purpose should be the exception rather than the rule (see p 93 e to g, post).
(2) It would lead to an unseemly procession of disintegrating corpses and ashes between burial grounds if whenever a petitioner moved from place to
place the court were to grant him as a matter of course a faculty for the exhumation of his relatives’ remains and their reinterment elsewhere (see p 95 b c,
post).
NotesFor faculties for the exhumation of human remains from consecrated ground, see 10 Halsbury’s Laws (4th edn) para 1198 and 14 Halsbury’s Laws
(4th edn) paras 1315, 1323.
Cases referred to in judgmentAtkins, Re [1989] 1 All ER 14, sub nom Re Church Norton Churchyard [1989] Fam 37, [1989] 3 WLR 272, Con Ct.
St Luke’s, Holbeach Hurn, Re, Watson v Howard [1990] 2 All ER 749, [1991] 1 WLR 16, Con Ct.
Petition for facultyBy a petition dated 26 November 1992 Brian Hulbert Smith sought a faculty authorising the removal of the remains of his late wife,
Edith Smith, which were interred in a grave in the churchyard of St Peter’s, Oughtrington in the diocese 91 of Chester, to enable them to be reinterred
in a grave in the churchyard of St Peter’s, Halliwell, Bolton, in the diocese of Manchester. The incumbents of both parishes supported the petition, which
was unopposed. With the agreement of the parties the chancellor ordered, by an order dated 12 February 1993 made pursuant to r 25 of the Faculty
Jurisdiction Rules 1992, SI 1992/2882, that the proceedings be determined on consideration of written representations instead of by a hearing in court.
The facts are set out in the judgment.
5 April 1993. The following judgment was delivered.
THE CHANCELLOR. This is a petition presented by Mr Brian Hulbert Smith seeking a faculty to permit the exhumation of the body of his late wife
Edith Smith at present interred in a grave in the churchyard of St Peter’s Church, Oughtrington. The petitioner desires that his wife’s body should be
reinterred in a grave which is available in the graveyard of St Peter’s Church, Halliwell, Bolton, in the diocese of Manchester.
The petitioner represented that it would be extremely inconvenient and possibly difficult for him to appear before me personally in open court and
did not appear to wish to be represented and accordingly I have agreed to determine this petition on the basis of written representations made by the
petitioner.
The deceased died on 9 July 1984. It appears that both the petitioner and the deceased were born in Bolton and the deceased attended St Peter’s,
Halliwell from an early age. She became a Sunday school teacher and was in the choir for many years. The petitioner joined the choir in 1933 and he
and his wife were married at St Peter’s, Halliwell in 1938. The deceased’s parents and the first child of the marriage of the petitioner and the deceased are
all buried in the same grave in the churchyard of St Peter’s, Halliwell.
The petitioner was employed by a bank and was moved on a number of occasions although he was always able to live in Bolton until 1960, when he
was appointed to be a branch manager at Crewe. He was subsequently moved again in 1968 and he and his wife lived in Lymm in the diocese of Chester,
in sight of Oughtrington church. However, they did not attend that church, preferring the form of worship at a church in Warrington where the petitioner
became a lay reader. It appears from time to time they visited friends in Halliwell and on those occasions attended St Peter’s, Halliwell.
I am told that the deceased expressed a strong desire to be buried at St Peter’s, Halliwell. However, after her death the petitioner was informed that
no grave spaces were available in the churchyard at St Peter’s, Halliwell and accordingly he arranged for his wife to be buried in the churchyard of St
Peter’s, Oughtrington. That was of course shortly after her death on 9 July 1984.
In 1987 the petitioner, no doubt upon or shortly after his retirement, moved back to Bolton, where members of his family lived and where he has
friends. It appears that some grave spaces are now available in the churchyard of St Peter’s, Halliwell.
It is in these circumstances that the petitioner has presented his petition. The deceased’s son has written, consenting to and supporting the relief
sought under the petition. The incumbent of St Peter’s, Oughtrington consents to the application, as does the incumbent of St Peter’s, Halliwell. Of
course, both the existing grave and the proposed grave are situate in areas which are consecrated according to the rites of the Church of England. The
environmental health 92 officer has indicated that his council has no objection to the removal of the remains of the deceased providing certain
precautions are observed. There is also with the papers a letter from a partner in the firm of funeral directors who acted at the time. He states that to the
best of his knowledge the deceased was buried—
‘in a standard burial veneered coffin and the soil at Oughtrington is a mixture of sandstone and clay so I would imagine that the coffin would
have suffered some quite considerable decay by now.’
I now turn to the law which I must seek to apply in considering this application. The exhumation of human remains from a burial space in a
consecrated churchyard can only be authorised by a faculty granted by the consistory court of the diocese in which the consecrated churchyard is situate.
This is recognised in s 25 of the Burial Act 1857, which provides:
‘Except in the cases where a body is removed from one consecrated place of burial to another by faculty granted by the ordinary for that
purpose, it shall not be lawful to remove any body, or the remains of any body, which may have been interred in any place of burial, without
licence under the hand of [the Secretary of State] …’
Whether a faculty is granted in any particular case is a matter for the discretion of the chancellor hearing the petition. It is worth emphasising this
point since there has in recent years been an increase in the number of applications of this kind, that is to say applications seeking the exhumation of
human remains and their reinterment elsewhere. Such applications frequently cause considerable emotional stress upon all concerned, including
incumbents and those in the registry who have to deal with the applications, and in some cases applicants, in the first instance. In some cases, I hasten to
add not in the present case, petitioners appear to have considered that provided certain formalities were complied with the grant of a faculty is something
to which they are entitled as a matter of course. This is far from the case. Whilst, as I have stated, this court clearly has a discretion to authorise the
exhumation of human remains, it is equally clear that the court should only exercise its discretion in special circumstances and that the grant of a faculty
for such purposes should be the exception rather than the rule. In taking this view I gain support from the decisions of Chancellor Judge Quentin Edwards
Preamble
QC in Re Atkins [1989] 1 All ER 14, [1989] Fam 37 and Chancellor Judge Goodman in Re St Luke’s, Holbeach Hurn, Watson v Howard [1990] 2 All ER
749, [1991] 1 WLR 16.
In my judgment it is clear that most men and women desire and hope that when after their death their remains have been decently and reverently
interred they should remain undisturbed. Where the burial has taken place in ground consecrated in accordance with the rites of the Church of England it
is clear that the intention of all those taking part is that the earthly remains of the deceased are to be finally laid at rest. Having reread the forms of service
for the burial of the dead authorised for use in the Church of England I am satisfied that there is nothing provisional in those forms of service and that the
whole intention and purpose is that the remains of the deceased should be laid at rest once and for all. It is, of course, the case that the situation and
affairs of men are such that little if anything done by man is immutable. Situations will arise where even something intended to be as final as burial may
have to be reviewed in the light of new circumstances. It is out of this that the court’s discretion to authorise 93 the exhumation of human remains has
grown. Plainly, however, the exercise of the discretion to grant a faculty for this purpose is something which ought to be done sparingly and only in
special circumstances. It would not be of assistance for me to seek to list those circumstances, since every case must depend upon its own particular facts.
In such a situation no exhaustive list of circumstances where it would be appropriate for the court to exercise its discretion can be compiled. It is for this
reason that the matter lies in the discretion of the court and is not provided for in detail in statute or rules and regulations.
I now turn to the circumstances urged upon me by the petitioner as sufficient for me to exercise my discretion in the manner sought by the petition.
He has emphasised his wife’s wishes in the matter and the extensive service she gave to the church during her lifetime. He emphasises that he is only
seeking to comply with his wife’s wish to be buried in the churchyard at St Peter’s, Halliwell. He has made it clear that he sought to comply with that
wish immediately after her death but, as stated above, no graves were available. It appears that graves have subsequently become available at St Peter’s,
Halliwell and he wishes now to remedy the position. He has emphasised his own very extensive service to the Church, firstly at St Peter’s, Halliwell,
where he was a member of the parochial church council for 26 years and also served for a period as secretary, sidesman and then warden and treasurer for
12 years. He has also been a Sunday school teacher and when he lived at Oughtrington and attended Holy Trinity Church, Warrington he was
vice-chairman of the parochial church council for 10 years and served on the Liverpool diocesan synod and its board of finance together with other
diocesan committees. It appears that he also acted as financial adviser to the 25 parishes of the Warrington deanery for a period of 14 years. Since
moving back to the Bolton area he has assisted at St Peter’s, Halliwell as a lay reader and has acted as auditor.
He has also pressed upon me a number of theological considerations. He believes that he can obtain biblical support from a number of passages for
he and his wife’s desire to be buried at St Peter’s, Halliwell and for the exhumation of his wife’s remains in order that they may be reinterred at St Peter’s,
Halliwell. The central thrust of these theological considerations based upon his interpretation of the biblical passages he has quoted appears to be his
view that at the resurrection there will be millions of people in heaven, that it will be the wish of everyone to be in the same mansion or community as
relatives and friends, rather than amongst strangers, and that to be buried with one’s relatives and friends in the same churchyard will give the best chance
of remaining with them in heaven.
He makes the point that during the last two years of his wife’s life she was unable to travel to Bolton and could not be left for long, with the result
that he lost close touch with developments at St Peter’s, Halliwell and thereby missed the opportunity to seek to obtain a grave space. He emphasises that
the request now made is not being made by people who only use the facilities of the church for their own purposes and give nothing in return but is being
made by himself and on behalf of his wife, both of whom have served various parishes, a diocese and a deanery over long periods. He emphasises that
the incumbents of both parishes affected are sympathetic. Furthermore, as stated above he finds it difficult to visit the grave.
In seeking to apply the law as I have outlined it above and in considering whether I ought to exercise my undoubted discretion I give full weight to
the 94 matters urged upon me by the petitioner. I entirely accept the disappointment and distress he must have felt when he discovered that no grave
space was available immediately after his wife’s death. Of course, at that time his wife had no legal right of burial at St Peter’s, Halliwell, but it may well
be that the incumbent would none the less have permitted her remains to be buried in his churchyard having regard to the exceptional service that had
been given by the deceased and her husband. I will not in this judgment discuss the validity or otherwise of the petitioner’s theological approach to the
question of the resurrection and the interpretation which he places upon a number of passages from the Bible. I have to take into account, however, the
fact that if I acceded to that argument it would mean that it would become a matter of course for petitioners to obtain faculties for the exhumation of the
remains of their relatives and their reinterment elsewhere whenever they moved from place to place. In my judgment such a situation would be
insupportable in the light of the law as it stands and I ought not to countenance it. It would lead to an unseemly procession of disintegrating corpses and
ashes between burial grounds. I make no apology for referring to the matter in that way for it represents the truth of the matter and brings to mind the
distress which has been caused to many incumbents and others obliged to be present when disinterment is taking place. In this context it is material to
draw attention to the letter from the funeral director concerned which states that the deceased was buried in a standard burial veneered coffin and that
having regard to the soil at Oughtrington ‘I would imagine that the coffin would have suffered some quite considerable decay by now’.
This leads me to another material factor in considering this application, namely the length of time which has elapsed since the burial of the deceased
shortly after 9 July 1984. Thus the deceased was buried over 8 years ago. In my judgment the passage of such a period of time since the burial places a
particularly heavy onus on the petitioner in a case of this kind. In such circumstances for the court to exercise its discretion to grant a faculty for the
exhumation of the deceased’s remains rather than to uphold the principle that its primary duty is to protect the remains of a deceased person buried in
consecrated ground in accordance with the rites of the Church of England will require strong and compelling circumstances. I do not find such
circumstances in the present case. I bear in mind that the petitioner now finds it difficult to visit his wife’s grave having regard to his increasing age. I
also note the point he has made that his son lives in Shrewsbury and that is to be considered to be too far for him to attend to the grave and I bear in mind
the petitioner’s statement that when he dies no one will visit it. If that is so then it would seem less likely that the deceased’s grave will be attended to
and visited if her remains are disinterred and removed to Halliwell, Bolton, which would appear to be further from Shrewsbury. I give all the weight I can
to the outstanding service which the petitioner has rendered to the Church of England over very many years. Indeed, it is trying for me to have to refuse
an application made by such a faithful member of the Church. I cannot, however, permit that consideration to deflect me from the proper exercise of my
discretion. In the result the relief sought by the petition is refused.
The costs of this application will be borne by the petitioner, such costs to include a correspondence fee for the registrar of £130 plus value added tax,
a fee of £70 plus value added tax under item 3 of Table 1 in the schedule to the Ecclesiastical Judges and Legal Officers (Fees) Order 1992, SI 1992/2883,
and 95 fees for this judgment of £88 under item 3 and £130 under item 7 of Table 1 of the schedule to the 1992 fees order.
Petition dismissed.

[1994] 1 All ER 96
Preamble
Practice Note
(Counsel: fees: note of judgment)
PRACTICE DIRECTIONS

SIR THOMAS BINGHAM MR, HOFFMANN AND HENRY LJJ
13 DECEMBER 1993
Counsel – Fees – Note of judgment – Brief fee including remuneration for taking note of judgment, having it transcribed, submitting it to judge for
approval and revising it if required, and providing copies to Court of Appeal, solicitors and client – Entitlement to further fee when required to attend on
later day to take note of judgment not delivered at end of hearing.
SIR THOMAS BINGHAM MR delivered the following practice note at the sitting of the court.
1. Counsel’s brief (or, where appropriate, refresher) fee includes (a) remuneration for taking a note of the judgment of the court, (b) having the note
transcribed accurately, (c) submitting the note to the judge for approval where appropriate, (d) revising it if so requested by the judge and (e) providing
any copies required for the Court of Appeal, instructing solicitors and lay client. Accordingly, save in exceptional circumstances, there can be no
justification for charging any additional fee for such work.
2. When required to attend on a later day to take a judgment not delivered at the end of the hearing, counsel will, subject to the rules of the court,
ordinarily be entitled to a further fee for such attendance. This note is not intended to affect that entitlement.
3. This practice note, in which the General Council of the Bar concurs, replaces the practice note of 9 May 1989 ([1989] 2 All ER 288, [1989] 1
WLR 605).
L I Zysman Esq Barrister.

96
[1994] 1 All ER 97
Racz v Home Office

ADMINISTRATION OF JUSTICE; Juries: TORTS; Tortious Liability
HOUSE OF LORDS
LORD TEMPLEMAN, LORD GOFF OF CHIEVELEY, LORD JAUNCEY OF TULLICHETTLE, LORD BROWNE-WILKINSON AND LORD MUSTILL
10, 11 NOVEMBER, 16 DECEMBER 1993
Public office – Abuse of – Misfeasance by a public officer – Prison officer – Vicarious liability of Home Office – Whether Home Office can be vicariously
liable for misfeasance in public office by prison officers.
Jury – Trial by jury – Cases where party entitled to trial by jury – Queen’s Bench Division – Libel, slander, malicious prosecution and false imprisonment
– Whether entitlement to jury trial applying to action for misfeasance in public office – Supreme Court Act 1981, s 69.
The plaintiff brought an action in the Queen’s Bench Division against the Home Office alleging that he had suffered ill-treatment by prison officers while
he was a remand prisoner. He alleged that he had been unjustifiably removed to a strip cell where his clothes had been forcibly removed and his food had
been tipped on the floor. He claimed damages against the Home Office, as the department of state responsible for prisons and the actions of prison
officers, for assault and battery, negligence and misfeasance in public office. The claim based on misfeasance in public office was intended to provide a
remedy for the period of detention in the strip cell, since such a remedy might not be available under the claim in negligence, and to provide the basis for
an award of exemplary damages. On the application of the Home Office the judge struck out that part of the claim based on misfeasance in public office
and rejected the plaintiff’s submission that the action should be tried by a jury. On appeal by the plaintiff the Court of Appeal affirmed the judge’s
decision on the grounds that in law the Home Office could not be vicariously liable for misfeasance in public office by the prison officers and that the
case was not an exceptional case requiring the court to exercise its discretion under s 69(3)a of the Supreme Court Act 1981 to order a jury trial. The
plaintiff appealed to the House of Lords.
________________________________________
a Section 69, so far as material, is set out at p 102 j to p 103 a, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – (1) The Home Office could be vicariously liable for acts of prison officers which amounted to misfeasance in public office. Whether the Home
Preamble
Office was in fact liable for the alleged ill-treatment of the plaintiff by prison officers depended on whether the prison officers were engaged in a
misguided and unauthorised method of performing their authorised duties or whether the unauthorised acts of the prison officers were so unconnected
with their authorised duties as to be quite independent of and outside those duties. That was a question of fact which could only be decided at the trial. In
those circumstances the claim based on misfeasance in public office should not have been struck out. The appeal would therefore be allowed on that issue
(see p 98 j, p 102 e to h and p 104 e to g, post); Hague v Deputy Governor of Parkhurst Prison, Weldon v Home Office [1991] 3 All ER 733 distinguished.
(2) The torts in respect of which s 69(1) of the 1981 Act gave a prima facie entitlement to a jury trial in the Queen’s Bench Division, namely libel,
slander, 97 malicious prosecution and false imprisonment, were disparate torts which did not create a presumption that a jury trial ought to be ordered
whenever the question of exemplary damages was likely to arise. Accordingly, the similarity of some other tort to any of the torts listed in s 69(1) was
not a factor which had to be taken into account by the court in determining, in the exercise of its discretion, whether it was appropriate to rebut the
presumption against jury trial created by s 69(3). Since on the facts the Court of Appeal had properly exercised its jurisdiction to refuse a jury trial, the
appeal on that issue would be dismissed (see p 98 j and p 103 e to p 104 g, post).
Notes
For abuse of public office, see 1(1) Halsbury’s Laws (4th edn reissue) para 203.
For trial by a judge with a jury in the Queen’s Bench Division, see 37 Halsbury’s Laws (4th edn) para 474, and for cases on the subject, see 37(3)
Digest (Reissue) 93–96, 3418–3429.
For the Supreme Court Act 1981, s 69, see 11 Halsbury’s Statutes (4th edn) (1991 reissue) 1034.

Goldsmith v Pressdram Ltd (1984) [1987] 3 All ER 485, [1988] 1 WLR 64, CA.
Hague v Deputy Governor of Parkhurst Prison, Weldon v Home Office [1991] 3 All ER 733, [1992] 1 AC 58, [1991] 3 WLR 340, HL.
Appeal
Steven Racz appealed with the leave of the Appeal Committee given on 12 May 1993 from the decision of the Court of Appeal (Neill, Beldam and
Kennedy LJJ) on 4 December 1992 dismissing his appeal from the decision of Ebsworth J on 15 June 1992 granting the application of the respondent, the
Home Office, and ordering that para 6 of the plaintiff’s amended statement of claim in his action against the Home Office be struck out as disclosing no
cause of action against the Home Office, and further ordering that the action be tried by a judge alone. The facts are set out in the opinion of Lord
Jauncey.
D M Harris QC and Tim Owen (instructed by B M Birnberg & Co) for the appellant.
Guy Sankey QC and Neil Garnham (instructed by the Treasury Solicitor) for the respondent.
LORD TEMPLEMAN. My Lords, for the reasons given by my noble and learned friend Lord Jauncey of Tullichettle, I would make the orders he
proposes.
LORD GOFF OF CHIEVELEY. My Lords, for the reasons given by my noble and learned friend Lord Jauncey of Tullichettle, I, too, would make the
orders which he proposes.
LORD JAUNCEY OF TULLICHETTLE. My Lords, on 9 March 1988 the appellant plaintiff was a remand prisoner in Armley Prison, Leeds. On 8
March 98 1991 he issued a writ against the respondent defendant claiming damages and aggravated and exemplary damages in respect of events
occurring in the prison on 9 to 11 March 1988. In his statement of claim, as amended, he alleged that he suffered ill-treatment at the hand of prison
officers and claimed damages under three heads, namely assault and battery, negligence and misfeasance in public office. On the application of the
defendant Ebsworth J struck out that part of the claim based on misfeasance in public office and rejected the plaintiff’s submission that the action should
be tried by a jury. The Court of Appeal affirmed Ebsworth J on both grounds although differing from her reasons for refusing trial by jury. The plaintiff
now invites this House to overturn the decision of the Court of Appeal both as to striking out and mode of trial.
Misfeasance in public office

In his amended statement of claim the plaintiff averred that the defendant was the department of state responsible for prisons and the actions of its
servants working therein. After describing in para 3 how he had been assaulted by certain prison officers and removed from an open ward in the hospital
wing of the prison to a strip cell where his clothes were forcibly removed, the statement of claim proceeded:
‘4. After the assault had finished the plaintiff remained in the strip cell until 11 March 1988 when he was transferred to a cell in the segregation
unit. While located in the strip cell prison officers interfered with the plaintiff’s food by tipping it on the floor of the cell and ordering the plaintiff
to clean it up. The plaintiff went on hunger strike in protest. During the time he was located in the strip cell the plaintiff was only given a
nylon/canvas “dress” to wear and had to sleep on the floor with the covering of [a] single blanket. He received no medication.
5. The plaintiff will say his detention in the strip cell in the conditions and for the period of time set out in paragraph 4 herein amounted to
detention in intolerable conditions and/or a cruel and unusual punishment contrary to the Bill of Rights 1688 and was caused by negligence on the
part of the defendant, its servants or agents.
Particulars of negligence
(i) causing the plaintiff to be locked up in the strip cell in circumstances where there was no reason or justification for so doing; (ii) stripping the
plaintiff of his clothing for no good or proper reason; (iii) deliberately interfering with the plaintiff’s food.
6. Further or in the alternative the plaintiff will say that the officers who ordered the plaintiff’s removal/location in the strip cell knew they had
no lawful power under the Prison Rules for such removal/location and/or were motivated by malice and their actions thereby amounted to
misfeasance in public office.’
Preamble
Mr Harris QC for the plaintiff explained that the inclusion of the claim based on misfeasance served two purposes, namely (1) to provide a remedy
for the period of detention in the strip cell since such a remedy might not be available under the claim in negligence and (2) to provide the basis for an
award of exemplary damages.
The Court of Appeal ordered para 6 of the amended statement of claim to be struck out because in law the defendant could not be vicariously liable
for misfeasance in public office by the prison officers. The Court of Appeal reached 99 that conclusion because of the decision of this House in
Hague v Deputy Governor of Parkhurst Prison, Weldon v Home Office [1991] 3 All ER 733, [1992] 1 AC 58 and, in particular, of certain observations
therein of Lord Bridge of Harwich. In order to see whether that conclusion was justified it is necessary to look at the case in some detail.
In Hague’s case a convicted prisoner, Weldon, claimed damages against the Home Office for assault and battery and false imprisonment by certain
prison officers. He averred, inter alia, that he was removed from his cell without good cause to one in the punishment block and was then removed to a
strip cell where his clothes were taken from him. The Home Office application to strike out so much of the averments as related to false imprisonment
was dismissed, both by the assistant recorder and by the Court of Appeal. This House allowed the appeal of the Home Office, holding that there could be
no false imprisonment of a prisoner who was lawfully confined under s 12(1) of the Prison Act 1952 and that a restraint upon movement, which was not
in accordance with the Prison Rules 1964, SI 1964/388, did not confer on a prisoner a cause of action for breach of statutory duty under the rules: see per
Lord Bridge ([1991] 3 All ER 733 at 743–744, [1992] 1 AC 58 at 162–163). In his conclusion, Lord Bridge said ([1991] 3 All ER 733 at 746, [1992] 1
AC 58 at 166):
‘For the reasons I have given I conclude that a claim for damages either for breach of statutory duty or for false imprisonment is not sustainable
in either of the cases before the House.’
I expressed a similar view (see [1991] 3 All ER 733 at 757, [1992] 1 AC 58 at 178).
Neill LJ analysed the reasoning of Lord Bridge in Hague’s case as follows:
‘It is clear from the speech of Lord Bridge ([1991] 3 All ER 733 at 743, [1992] 1 AC 58 at 162) that he considered that it was necessary to
examine the claim by Weldon as set out in the particulars of claim on two bases: (a) on the basis that the prison staff had acted with the authority of
the governor; (b) on the basis that the prison staff had acted in bad faith and without authority. Lord Bridge began his examination of what he
described as the primary and fundamental issue, that is “whether any restraint within defined bounds imposed upon a convicted prisoner whilst
serving his sentence by the prison governor or by officers acting with the authority of the prison governor and in good faith, but in circumstances
where the particular form of restraint is not sanctioned by the Prison Rules, amounts for that reason to the tort of false imprisonment” (see [1991] 3
All ER 733 at 743, [1992] 1 AC 58 at 162). On this aspect of the case Lord Bridge concluded that in view of the wide terms of s 12(1) of the Prison
Act 1952 a prisoner was not entitled to damages for false imprisonment on the ground that he had been subject to restraint which was not in
accordance with the prison rules. Lord Bridge next considered the legal position of a prisoner who had been locked in a shed by fellow prisoners.
Lord Bridge dealt with this point as follows ([1991] 3 All ER 733 at 745, [1992] 1 AC 58 at 164): “The restraint in the shed is unlawful because the
fellow prisoners acted without the authority of the governor and it is only the governor, who has the legal custody of the prisoner, and persons
acting with the authority of the governor who can rely on the provisions of s 12(1)”. Lord Bridge then turned to examine the case of a prison officer
who had acted in bad faith. In a crucial paragraph Lord Bridge said ([1991] 3 All ER 733 at 745, [1992] 1 AC 58 at 164): “This consideration also
leads to the conclusion that a prison 100 officer who acts in bad faith by deliberately subjecting a prisoner to a restraint which he knows he has
no authority to impose may render himself personally liable to an action for false imprisonment as well as committing the tort of misfeasance in
public office. Lacking the authority of the governor, he also lacks the protection of s 12(1). But if the officer deliberately acts outside the scope of
his authority, he cannot render the governor or the Home Office vicariously liable for his tortious conduct.”’
After expressing the views that other members of the House must also have approached Weldon’s claim on both bases, Neill LJ said:
‘It follows therefore that by their unanimous rejection of Weldon’s claim against the Home Office all the members of the House must have
adopted Lord Bridge’s analysis that if the officers had acted outside the scope of their authority so that they could not rely on s 12 of the 1952 Act
the Home Office would nevertheless not be liable because in that event no vicarious liability would attach to the officers’ acts. By the same process
of reasoning the Home Office would not be liable for misfeasance by the officers because such misfeasance would involve either acts which were
known to be unauthorised or acts which were committed for some malicious purpose.’
My Lords, in my view Neill LJ took too much out of the passage which he quoted from Lord Bridge’s speech. Lord Bridge concluded that a breach
in good faith of r 43(2) of the Prison Rules 1964 conferred no cause of action on a prisoner (see [1991] 3 All ER 733 at 742, [1992] 1 AC 58 at 160–161).
Having addressed what he described as the ‘primary and fundamental issue’ he concluded that a prisoner who had been restrained in a manner contrary to
the provisions of the rules could not thereby assert a claim to damages for false imprisonment (see [1991] 3 All ER 733 at 744, [1992] 1 AC 58 at 163).
Thus, by the time he reached the crucial paragraph, Lord Bridge had already dealt with the two issues with which the appeal was concerned.
Turning to that paragraph I have a number of comments to make. In the first place the tort of misfeasance in public office did not arise in Hague’s
case. In the second place bad faith was not an issue. All that was said was that the officers acted ‘without good cause’ and the Home Office did not argue
that, even if false imprisonment would have lain, nevertheless the Home Office would not have been responsible because the officers acted without
authority and in bad faith. Thus the vicarious liability of the Home Office was never in issue. Indeed the last sentence of the above passage suggests that
counsel for Weldon eschewed any suggestion of bad faith. In these circumstances I consider that Lord Bridge was merely seeking to exemplify situations
in which the Home Office might not be responsible for the action of prison officers, but was certainly not intending to lay down any general principles of
law relevant to a matter which had never been argued before the House. I might add that, in reaching the same conclusions as those reached by Lord
Bridge, I did not find it necessary to reach any conclusion on the matters referred to in the passage in question.
I therefore conclude that Hague’s case does not support the proposition that the Home Office could not be vicariously liable for acts of prison
officers which amounted to misfeasance in public office.
Mr Sankey QC for the Home Office presented a further argument to the effect that, even if Hague’s case was not decisive against the plaintiff,
nevertheless this House should strike out para 6 of the claim on the pleaded facts. Reading together paras 3 and 6, it was implicit that the prison officers
101 were acting outwith the scope of their authority or even maliciously in detaining the plaintiff in a strip cell. He made three specific points: (1) the
averments did not suggest that the plaintiff was removed to the strip cell for an authorised purpose; (2) if the plaintiff, as he averred, did no more than
object to being placed in the first cell, it is inconceivable that the prison officers could have had a legitimate reason for subsequently putting him in the
strip cell; and (3) since putting the plaintiff in the strip cell was contrary to the 1964 Rules and, therefore, unlawful, the prison officers must have acted
Preamble
for an improper purpose. It therefore followed that the Home Office could not be vicariously liable for their actions. In support of this proposition
counsel relied on the following passage in Salmond and Heuston on the Law of Torts 19th edn (1987), pp 521–522 and 20th edn (1992), p 457:
‘a master ... is liable even for acts which he has not authorised, provided they are so connected with acts which he has authorised that they may
rightly be regarded as modes—although improper modes—of doing them. In other words, a master is responsible not merely for what he authorises
his servants to do, but also for the way in which he does it ... On the other hand, if the unauthorised and wrongful act of the servant is not so
connected with the authorised act as to be a mode of doing it, but is an independent act, the master is not responsible: for in such a case the servant
is not acting in the course of his employment but has gone outside of it.’
My Lords, in my view, striking out para 6 of the claim could only be justified if the inevitable result of proof of the averments therein was that the
unauthorised acts of the prison officers were so unconnected with their authorised duties as to be quite independent of and outside those duties. Mr
Sankey invited your Lordships to draw inferences from the averments in the statement of claim, but only if such inferences were absolutely unavoidable
and inescapable could he succeed. Mr Harris, on the other hand, in argument and in his written case, pointed out that it is likely to be a question of fact
and degree whether the prison officers were engaged in a misguided and unauthorised method of performing their authorised duties or were engaged in
what was tantamount to an unlawful frolic of their own. My Lords, I consider that there is substance in Mr Harris’s submission. I am in no doubt that it
is impossible to determine the precise character of the actions of the prison officers upon which will depend the liability or otherwise of the defendants for
their acting from a perusal of the pleadings alone and that this can only be done after the facts have been established. It follows that, there being no
compulsitor to strike out para 6 by reason of Hague’s case, the case must go to trial on the whole pleadings as they stand.
Mode of trial
Trial by jury in civil causes is governed by s 69 of the Supreme Court Act 1981, of which the relevant subsections for the purpose of this appeal are
sub-ss (1) and (3) in the following terms:
‘(1) Where, on the application of any party to an action to be tried in the Queen’s Bench Division, the court is satisfied that there is in issue—(a)
a charge of fraud against that party; or (b) a claim in respect of libel, slander, malicious prosecution or false imprisonment; or (c) any question or
issue of a kind prescribed for the purposes of this paragraph, the action shall be tried with a jury, unless the court is of opinion that the trial requires
any 102 prolonged examination of documents or accounts or any scientific or local investigation which cannot conveniently be made with a
jury …
(3) An action to be tried in the Queen’s Bench Division which does not by virtue of subsection (1) fall to be tried with a jury shall be tried
without a jury unless the court in its discretion orders it to be tried with a jury.’
In Goldsmith v Pressdram Ltd (1984) [1987] 3 All ER 485 at 498, [1988] 1 WLR 64 at 76 Slade LJ said:
‘Nevertheless, in my opinion, Parliament, in enacting s 69(3) [of the 1981 Act], has indicated its clear intention that trial without a jury should
be the normal mode of trial for any Queen’s Bench action which does not, by virtue of sub-s (1), fall to be tried with a jury …’
Mr Harris, while accepting that s 69(3) created a presumption against jury trial, argued that issues, including the question of exemplary damages
which were likely to arise when this case went to trial, were so closely related to those which would arise in a case of false imprisonment, where a right to
jury trial existed, that the above presumption should be rebutted and discretion exercised in favour of allowing a jury trial. He went on to submit that the
Court of Appeal had failed in exercising their discretion adequately to take into account: (1) the above-mentioned close relationship, (2) that this was a
case of the individual against the state and (3) that exemplary damages were sought which were more appropriately assessed by a jury.
My Lords, if there were any discernible connection between all four types of tort enumerated in s 69(1) there might be some force in the above
argument as to close relationship. However, that is not the case. I can see no logical connection between, say, libel and false imprisonment, nor common
factor in slander and malicious prosecution. Each tort is capable of being committed by a private individual or by an official of the state, and all in very
different circumstances. One is left with a strong impression that Parliament has retained these four torts for historical rather than for any logical reason,
from which it follows that the similarity to any of these of some other tort is not a factor which must be taken into account by the court in determining, in
the exercise of its discretion, whether it is appropriate to rebut the presumption against jury trial created by s 69(3).
Ebsworth J decided that the case was more appropriate for trial by a judge rather than by jury because the issue was ‘essentially an issue of law or
mixed fact and law’. The Court of Appeal arrived at the same conclusion by a different route. Neill LJ considered whether this was an exceptional case
where the court should exercise its discretion to order a jury trial. He took into account the fact that there was a claim for exemplary damages and that
such a claim would be likely to arise in claims for malicious prosecution or false imprisonment. He also considered that a jury might appropriately be
called upon to decide whether an individual had been subjected to arbitrary or oppressive actions by servants of government. On the other hand, he
referred to the fact that the action neither raised matters of constitutional importance nor involved the actions of senior officials. He also referred to the
fact that the injuries alleged although unpleasant were not grave. I do not think that the manner in which Neill LJ exercised his discretion can be faulted.
It seems to me that he had regard to all the factors which Mr Harris said should have been taken into account and that he did not have regard to any
factors which he should not have done. Beldam LJ considered that Ebsworth J reached her decision on the mode 103 of trial on an invalid ground.
He took into account the role of the jury in assessing exemplary damages and in deciding whether an individual has been subjected to arbitrary or
oppressive actions by government officials, and in so doing he was clearly taking into account factors which could amount to special circumstances to
warrant a trial by jury. He also had regard to the possible lengthening of the trial with its consequent expense and the possibility of the jury disagreeing.
Kennedy LJ agreed with Neill and Beldam LJJ. Although Beldam LJ’s approach to the question was slightly different from that of Neill LJ, I do not think
that there is any justification for criticising the manner in which the Court of Appeal as a whole exercised its jurisdiction.
It is, of course, the case that the Court of Appeal was dealing with the question of mode of trial upon the basis that the claim in respect of
misfeasance in public office would not proceed. However, the facts relevant to that claim are likely to be identical to those which will be considered
under the remaining heads of claim and the issue of exemplary damages also falls to be considered under those heads of claim. It follows that the survival
of the misfeasance claim has not altered the basis upon which the Court of Appeal exercised its discretion to refuse the application for jury trial. Had it
been necessary for this House to exercise its discretion afresh as to the mode of trial, I should have had no hesitation in coming to the conclusion which
was reached by the Court of Appeal. I would only add that the apparent uncertainty as to the precise ambit of the tort of misfeasance in public office,
with the consequent likelihood of prolonged legal argument in the absence of the jury, would have been a further factor militating against trial by jury.
On the whole matter, therefore, I would allow the appeal in so far as it relates to the striking out of para 6 of the statement of claim and dismiss it
quoad the mode of trial, the plaintiff to have two-thirds of his costs in the Court of Appeal and in this House, and the costs before Ebsworth J to be in the
cause.
Preamble
LORD BROWNE-WILKINSON. My Lords, for the reasons given by my noble and learned friend Lord Jauncey of Tullichettle I, too, would make the
orders which he proposes.
LORD MUSTILL. My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Jauncey of
Tullichettle. I agree with it and for the reasons he gives I, too, agree with the orders proposed.
Appeal allowed in part.

104
[1994] 1 All ER 105
Attorney General’s Reference (No 22 of 1992)

CRIMINAL; Sentencing
COURT OF APPEAL, CRIMINAL DIVISION

LORD TAYLOR OF GOSFORTH CJ, POTTS AND JUDGE JJ
19 NOVEMBER 1992
Sentence – Deferred sentence – Review of sentence by Court of Appeal – Review on ground sentence unduly lenient – Whether deferred sentence a
‘sentence’ which can be reviewed by Court of Appeal – Criminal Appeal Act 1968, s 50(1) – Criminal Justice Act 1988, s 36(1).
A deferred sentence is a ‘sentence’ within s 50(1)a of the Criminal Appeal Act 1968 and as such may be referred to the Court of Appeal by the Attorney
General for review under s 36(1)b of the Criminal Justice Act 1988 if it appears to the Attorney General that the deferred sentence passed in the Crown
Court was unduly lenient (see p 109 c to f, post).
________________________________________
a Section 50(1) is set out at p 108 b c, post
b Section 36(1), so far as material, is set out at p 107 j, post
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Dicta of Lord Widgery CJ in R v Hayden [1975] 2 All ER 558 at 559 and of Lord Lane CJ in R v Williams (Carl) [1982] 3 All ER 1092 at 1095
applied.
Notes
For a deferred sentence, see 11(2) Halsbury’s Laws (4th edn reissue) para 1197, and for cases on the subject, see 15(1) Digest (2nd reissue) 14–15,
11658–11661.
For the Criminal Appeal Act 1968, s 50, see 12 Halsbury’s Statutes (4th edn) (1989 reissue) 417.
For the Criminal Justice Act 1988, s 36, see ibid 1159.

R v Dwyer (1974) 60 Cr App R 39, CA.
R v Harwood (1979) 1 Cr App R (S) 354, CA.
R v Hayden [1975] 2 All ER 558, [1975] 1 WLR 852, CA.
R v Williams (Carl) [1982] 3 All ER 1092, [1982] 1 WLR 1398, CA.

R v Barbour (1981) 3 Cr App R (S) 100, CA.
R v Bibi [1980] 1 WLR 1193, CA.
R v Fletcher (1982) 4 Cr App R (S) 118, CA.
R v George [1984] 3 All ER 13, [1984] 1 WLR 1082, CA.
R v McQuaide (1974) 60 Cr App R 239, CA.
R v Miles (1890) 23 QBD 423, CCR.
Reference
On 18 May 1992 Steven Mark Thomas pleaded guilty in the Crown Court at Leeds before Mr James Allen sitting as an assistant recorder to wounding
with intent to do grievous bodily harm, contrary to s 18 of the Offences against the Person Act 1861. The assistant recorder deferred passing sentence for
six months. The Attorney General referred the case to the Court of Appeal pursuant to s 36 of the Criminal Justice Act 1988, on the ground that the
105 deferred sentence was too lenient. The facts are set out in the judgment of the court.
John Nutting (instructed by the Crown Prosecution Service, Headquarters) for the Attorney General.
Preamble
Jonathan L Rose (assigned by the Registrar of Criminal Appeals) for the offender.
LORD TAYLOR OF GOSFORTH CJ delivered the following judgment of the court. This is a reference by Her Majesty’s Attorney General under s 36
of the Criminal Justice Act 1988 of a sentence which he regards as unduly lenient.
The offender is Steven Mark Thomas. On 18 May 1992 in the Crown Court at Leeds he pleaded guilty to wounding with intent contrary to s 18 of
the Offences against the Person Act 1861. The assistant recorder deferred passing sentence for a period of six months, stating that he did so for the
following purposes: first, to assess the offender’s conduct over a six-month period; secondly, to give him the opportunity not to reoffend; thirdly, to afford
him the chance to make a real effort to find employment; fourthly, to continue in his efforts to reduce his consumption of alcohol; fifthly, to make regular
financial savings; sixthly, to act responsibly and support his girlfriend and child; seventh, to demonstrate his capacity to avoid contact with former
co-defendants; and eighth, to develop worthwhile social interests. That list of purposes was lifted en bloc from a social inquiry report which
recommended deferring sentence.
The assistant recorder expressed his anticipated approach to the final disposal of the case at the end of the six-month period, in the following terms:
‘Now let me make it absolutely clear before I ask for your consent that, if at the end of that six months I, as the sentencing tribunal, take the
view that you have not made an effort in these respects, then you run the risk of an immediate custodial sentence then being imposed, and I want
you to clearly understand that the course that I am taking today is an extremely merciful one as your counsel pointed out, some people may even
describe it as extremely lenient. I am prepared to do it, but in return you must satisfy me of your willingness to now try and make something of
your life before it goes very badly wrong indeed.’
The basic facts of the offence were as follows. On 25 October 1991 the victim and his girlfriend, Miss Lambert, went out for the evening, during the
course of which they visited several public houses in Bradford. The offender was known to Miss Lambert. During the evening she encountered him and,
according to her, was subject to some unwelcome observations and pestering by him. Ultimately Miss Lambert and the victim, her boyfriend, went to a
nightclub.
The offender at some stage turned up there. Whilst Miss Lambert was talking to her sister, she leant over to give her a light for a cigarette.
According to Miss Lambert, at that stage the offender approached Miss Lambert from behind and put his hand between her legs over her crotch. That
incident was witnessed by the boyfriend, who immediately approached the offender. He then, either by a kick or by a punch, knocked away the
offender’s hand.
The offender then swung out at the victim with his right hand in which he was holding a pint beer glass. The glass struck the victim’s face, causing
serious injury. The victim sustained a total of six lacerations to his face, including a compound laceration to the left lower lip. In total the lacerations
required some 18 stitches. Although the victim has since made a reasonable recovery, the 106 scarring is still visible on his face and he suffers from
an alteration of sensation in his left lower lip.
The offender was subsequently arrested and interviewed. He maintained that he had done nothing improper towards Miss Lambert. He said he had
merely been speaking to her, when the victim, motivated he thought by jealousy, had punched him. He admitted that thereafter he himself lost his temper
and retaliated. He conceded that at the moment that he struck the blow to the victim’s face, he was aware that he was holding a beer glass and he
accepted that it had been his intention to cause the victim serious injury.
The offender was 21 years of age at the time of the offence and indeed at the time of his conviction. He had a substantial criminal record dating back
to 1982. His convictions were for various offences, including arson, burglary, criminal damage, theft, receiving, taking a vehicle without consent,
handling and obstructing the police. He had been sentenced equally variously by the imposition of conditional discharges, fines, periods at attendance
centre, a period of two months in a detention centre, supervision orders, community service orders and probation. In 1989 he had been ordered to be
detained for nine months in a young offender institution for offences, amongst others, of theft and reckless driving.
In addition he had a conviction for manslaughter, and one for assault contrary to s 47 of the Offences against the Person Act 1861. The manslaughter
offence was very unusual. The offender with another youth had stolen some sewer cover grates from a street in Bradford. As a result of their removal a
girl fell into an uncovered sewer and later died. The offender was sentenced to undertake a total of 150 hours’ community service in respect of that
matter.
The assault was coupled with an attempted theft. The circumstances were that the offender had assaulted someone who had tried to stop him stealing
from a cigarette machine in a nightclub. In December 1990 for those offences he was sentenced to a total of 12 months in a young offender institution.
The matters relied upon before the trial judge by way of mitigation included the following: first, the assertion that he had merely put his hand round
Miss Lambert and not indecently assaulted her; secondly, that the victim had struck the first blow; thirdly, a probation report showed that he had
demonstrated more recently a serious and thoughtful attitude to his life; and fourthly, the close relationship that existed between himself, his girlfriend and
their recently born child.
On behalf of the Attorney General it is submitted first as a foundation for this reference that a deferred sentence is a sentence which allows a
reference of this kind to be made to the court. That is an issue which was disputed on behalf of the offender by Mr Rose, who has appeared here on his
behalf, and we have heard argument about it. It is necessary to look at the relevant statutory provisions.
Section 36(1) of the Criminal Justice Act 1988 provides as follows:
‘If it appears to the Attorney General—(a) that the sentencing of a person in a proceeding in the Crown Court has been unduly lenient; and (b)
that the case is one to which this Part of this Act applies, he may, with the leave of the Court of Appeal, refer the case to them for them to review
the sentencing of that person …’
Section 35(6) provides as follows:
107
‘In this Part of this Act “sentence” has the same meaning as in the Criminal Appeal Act 1968, except that it does not include an interim hospital
order under Part III of the Mental Health Act 1983, and “sentencing” shall be construed accordingly.’
Section 50(1) of the Criminal Appeal Act 1968 provides:
‘In this Act, “sentence” in relation to an offence, includes any order made by a court when dealing with an offender (including a hospital order
under Part III of the Mental Health Act 1983, with or without a restriction order, and an interim hospital order under that Part) and also includes a
Preamble
recommendation for deportation and a declaration of relevance under the Football Spectators Act 1989.’
It is to be noted that the phrase used in s 50(1) is ‘any order made by a court when dealing with an offender’. The section does not specify that the
order must be a final order. Secondly, the definition of ‘sentence’ includes an interim hospital order. Although s 35(6) of the 1988 Act excludes an
interim hospital order from being a sentence for the purposes of that Part of that Act, it does not exclude any other interim or temporary order.
The proper construction of s 50(1) of the 1968 Act was considered in two cases to which we were referred. In R v Hayden [1975] 2 All ER 558 at
559, [1975] 1 WLR 852 at 853 Lord Widgery CJ, when dealing with s 50(1), said:
‘The essential key to the meaning of “sentence” in this context in our opinion is that it is an order, and it is an order made by a court when
dealing with an offender, and we think that means when dealing with someone who has offended in respect of his offence.’
In R v Williams (Carl) [1982] 3 All ER 1092, [1982] 1 WLR 1398 this court had to consider whether there was a right of appeal under s 9 of the
Criminal Appeal Act 1968 against an order binding an offender over to come up for judgment. Lord Lane CJ, in giving the judgment of the court, said
that the appellant had been convicted of an offence on indictment, and continued ([1982] 3 All ER 1092 at 1095, [1982] 1 WLR 1398 at 1401–1402):
‘The only question that remains is therefore whether the order made by the judge was a “sentence”. On the face of it, without further definition
of the word “sentence”, it was not of course a sentence; it was deliberately not passing a sentence. It was, so to speak, a respite of judgment for the
time being. But the matter is not as simple as that, because s 50(1) of the 1968 Act defines “sentence” in the following terms: “In this Act,
‘sentence’, in relation to an offence, includes any order made by a court when dealing with an offender (including a hospital order under Part V of
the Mental Health Act 1959, with or without an order restricting discharge) and also includes a recommendation for deportation.” It seems to this
court that plainly that includes the order that the judge made in this case, namely the order of binding over, which was contingent upon the
conviction and could not have been made otherwise than on conviction.’
Mr Rose has argued that a deferred sentence is not a sentence within the meaning of the statute. He submitted that the court can only pass sentence
once, so that if a deferred sentence was truly within the scope of s 50(1), the court would be functus officio after deferring the sentence. He referred this
court to cases in which the judgments distinguished between the deferring 108 court and the sentencing court, and cases in which the word ‘sentence’
and the word ‘penalty’ have been used interchangeably. However, we find it unnecessary to refer in detail to those cases, since we are satisfied that the
courts there were not focusing attention on the scope of s 50(1).
Mr Rose also relied on a passage from the judgment of Roskill LJ in this court in R v Dwyer (1975) 60 Cr App R 39 suggesting that a binding over
order would not appear to be a sentence under the 1968 Act. However, that passage was expressly considered in R v Williams [1982] 3 All ER 1092 at
1095, [1982] 1 WLR 1398 at 1402, where Lord Lane CJ said:
‘Having read that judgment, it seems to this court that the issue which arises in this case was not properly before the court which considered that
case; and we do not feel in any way constrained by anything that appears in that decision from reaching our conclusion on the question of
jurisdiction.’
In our judgment, the meaning of s 50(1) is plain, as was indicated in both R v Hayden and R v Williams. If Mr Rose were right, two surprising and
unsatisfactory results would follow. First, there would be no right of appeal against a deferred sentence order under s 9 of the 1968 Act. That would be a
surprising lacuna, since there could well be cases in which it could be argued that an immediate non-custodial sentence should have been passed rather
than a deferred sentence order. Secondly, as Mr Nutting pointed out, an Attorney General’s reference could not be made until the final disposal had been
ordered by the trial court where there had been a deferred sentence. Thus the offender would fall to be dealt with three times, rather than twice, in the
event of such a reference, and suspense would be the more prolonged.
We are satisfied that an order deferring sentence is a sentence within the meaning of the statute, and accordingly this reference by the Attorney
General can be entertained. We grant leave in this case.
To return to the circumstances of the present case, the offender admitted that he was well aware he had a glass in his hand. This was a deliberate
infliction of an injury with a glass. The conviction was for the more serious offence of wounding with intent, rather than simply unlawful wounding.
We have been referred to a number of cases to assist the court as to the appropriate level of sentencing for this type of offence. In particular we draw
attention to R v Harwood (1979) 1 Cr App R (S) 354 at 355, where Lord Lane CJ said: ‘Nowadays one cannot really recognise anything less than three
years as being right for deliberate glassing.’
Mr Rose has submitted realistically that this was a lenient sentence. Indeed the assistant recorder said as much in the sentencing remarks which have
already been quoted. But Mr Rose submits that it was not unduly lenient.
We bear in mind that this court ought not to interfere with a sentence if it is simply rather more lenient than one which this court might have passed
at first instance. But here we are quite satisfied that the sentence which was passed was strikingly and unduly lenient, having regard to the observations
already quoted from the Lord Lane CJ in R v Harwood, and to the level of sentencing in other similar cases.
We bear in mind the points which Mr Rose has urged before us, that this was not a glassing which was in the course of a fight and was not one which
resulted from the offender pursuing the victim. It was a single blow struck on an instant. The assistant recorder accepted that the first force had come
from the complainant. Moreover Mr Rose relied on the fact that the offender has now 109 undergone the period of deferment and, apart from some
other unrelated matters which have not yet been resolved, there is no suggestion that he has offended in any way relevant to the disposal of this case.
In all cases where there is a reference by the Attorney General which this court is minded to accept as appropriate, the court has to have in mind the
factor that the offender has already been sentenced once and has then had to undergo a further period of suspense waiting to know what the decision of
this court may be. We take all those matters into account. But in our judgment the least sentence that can be passed in the circumstances of this case is
one of 30 months. Accordingly that is the sentence which we will substitute for the deferred sentence which was passed by the assistant recorder.
Sentence varied.

110
[1994] 1 All ER 110
Preamble
Mercantile Group (Europe) AG v Aiyela and others

CIVIL PROCEDURE
COURT OF APPEAL , CIVIL DIVISION

SIR THOMAS BINGHAM MR, STEYN AND HOFFMANN LJJ
28, 30 JULY 1993
Discovery – Discovery against persons against whom no cause of action – Jurisdiction – Action against several defendants – Compromise of action on
terms that first defendant admitting liability and undertaking to pay sums due and plaintiff abandoning causes of action against fourth defendant – First
defendant not paying sums due and plaintiff entering judgment – Court granting Mareva injunction against first defendant and making disclosure order
against fourth defendant requiring her to provide information about defendants’ assets – Evidence that fourth defendant mixed up in efforts of first
defendant to defeat execution of judgment – Whether court having jusisdiction to make disclosure order against fourth defendant – Supreme Court Act
1981, s 37(1).
Practice – Pre-trial or post-judgment relief – Mareva injuction – Jurisdiction – Action against several defendants – Compromise of action on terms that
first defendant admitting liability and undertaking to pay sums due and plaintiff abandoning causes of action against fourth defendant – First defendant
not paying sums due and plaintiff entering judgment against first defendant – Court granting Mareva injuction against fourth defendant – Injunction
incidental to and in aid of enforcement of judgment debt – Whether court having jurisdiction to grant injunction.
The plaintiff commenced proceedings claiming $US1·8m from A (the first defendant), A’s wife (the fourth defendant) and certain companies. A and two
of the companies admitted liability and undertook to pay $US2·2m on the basis that judgment would be entered forthwith if the money was not paid by a
specified date. The actions against the other defendants, including A’s wife, 111 were abandoned. A made an immediate payment of $388,000 but no
more. The plaintiff then entered judgment for the balance outstanding of $S1·8m. On the plaintiff’s application the court granted a Mareva injunction
against A’s assets within the jurisdiction and, pursuant to s 37(1)a of the Supreme Court Act 1981, made an order that the wife disclose financial
information about herself and her husband. The Mareva injunction was later extended to the worldwide assets of A and a further Mareva injunction was
granted over the wife’s assets in England. The wife applied to discharge the orders against her on the ground that the court had no jurisdiction to make
them as the action against her had been abandoned. The judge dismissed the application. The wife appealed to the Court of Appeal.
________________________________________
a Section 37(1) provides: ‘The High Court may by order (whether interlocutory or final) grant an injunction or appoint a receiver in all cases in which it appears to the
court to be just and convenient to do so.’
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – (1) The court had jurisdiction under s 37(1) of the 1981 Act to grant an order of disclosure against a third party where the third party had become
mixed up in the transaction concerning which discovery was required and it would be just and convenient to make the order. The rule preventing a party
from obtaining discovery against a person who would in due course be compellable to give that information either by oral testimony as a witness or on a
subpoena duces tecum did not apply to discovery against a third party in aid of a post-judgment Mareva injunction, since any trial would already have
taken place. Since there was prima facie evidence that A’s wife was mixed up in A’s efforts to defeat execution of the judgment and it would be just and
convenient to make a dosclosure order against her, it followed that the court had jurisdiction to make the disclosure order (see p 114 j to p 115 b g h, p
116 a and p 117 a to f j, post); Norwich Pharmacal Co v Customs and Excise Comrs [1973] 2 All ER 943 applied.
(2) An interlocutory injunction was incidental to and dependent on the enforcement of a substantive right, usually but not invariably a cause of
action. The plaintiff’s right was a judgment debt owed by A and the Mareva injunction against the wife was incidental to and in aid of enforcement of
that right. It followed that the court had jurisdiction to grant the Mareva injunction against the wife, who was already a party and therefore did not need
to be joined as a defendant to the action for the purpose of the injunction. The appeal would therefore be dismissed (see p 116 e j and p 117 c to f j, post);
dictum of Lord Mustill in Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] 1 All ER 664 at 686 applied.
Notes
For discovery against persons against whom there is no cause of action, see 13 Halsbury’s Laws (4th edn) para 18, and for a case on the subject, see 18
Digest (2nd reissue) 10, 47.
For Mareva injunctions, see 24 Halsbury’s Laws (4th edn reissue) paras 866–871, and for cases on the subject, see 28(4) Digest (2nd reissue)
197–214, 5326–5392.
For the Supreme Court Act 1981, s 37, see 11 Halsbury’s Statutes (4th edn) (1991 reissue) 1001.
112

A v C [1980] 2 All ER 347, [1981] QB 956, [1981] 2 WLR 629.
Bankers Trust Co v Shapira [1980] 3 All ER 353, [1980] 1 WLR 1274, CA.
Bullus v Bullus (1910) 102 LT 399.
Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] 1 All ER 664, [1993] AC 384, [1993] 2 WLR 262, HL.
Dubai Bank Ltd v Galadari [1992] CA Transcript 892.
Norwich Pharmacal Co v Customs and Excise Comrs [1973] 2 All ER 943, [1974] AC 133, [1973] 3 WLR 164, HL.
Siskina (cargo owners) v Distos Cia Naviera SA, The Siskina [1977] 3 All ER 803, [1979] AC 210, [1977] 3 WLR 818, CA and HL.
TSB Private Bank International SA v Chabra [1992] 2 All ER 245, [1992] 1 WLR 231.
Preamble

Acrow (Automation) Ltd v Rex Chainbelt Inc [1971] 3 All ER 1175, [1971] 1 WLR 1676, CA.
Aiglon Ltd v Gau Shan Co Ltd [1993] BCLC 1321.
Bekhor (A J) & Co Ltd v Bilton [1981] 2 All ER 565, [1981] QB 923, CA.
Cummins v Perkins [1899] 1 Ch 16, CA.
Deutsche Schachtbau-und Tiefbohrgesellschaft mbH v Ras Al Khaimah National Oil Co [1988] 2 All ER 833, [1990] 1 AC 295, HL.
Dummer v Chippen Corp (1807) 14 Ves 245, 33 ER 515.
Elliot v Klinger [1967] 3 All ER 141, [1967] 1 WLR 1165.
Faith Panton Property Plan Ltd v Hodgetts [1981] 2 All ER 877, [1981] 1 WLR 927, CA.
Harrington v North London Polytechnic [1984] 3 All ER 666, [1984] 1 WLR 1293, CA.
Harrods Ltd v Tester [1937] 2 All ER 236, CA,
Hill Samuel Bank Ltd v Dunnett (18 March 1993, unreported), Ch D.
Hood Barrs v Heriot, ex p Blyth [1896] 2 QB 338, CA.
Hubbard v Woodfield (1913) 57 SJ 729.
Iveson v Harris (1802) 7 Ves 251, 32 ER 102, LC.
London and County Securities Ltd v Caplan (26 May 1978, unreported), Ch D.
Maclaine Watson & Co Ltd v International Tin Council (No 2) [1988] 3 All ER 257, [1989] Ch 286, CA.
Mediterranea Raffinera Siciliana Petroli Spa v Mabanaft GmbH [1978] CA Transcript 816.
Moodalay v Morton (1785) 1 Bro CC 469, 28 ER 1245.
Newton v Newton (1885) 11 PD 11.
Post & Co v Toledo Cincinatti and St Louis Railroad Co (1887) 144 Mass 341, Mass Sup Jud Ct.
SCF Finance Co Ltd v Masri [1985] 2 All ER 747, [1985] 1 WLR 876, CA.
Seaward v Paterson [1897] 1 Ch 545, [1895–9] All ER Rep 1127, CA.
Sterling Industries Ltd v NIM Services Pty Ltd (1986) 66 ALR 657, Aust Fed Ct; affd sub nom Jackson v Sterling Industries Ltd (1986) 69 ALR 92, Aust
Fed Ct (Full Ct).
Vereker v Choi (1985) 4 NSWLR 277, NSW SC.
Z Ltd v A [1982] 1 All ER 556, [1982] QB 558, CA.
Zucker v Tyndall Holdings plc [1993] 1 All ER 124, [1992] 1 WLR 1127, CA.
113
Interlocutory appeal
The fourth defendant, Mrs Remi Aiyela, the wife of the first defendant, Chief Victor Aiyela, appealed from the order of Hobhouse J dated 31 March 1993
whereby he determined (a) that Anthony Colman QC sitting as a deputy judge of the High Court had jurisdiction to make para 3 of his order of 23 July
1992 whereby he required Mrs Aiyela to give disclosure to the plaintiff, Mercantile Group (Europe) AG, a corporation incorporated under the laws of
Liechtenstein, of information and documents relating to her means and the means of, inter alia, the first defendant, and (b) that Saville J had jurisdiction to
make para 3 of his order of 7 December 1992 in so far as it related to Mrs Aiyela, whereby he granted a Mareva injunction in respect of bank accounts
held in the name of Mrs Aiyela or in respect of which she had a mandate at the Midland Bank plc, 418 Ewell Road, Tolworth, Surrey KT6 7HJ. The facts
are set out in the judgment of Hoffmann LJ.
Martin Mann QC and Mark Warwick (instructed by Lucas Baron Jacobs) for Mrs Aiyela.
Mark Barnes QC (instructed by Lovell White Durrant) for the plaintiff.
Cur adv vult
HOFFMANN LJ (giving the first judgment at the invitation of Sir Thomas Bingham MR). Chief Aiyela is a man of influence in Nigeria. He is able to
negotiate lucrative contracts for foreign corporations. In return he is paid large commissions. In 1983 he negotiated on behalf of the plaintiff a contract to
purchase a large consignment of oil. The plaintiff put him in funds to pay the purchase price. But he was not satisfied with his commission. He paid
only part of the purchase money to the sellers. The rest, amounting to $US1·8m, he kept for himself. On 6 August 1984 the plaintiff commenced
proceedings against him. It also joined as defendants his wife and certain companies which he controlled on the ground that they had each received some
of the money as constructive trustees. On 3 November 1989 the proceedings were compromised by a Tomlin order. Mr Aiyela and two companies
admitted liability and undertook to pay $US2·2m by 5 November 1990. If the money was not paid, judgment could be entered forthwith. The plaintiff
abandoned its causes of action against the other defendants, including Mrs Aiyela.
Mr Aiyela paid $US388,000 immediately. But he paid nothing more. On 13 February 1991 the plaintiff entered judgment for $US1·8m. It then
tried to enforce it. But the previous history of attempts to discover the whereabouts of Mr Aiyela’s assets were not encouraging. In 1984 the plaintiff had
obtained a Mareva injunction and an order for disclosure of assets. Mr Aiyela said that he had no assets in the jurisdiction. The magnificent house in
which he lived in Hampstead belonged to a foreign company. Likewise the Rolls Royce and three other motor cars. The household expenses were paid
out of his wife’s income from Nigeria. He was cross-examined on his affidavit and adhered to this story. Then the plaintiff discovered from his former
personal assistant that he was channelling his income, including a $US3m commission for negotiating a Nigerian fertiliser contract on behalf of an
American corporation, to an undisclosed Channel Island company which he controlled. He was able to draw 114 for his own purposes upon this
company’s bank accounts. This discovery led to the negotiations which ended in the Tomlin order.
When judgment was entered in 1991, Mr Aiyela had left Hampstead and gone abroad. But in 1992 he returned to England. The Aiyelas’ style of
living was just as grand as before. They lived in a big house on the St George’s Hill estate in Weybridge with servants and motor cars. The plaintiff first
tried to have Mr Aiyela examined as to his means under RSC Ord 48, r 1. He was served while sitting in his chauffeur-driven car. But he refused to
come because the process server had not tendered conduct money. Thereafter he evaded service.
On 23 July 1992 Mr Anthony Colman QC (sitting as a deputy High Court judge) granted a Mareva injunction against Mr Aiyela, limited to assets
Preamble
within the jurisdiction. He made an order requiring Mrs Aiyela to provide detailed financial information about herself and her husband. She was required
to give particulars of the companies or trusts which she or her husband had caused to be formed and the assets which they held, her own and her
husband’s bank accounts, credit card accounts, properties, motor cars and other chattels. In response to this order Mrs Aiyela gave certain information but
did not disclose accounts with the Midland Bank in Tolworth, Surrey in her name and that of a company which she controlled. A payment had been made
into her account from Nigeria on the instructions of Mr Aiyela. This information was put before Saville J on 7 December 1992 when he extended
worldwide the Mareva injunction against Mr Aiyela and made a separate Mareva against Mrs Aiyela in respect of any account on which she could draw at
the Midland Bank, Tolworth.
On 25 November 1992 Mr Aiyela was adjudicated bankrupt on the petition of another creditor. It is not however suggested that the bankruptcy
affects the court’s jurisdiction to grant discovery or Mareva relief against his wife.
Mrs Aiyela applied to Hobhouse J to discharge the July order for disclosure of assets and the December order so far as it affected the bank accounts
on which she could draw. Her counsel accepted that there was evidence to suggest that Mr Aiyela was determined to frustrate the execution of the
judgment against him, that Mrs Aiyela had no independent financial means and that moneys emanating from her husband or companies which he
controlled had been paid into bank accounts in her name. Mrs Aiyela disputed these conclusions but accepted that they gave rise at least to triable issues.
On this basis counsel conceded that if there was jurisdiction to make the orders against Mrs Aiyela, he could not challenge the exercise of that
jurisdiction. But he argued that there was no such jurisdiction. In the Tomlin order the plaintiff had abandoned any substantive cause of action against
Mrs Aiyela and the court could not therefore order her to disclose information about her assets or those of her husband or make a Mareva injunction
against her. Hobhouse J held that there was jurisdiction to make both orders and dismissed the summons. Mrs Aiyela now appeals.
The disclosure order

There is no dispute that the court was entitled to grant a post-judgment Mareva against Mr Aiyela. The question is whether, ancillary to that order, it
can order discovery from a person against whom there is no substantive cause of action. The power to order disclosure is derived from s 37(1) of the
Supreme Court Act 1981. The exercise of this power against third parties was discussed by the House of Lords in Norwich Pharmacal Co v Customs and
Excise Comrs [1973] 2 All ER 943, [1974] AC 133. The effect of this decision, as expounded in later 115 cases, is that jurisdiction to order
disclosure against a third party exists when two conditions are satisfied. First, the third party must have become mixed up in the transaction concerning
which discovery is required. Secondly, the order for discovery must not offend against the ‘mere witness’ rule, which prevents a party from obtaining
discovery against a person who ‘will in due course be compellable to give that information either by oral testimony as a witness or on a subpoena duces
tecum’ (see [1973] 2 All ER 943 at 947, [1974] AC 133 at 173–174 per Lord Reid). In the Norwich Pharmacal case the Customs and Excise, by the
exercise of their statutory powers, became ‘mixed up’ in the importation of infringing chemicals and an order for discovery did not offend against the
mere witness rule because it sought discovery of the identity of the importers with a view to bringing proceedings against them. As Lord Reid said
([1973] 2 All ER 943 at 947, [1974] AC 133 at 174):
‘… the foundation of the [mere witness] rule is the assumption that eventually the testimony will be available either in an action already in
progress or in an action which will be brought later … Here if the information in the possession of the respondents cannot be made available by
discovery now, no action can ever be begun because the appellants do not know who are the wrongdoers and have infringed their patent.’
Mr Mann QC says that the Norwich Pharmacal principle is limited to finding out the identity of a tortfeasor. But this is not the only situation which
falls outside the mere witness rule. In Bankers Trust Co v Shapira [1980] 3 All ER 353, [1980] 1 WLR 1274 discovery was ordered against a bank which
had received the proceeds of fraud. The purpose of discovery was to trace what had happened to the money. The bank had innocently become mixed up
in the fraud and there was no infringement of the mere witness rule because there would be no point in the plaintiff seeking the information at the trial.
By that time the money would be gone. In A v C [980] 2 All ER 347 at 352, [1981] QB 956 at 961 Robert Goff J made an order for disclosure in aid of
pre-judgment Mareva against a bank which had been joined solely for the purposes of discovery.
In the case of discovery against a third party in aid of a post-judgment Mareva, the mere witness rule can have no relevance. The trial, if any, will
already have taken place. It follows that all that is necessary to found jurisdiction is that the third party should have become mixed up in the transaction
concerning which discovery is required and, of course, that the court should consider it ‘just and convenient’ to make an order. The court will naturally
exercise with care a jurisdiction which invades the privacy of an innocent third party. But this is a matter to be taken into account in the exercise of the
discretion. It does not go to the existence of the jurisdiction.
Mr Mann said on behalf of Mrs Aiyela that RSC Ord 48, r 1, which provides for examination of the judgment debtor, represented the limits of the
information to which a judgment creditor is entitled in aid of execution. I do not agree. It would be very strange if before judgment the plaintiff could, as
in Bankers Trust v Shapira [1980] 3 All ER 353, [1980] 1 WLR 1274, obtain information from third parties about the whereabouts of the debtor’s assets,
but was limited after judgment to examining the debtor under RSC Ord 48, r 1. I do not think that the submission gains support from the decision of this
court in Dubai Bank Ltd v Galadari [1992] CA Transcript 892, which concerned an attempt to impose upon a party an obligation to use best endeavours
to give discovery of documents which were not within his control. The court said that there was 116 no jurisdiction to widen the scope of discovery
in this way. But the disclosure order against Mrs Aiyela does not require her to disclose any information which is not within her own knowledge or any
documents not within her own control.
In this case there was prima facie evidence that Mrs Aiyela had become mixed up in the arrangements made by her husband to defeat execution of
the judgment while continuing to live in luxury. It follows that there was jurisdiction to make a disclosure order against her.
The Mareva injunction

Mr Mann submitted on behalf of Mrs Aiyela that a Mareva injunction can be made only against a person against whom the plaintiff had a substantive
cause of action. This, he said, followed from the decision of the House of Lords in Siskina (cargo owners) v Distos Cia Naviera SA, The Siskina [1977] 3
All ER 803, [1979] AC 210. But in Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] 1 All ER 664 at 686, [1993] AC 384 at 362
Lord Mustill said:
‘… the doctrine of The Siskina, put at its highest, is that the right to an interlocutory injunction cannot exist in isolation, but is always incidental
to and dependent on the enforcement of a substantive right, which usually although not invariably takes the shape of a cause of action.’
In this case, the plaintiff’s substantive right is a judgment debt owed by Mr Aiyela. The Mareva injunction against Mrs Aiyela is incidental to and in
aid of the enforcement of that right. Although Mareva injunctions in advance of judgment date from 1975, post-judgment injunctions against third parties
in aid of the enforcement of a judgment debt have a much longer history. In Bullus v Bullus (1910) 102 LT 399 Mrs Bullus had a claim for arrears of
maintenance under an order made against her husband and an unsatisfied order for costs. He became entitled to a legacy and the court granted an
Preamble
interlocutory injunction to restrain the trustees of the will from paying him the money. The order was in principle no different from a post-judgment
Mareva against a third party to prevent dissipation of a fund to which the judgment debtor is beneficially entitled and upon which the creditor may be
entitled to execute. It is true that in Bullus v Bullus the debtor was indisputably entitled to the legacy whereas here the interest of Mr Aiyela in the funds
in Mrs Aiyela’s accounts is a matter in dispute. But this does not affect the jurisdiction.
TSB Private Bank International SA v Chabra [1992] 2 All ER 245, [1992] 1 WLR 231 was a case of a pre-judgment Mareva. The plaintiff bank sued
Mr Chabra on a guarantee and obtained a Mareva against him. It later appeared that a company which he controlled, but against which the bank had no
substantive cause of action, held assets of which Mr Chabra was arguably the beneficial owner. Mummery J ordered the company to be joined as a
defendant under RSC Ord 15, r 6(2)(b)(ii) and granted a Mareva against the company as well. Mr Mann argued that this case was wrongly decided but in
my view the judge was right. The plaintiff had a Siskina cause of action against Mr Chabra and the injunction against the company was ancillary to that
cause of action.
Accordingly I think that there was jurisdiction to grant the Mareva against Mrs Aiyela, who did not need to be joined because she was already a
party to the action. The fact that it had been stayed by the Tomlin order is not for this purpose material. I therefore think that Hobhouse J was right to
hold that there was jurisdiction to make both orders and I would dismiss the appeal.
117
STEYN LJ. I agree. In my view Hobhouse J analysed the issues correctly, and convincingly demonstrated that the court had jurisdiction to make both
the July disclosure order and the December Mareva order against Mrs Aiyela. That is so despite the fact that there was no surviving cause of action
against Mrs Aiyela. Both orders were ancillary to the plaintiff’s judgment against Mr Aiyela and the Mareva which had been granted against him in July.
The disclosure order was within the jurisdiction of the court because there was evidence tending to show that substantial assets in the name of Mrs Aiyela
were in truth assets belonging to Mr Aiyela. She was therefore ‘mixed up’ in her husband’s attempts to make himself judgment proof. On the analogy of
Norwich Pharmacal Co v Customs and Excise Comrs [1973] 2 All ER 943, [1974] AC 133 the court had jurisdiction to grant a disclosure order against
Mrs Aiyela. The relevant part of the December order was a Mareva injunction over sums in Mrs Aiyela’s account at the Midland Bank, Tolworth. It was
accepted by Mrs Aiyela for the purposes of the hearing before Hobhouse J that there was an arguable case that Mrs Aiyela held these sums upon trust for
her husband. In these circumstances there was jurisdiction to make a direct order against Mrs Aiyela. In upholding these orders we are not departing
from any relevant authority which spells out the scope of the court’s jurisdiction. It is also just and convenient that the court should have jurisdiction to
make such orders. The court inquired of Mr Mann QC whether there were any substantive arguments, or policy reasons, militating against a jurisdiction
to make such orders. As I understand it Mr Mann’s only answer was: where is the line to be drawn? To that I can only give the traditional answer that
subsequent jurisprudence will no doubt refine what we have held to be the legal position. In the meantime it seems to me that what we have ruled today
ought not to perplex anybody. I would dismiss the appeal.
SIR THOMAS BINGHAM MR. For the reasons given by Hoffmann and Steyn LJJ, and those which he himself gave, I am quite satisfied that this
appeal against the judgment of Hobhouse J should be dismissed.
It is important to emphasise that the plaintiff’s allegations against Mrs Aiyela have not been investigated and are strongly challenged by her. They
are therefore no more than unsubstantiated allegations. It has, however, been accepted on her behalf for purposes of the application to Hobhouse J and
this appeal that the allegations are arguable. They cannot be dismissed out of hand. Thus the issue is whether jurisdiction existed to make the orders
complained of, not whether the jurisdiction, if it existed, was rightly exercised.
Both principle and authority persuade me that the judges who made these orders did have jurisdiction to make them. I am very pleased to reach that
conclusion, for if jurisdiction did not exist the armoury of powers available to the court to ensure the effective enforcement of its orders would in my view
be seriously deficient. That is in itself a ground for inferring the likely existence of such powers, since it would be surprising if the court lacked power to
control wilful evasion of its orders by a judgment debtor acting through even innocent third parties. The jurisdiction is of course one to be exercised with
caution, restraint and appropriate respect for the legitimate interests of third parties. But that the jurisdiction exists, both in relation to the disclosure order
and the Mareva injunction, I do not doubt.
Appeal dismissed. Leave to appeal to the House of Lords refused.
[1994] 1 All ER 118
Nestle v National Westminster Bank plc

TRUSTS

DILLON, STAUGHTON AND LEGGATT LJJ
6–10, 13–15 APRIL, 6 MAY 1992
Trust and trustee – Duty of trustee – Duty towards beneficiary – Investments – Power of investment – Bank acting as trustee – Duty of trustee to review
trust investments regularly and properly – Bank failing to review trust investments regularly – Beneficiary not proving that value of trust would have
increased if investments had been reviewed regularly – Whether prudent trustee would have invested better – Whether bank in breach of trust.
Trust and trustee – Duty of trustee – Duty towards beneficiary – Investments – Power of investment – Bank acting as trustee – Investment decision made
on untenable grounds – Investment justifiable on other grounds – Whether bank liable for breach of trust.
Preamble
In 1986 the plaintiff became solely entitled to the residue of the estate of her grandfather (the testator), who had died in 1922 leaving an estate worth
nearly £54,000. The defendant bank was the trustee of the will. By his will the testator had given his widow a life interest in the family home and an
annuity of £1,500, and his two sons, G and J, were each given a life interest in half the residue. The capital of each son’s share was to be held on trust for
his children. In the event G had no children and the plaintiff was the only child of J. By 1960, when the widow died, the family home had been sold and
the annuity fund amounted to over £105,000, of which 15% was in fixed interest securities and 85% in equities which consisted entirely of bank and
insurance shares. Thereafter the total residue was divided in half by allocating half the investments to G’s share and half to J’s share. G lived overseas
from 1933 and died in 1972, leaving a widow who died in 1982; J lived overseas from 1969 and died in 1986. By 1986 the fund was worth some
£269,000, but the plaintiff claimed that it would have been worth more than £1m if the bank had managed the trust with proper care. The plaintiff
brought an action against the bank alleging in particular that it was in breach of its duty as a prudent trustee by (a) not diversifying the investments in
equities between 1922 and 1960 away from the original investments in bank and insurance shares because of a failure to appreciate its powers to invest in
other equities or to review its investments regularly, (b) deciding to invest the proceeds of sale of the family home in conversion stock rather than
equities, (c) failing to carry out regular reviews of the fund before 1959 and (d) favouring G and J, the income beneficiaries, at the expense of the
plaintiff, the capital beneficiary, by purchasing tax-exempt fixed interest securities which had a significantly lower yield than equities. It was common
ground that until 1961 the bank had wrongly assumed, without legal advice, that its powers of investment were limited to the actual bank and insurance
company shares held by the testator at the date of his death or similar shares. The plaintiff led evidence that the index of leading equity shares had
increased in value by 659% between 1922 and 1960, whereas the equities in the fund had increased in value by only 419%, and claimed that the
difference represented a loss to the fund for which she was entitled to be compensated. By its defence the bank claimed that it had acted as a prudent
trustee and that the tax-exempt securities had been 118 purchased to avoid death duties on the estates of the life tenants, G and J, and had therefore
benefited the plaintiff, since double the amount of dutiable securities would have been needed to produce the same net estate. The judge dismissed the
claim and the plaintiff appealed to the Court of Appeal.
Held – The appeal would be dismissed for the following reasons—

(1) Although the bank had clearly failed in its duty to appreciate the scope of its powers of investment and had not reviewed the investments
regularly, that was not sufficient to afford the plaintiff a remedy: the plaintiff had further to prove that the bank’s failure to diversify the equities between
1922 and 1960 had caused her loss. It was not sufficient for her merely to prove loss of a chance that she would have been better off if the equities had
been diversified, since it was necessary for her to prove that the annuity fund would have been worth more if a substantial proportion had been invested in
equities rather than fixed interest securities or that the fund would have performed better if the bank had diversified out of the bank and insurance shares.
In the absence of such proof, no loss had been proved. Although the bank had not been an effective manager of the trust investments under its control, it
had not been shown to have committed any breach of trust resulting in loss. A comparison with the composition of the equity shares index was
insufficient to prove any loss because that index was calculated by reference to the performance of leading equity shares and the composition of the list
changed with companies’ fortunes and therefore could not be the criterion for the degree of performance expected of the ordinary prudent trustee. There
being no other evidence of loss, the claim in respect of the bank investment policy as trustee between 1922 and 1960 failed (see p 123 h to p 124 a, p 125
b d to f, p 127 e to h, p 132 c to f, p 133 j to p 134 c g, p 136 d to f, p 138 j, p 139 e, p 140 j to p 141 d g to j and p 142 e to g, post); Chaplin v Hicks
[1911–13] All ER Rep 224 distinguished; Robinson v Robinson (1851) 1 De GM & M 247 doubted.
(2) A trustee although required to act prudently incurred no liability for a decision made on wrong grounds or for an untenable reason if it
subsequently appeared that there were good grounds for the decision. Although the decision not to invest the proceeds of the family home in equities had
been made for an untenable reason, namely that the bank considered it had no power to make the investments in equities then recommended by its
stockbrokers, the decision could be regarded as objectively right on a correct appreciation of the facts because more than 75% of the annuity fund was
then already invested in equities. Furthermore (per Staughton LJ), there was no prima facie loss to the fund from investing the proceeds of the sale of the
family home in fixed conversion stock, even though it appeared to have been unwise, since it could not be assumed that equities purchased from the sale
would not later have been sold under the trustee’s general policy of favouring tax-exempt gilts (see p 128 c to f, p 131 g h, p 139 b to f and p 141 j to p
142 a g, post); dicum of Megarry V-C in Cowan v Scargill [1984] 2 All ER 750 at 766 applied.
(3) The plaintiff had suffered no loss as the result of the bank’s decision to invest a substantial part of the life tenants’ shares in tax-exempt fixed
interest securities since that investment had resulted in no death duties being payable on the death of the life tenants and yielded more than if the funds
had been invested in shares which would have been subject to death duties. Furthermore (per Staughton LJ), although a trustee was under a duty to
administer a trust fund impartially or fairly, having regard to the different interests of the 119 beneficiaries, the bank had not failed to act fairly or
impartially, since the purchase of tax-exempt gilts avoided payment of income and inheritance tax in respect of the life tenants’ income and estates (see p
129 g to p 130 b, p 132 b to g, p 136 h, p 137 b to j, p 138 b to e, p 139 e and p 141 j to p 142 d, post); dictum of Wilberforce J in Re Pauling’s Settlement,
Younghusband v Coutts & Co (No 2) [1963] 1 All ER 857 at 862 applied.
Per curiam. The measure of damages where a trustee fails to act fairly or impartially in respect of the administration of a trust is (per Dillon LJ) fair
compensation and not merely the least compensation for the failure to follow the correct policy or (per Staughton LJ) the difference between the actual
performance and what a prudent trustee would have been likely to have achieved, not merely the least that could have been achieved (see p 127 a b and p
138 f g, post).
Notes
For trustees’ powers in general and for their power to invest, see 48 Halsbury’s Laws (4th edn) paras 837–840, 854–857, and for cases on the subject, see
48 Digest (Reissue) 518–520, 598–606, 4703–4725, 5439–5511.

Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] 2 All ER 92, [1980] Ch 515, [1980] 2 WLR 430.
Chaplin v Hicks [1911] 2 KB 786, [1911–13] All ER Rep 224, CA.
Cowan v Scargill [1984] 2 All ER 750, [1985] Ch 270, [1984] 3 WLR 501.
Guerin v R [1984] 2 SCR 335, Can SC.
Hotson v East Berkshire Area Health Authority [1987] 1 All ER 210, [1987] AC 750, [1987] 2 WLR 287, CA; rvsd [1987] 2 All ER 909, [1987] AC 750,
[1987] 3 WLR 232, HL.
Kitchen v Royal Air Force Association [1958] 3 All ER 241, [1958] 1 WLR 563, CA.
Lavarack v Woods of Colchester Ltd [1966] 3 All ER 683, [1967] 1 QB 278, [1966] 3 WLR 706, CA.
Learoyd v Whiteley (1887) 12 App Cas 727, HL; affg (1886) 33 Ch D 347, CA.
Preamble
Otter v Church Adams Tatham & Co (a firm) [1953] 1 All ER 168, [1953] Ch 280, [1953] 1 WLR 156.
Pauling’s Settlement, Re, Younghusband v Coutts & Co (No 2) [1963] 1 All ER 857, [1963] Ch 576, [1963] 2 WLR 838.
Robinson v Robinson (1851) 1 De GM & G 247, 42 ER 547, LJJ.
Sharp, Re, Rickett v Sharp (1890) 45 Ch D 286, CA.
Speight v Gaunt (1883) 9 App Cas 1, HL.
Wilsher v Essex Area Health Authority [1988] 1 All ER 871, [1988] AC 1074, [1988] 2 WLR 557, HL.
Cases also cited

Hay’s Settlement Trusts, Re [1981] 3 All ER 786, [1982] 1 WLR 202.
Manisty’s Settlement, Re [1973] 2 All ER 1203, [1974] Ch 17.
Palata Investments Ltd v Burt & Sinfield Ltd [1985] 2 All ER 517, [1985] 1 WLR 942, CA.
Steel v Wellcome Custodian Trustees Ltd [1988] 1 WLR 167.
Van Stillevoldt (C M) BV v El Carriers Inc [1983] 1 All ER 699, [1983] 1 WLR 207, CA.
120
Appeal
The plaintiff, Edith Georgina Corpe Nestle, the beneficiary entitled in remainder under the will trusts of her grandfather, William David Nestle, appealed
with the leave of the Court of Appeal (Neill, Nicholls and Butler-Sloss LJJ) given on 15 March 1990 from the decision of Hoffmann J on 29 June 1988
dismissing her writ of summons dated 18 April 1984 seeking, inter alia, (1) an inquiry to establish what would have been the value of the trust funds had
they been invested and managed by the defendant, National Westminster Bank plc, as successor to the original trustee of the will trusts, with proper care
and skill and a proper balance been maintained between capital and income and (2) an order that the defendant pay into the trust funds a sum equal to the
difference between the value established by that inquiry and the actual value of the funds. The facts are set out in the judgment of Dillon LJ.
Michael Lyndon-Stanford QC and James Clifford (instructed by Wood Awdry Wansbroughs, Devizes) for Miss Nestle.
Edward Nugee QC and Anthony Mann (instructed by Wilde Sapte) for the bank.
Cur adv vult
6 May 1992. The following judgments were delivered.
DILLON LJ.
Preliminary
This is an appeal by the plaintiff in the action, Miss Nestle, against a judgment of Hoffmann J, given as long ago as 29 June 1988, whereby, at the
end of the trial of the action, he dismissed all Miss Nestle’s claims against the defendant in the action, National Westminster Bank plc.
The bank was sued by Miss Nestle as the trustee of the will of her grandfather, William David Nestle (the testator), who died on 29 April 1922. By
his will which was proved on 17 June 1922 the testator appointed the National Provincial Bank Ltd to be his sole executor and trustee. The National
Provincial Bank merged with the Westminster Bank Ltd in 1968 to constitute the National Westminster Bank, which thereupon succeeded to the
trusteeship of the testator’s will. In this judgment I use the term ‘the bank’ to designate whichever of the National Provincial Bank Ltd and the National
Westminster Bank plc was for the time being the trustee of the testator’s will.
The appeal is concerned with the investment policies followed by the bank from time to time in relation to the funds subject to the trusts of the
testator’s will, from the time of the testator’s death in 1922 to the death of Miss Nestle’s father, John Nestle, in 1986, when Miss Nestle became solely
and absolutely entitled to the capital of the funds then still held on trust. Those funds were then worth £269,203, but it has been Miss Nestle’s contention
that if the funds had been properly managed by the bank and proper investment policies had been followed by the bank throughout they would have been
worth well over £1m. The argument on the appeal has therefore necessarily covered matters of general importance in relation to the investment of private
trust funds, though the outcome must depend on the particular circumstances at any particular time of this trust.
The primary relief sought by Miss Nestle in the reamended statement of claim and by the notice of appeal is (1) an inquiry as to what would be the
value of the trust funds at the date of the conclusion of the inquiry if the trust funds 121 had been invested and managed by the bank with proper care
and skill and a proper balance had been maintained between capital and income and (2) an inquiry as to the value of the actual trust funds at the
conclusion of inquiry (1), and (3) payment by the bank to Miss Nestle, by way of compensation or damages, of a sum equal to the excess of the amount
certified under inquiry (1) over the amount certified under inquiry (2).
The beneficial trusts of the testator’s will

The testator gave his widow, Mrs Barbara Nestle, a life interest in the family home, Winterbourne, Brighton Road, Sutton, Surrey and an annuity of
£1,500 free of tax during her widowhood. He directed the bank, as trustee, to set aside a fund sufficient by its income to satisfy the annuity, with power
to have recourse to the capital of the annuity fund if in any year there was a shortfall of income. Any surplus in any year of the income of the annuity
fund was to be applied as income of residue. On the death of the widow, Winterbourne, or the property then representing it, and the capital of the annuity
fund would fall into residue.
As to residue, each of the testator’s two sons, George and John, was from the age of 21 to the age of 25 to have an annuity of £250 out of the income
of residue. From the age of 25, each son was to have a life interest in one-half of the residue, with power to appoint the income of his share to a surviving
widow for her life. The bank was given power to pay the whole or any part of the capital of either son’s share to that son for his absolute use or otherwise
to apply it for his benefit. Subject to the foregoing, the capital of each son’s share was to be held on trust for his children, with an accruer between the
sons’ shares if either should die without issue. In the event George Nestle had no children and John Nestle had only the one child, Miss Nestle;
accordingly Miss Nestle, who was born in January 1942, became in due course solely and absolutely entitled to the capital of George’s share and of
John’s share, save in so far as the capital was paid out to George or John or otherwise applied for their benefit during their respective lifetimes.
Relevant dates
Mrs Barbara Nestle, the testator’s widow, was 24 years younger than the testator and she did not die until 1960. Winterbourne was sold during 1959
Preamble
and the proceeds were invested.
George Nestle, born in 1903, was 18 years old when his father died and had just gone up to Cambridge. In 1933 he emigrated to Tanganyika and
settled there. He bought a farm there, and to assist him in doing so the bank, while the widow was still alive, advanced to him the whole of the capital of
his share in the residue, other than the annuity fund and Winterbourne. In 1963 he left Tanganyika and moved to Malta, where he lived for the rest of his
life. He died in September 1972, leaving surviving him his widow Mrs Elsie Nestle, who died in September 1982. Despite initial doubts on the part of
the bank, it was accepted that by his will he had validly appointed the income of his share to his widow Elsie.
John Nestle was born in 1912 and was 9 years old when the testator died. He was married once only, but parted acrimoniously from his wife in 1945
and the marriage was dissolved. He was domiciled and resident in England until 1969, when he went to live in Cyprus and he died there in 1986.
122
The provisions of the testator’s will as to investment

By cl 11 of his will the testator gave the bank power to retain any investment comprised in his estate, notwithstanding that it might be of a wasting,
speculative or reversionary nature or be subject to any liability for calls outstanding thereto attached.
By cl 13 he gave the bank powers of investment as follows:
‘And I declare that all monies liable to be invested under this my Will may be invested in and upon any securities or investments of the same or
a similar nature to any which shall be held by or belong to me at the time of my decease or in or upon any stocks funds or securities of or
guaranteed by the Government of the United Kingdom or any British Colony or Dependency or any Foreign State or the stocks shares bonds
debentures or securities of any Railway or other Company or of any Municipal or other Corporation or Local Board or public Body established in
any part of the United Kingdom or in any British Colony or Dependency or on Mortgage on any real or heritable or leasehold property in Great
Britain or in any British Colony or Dependency And the Bank may alter vary and transpose all such stocks funds securities and investments from
time to time as often as occasion shall require or as they shall deem expedient.’
It is clear that the opening words of that clause, authorising investment ‘in and upon any securities or investments of the same or a similar nature to any
which shall be held by or belong to me at the time of my decease’, authorised investment in the purchase of ordinary shares in any company in which the
testator had held ordinary shares at the time of his death, even though the testator’s holding of ordinary shares in that company had been sold in order to
pay his debts and funeral and testamentary expenses and had therefore not been retained by the bank.
It is also now common ground, though not immediately clear on a first perusal of the clause, that the words in the clause ‘the stocks shares bonds
debentures or securities of any railway or other company’ authorised investment in the purchase of ordinary shares in companies incorporated in the
United Kingdom: see Re Sharp, Rickett v Sharp (1890) 45 Ch D 286, a decision of this court, where Cotton LJ, in relation to a power to invest ‘upon the
debentures or securities of any railway or other public company’, said (at 289):
‘It is true that he refers to railway companies, but he also adds, “or any other public company …”; and I think it would be a wrong interpretation
of the will to say that those words, because they follow the reference to railway companies, must be confined to companies similar to them or to
companies incorporated in the same way as railway companies are, namely, by special Act of Parliament.’
It was the duty of the bank to acquaint itself with the scope of its powers under the will. It is understandable that the bank had doubts, on a mere
perusal of cl 13, as to its powers to invest in ordinary shares. It is inexcusable that the bank took no step at any time to obtain legal advice as to the scope
of its power to invest in ordinary shares. Instead the bank administered the trusts, until the enactment of the Trustee Investments Act 1961, on the basis
that while it could continue to retain ordinary shares which had been held by the testator at the date of his death, the power it had to invest in further
ordinary shares was limited to investment in further ordinary shares in the companies in which it 123 still retained ordinary shares which had been
held by the testator at the date of his death, or ordinary shares in ‘similar companies’, eg ordinary shares in a further insurance company at a time when
the bank still retained insurance shares which the testator had held at his death.
After the enactment of the 1961 Act, the bank erroneously assumed that its powers of investment were wholly governed by that Act.
On 25 November 1959 an official of the bank told John Nestle, in a spuriously knowledgeable way, that this seemed to the bank to be a case where
the bank should apply to the court under the Variation of Trusts Act 1958 for a widening of its investment powers. But again nothing was ever done, and
no advice as to the scope of the bank’s investment powers was ever sought.
The testator’s portfolio of investments and the setting up of the annuity fund
The testator held a substantial portfolio of investments which seems to have been reasonably well balanced for the time. Of a total value of £53,963
9s 8d, £13,951 2s 6d (or 26%) was in fixed interest securities and £40,012 7s 2d (or 74%) was in equities. The equities were predominantly in bank and
insurance shares, which were particularly favoured at the time; but there were equity holdings in other well-known companies, such as the British South
Africa Co, J & P Coates Ltd, the Cunard Steamship Co, the Dunlop Rubber Co, the Hudson Bay Co and the Shell Transport and Trading Co. It seems
from the portfolio that the testator was either himself knowledgeable or was well advised about the investment of his moneys.
Investments had to be sold to pay estate duty (over £6,000) and the debts and funeral and testamentary expenses. The widow’s annuity fund was
then set up with a total value of £37,223 6s 9d, of which £15,998 19s 3d (or 43%) was in fixed interest securities and £21,224 7s 6d (or 57%) was in
equities. The equities were all bank and insurance shares held by the testator at his death and retained by the trustees. There is no complaint in this court
about the initial constitution of the annuity fund.
There remained, in addition to Winterbourne and its contents, investments of a value of some £9,500 to £11,000 to constitute the shares of residue of
George and John.
The administration of the annuity fund from 1922 to the death of the widow in 1960
At some stage in the 1930s it had been necessary to have recourse to capital of the annuity fund to pay the widow’s annuity in full. This had come
about particularly because Lloyds Bank had cut its dividend.
Despite that temporary setback, the annuity fund at the death of the widow in 1960 was of a total value of £105,270·39, of which £16,297·10 (or
15%) was in fixed interest securities and £88,973·29 (or 85%) was in equities. All the equities were however bank or insurance shares.
Mr Lyndon-Stanford QC for Miss Nestle does not suggest that the proportion of equities should at any stage down to 1960 have been higher than it
was. He says however that the equities should have been diversified, and not limited to bank or insurance shares, and he complains that before 1959 the
bank did not carry out regular reviews of the investments in the trust funds. He accepts that there were regular reviews from 1959 onwards.
As to reviews before 1959, the judge had evidence by affidavit from a retired bank officer, Mr Thomson, who deposed that in 1940 he set up a
Preamble
scheme for the 124 annual review of the investments of all trust funds of which the bank was trustee. The judge drew the inference that there had
indeed been regular reviews of the investments of Mrs Barbara Nestle’s annuity fund before 1940 also. I very much doubt whether there was any factual
basis to warrant that inference being drawn, but the point is of no significance since any reviews there were before 1959 would have been on the basis of
the bank’s erroneous belief that the bank’s power to invest trust moneys in equities was as limited as I have set out above. Consequently no review would
have led the bank to diversify its equities from bank and insurance shares only.
The bank should, in my judgment, have appreciated the true scope of its powers of investment and should have reviewed the investments in the
annuity fund regularly (if not necessarily strictly annually) with that in mind.
Mr Lyndon-Stanford submits that, if the bank had done that, the equities would have been diversified and the equities in the annuity fund in 1960
would have been substantially higher in value by 1960 than they actually were. He points to the Barclays de Zoete Wedd equity index (BZW equity
index), which stood at 119·8 in 1922 and at 789·7 in 1960, 6·59 times higher. By contrast the equities in the annuity fund rose from £21,224 7s 6d to
£88,973 2s 9d, a mere 4·19 times. He submits that the difference represents loss to the trust funds for which Miss Nestle is entitled to be compensated.
The difficulty about that approach is however, as Hoffmann J pointed out, that the evidence showed that if the BZW equity index was applied over
the period from July 1974 to December 1986 to ‘growth’ unit trusts (as opposed to ‘income’ unit trusts) it appeared that 12 of the ‘growth’ trusts had done
better than the index, but 21 had done worse. It is impossible to say that those 21 unit trusts must have been managed with a degree of incompetence
which, in a trustee like the bank, would have amounted to a breach of trust. The BZW equity index is calculated by reference to the performance of the
leading equity shares, the composition of the list being changed from time to time with fluctuations of the companies’ fortunes. It is thus difficult to beat,
particularly for a fund which is not large enough to include substantial holdings in all the leading equities. It cannot be the criterion for the degree of
performance which is expected of the ordinary prudent trustee.
Mr Lyndon-Stanford submitted in the alternative that, because the bank had failed to inform itself of the true scope of its powers of investment, Miss
Nestle had lost the chance of the gain that might have been made if the equities in the annuity fund had been diversified beyond bank and insurance
shares. He submitted that she should be compensated, by a fair assessment, for the loss of the chance, and he referred to such well-known cases as
Chaplin v Hicks [1911] 2 KB 786, [1911–13] All ER Rep 224, Otter v Church Adams Tatham & Co (a firm) [1954] 1 All ER 168, [1953] Ch 280 and
Kitchen v Royal Air Force Association [1958] 3 All ER 241, [1958] 1 WLR 563. I shall return to this submission later in this judgment.
Mr Nugee QC for the bank rightly stressed the duty of a trustee to act prudently. The best known formulation of this is in the judgment of Lindley
LJ in Re Whiteley, Whiteley v Learoyd (1886) 33 Ch D 347 at 355 where he said:
‘The principle applicable to cases of this description was stated … to be that a trustee ought to conduct the business of the trust in the same
manner that an ordinary prudent man of business would conduct his own, and that beyond that there is no liability or obligation on the trustee. I
accept this principle; but in applying it care must be taken not to lose sight of the fact 125 that the business of the trustee, and the business
which the ordinary prudent man is supposed to be conducting for himself, is the business of investing money for the benefit of persons who are to
enjoy it at some future time, and not for the sole benefit of the person entitled to the present income. The duty of a trustee is not to take such care
only as a prudent man would take if he had only himself to consider; the duty rather is to take such care as an ordinary prudent man would take if he
were minded to make an investment for the benefit of other people for whom he felt morally bound to provide.’
This principle remains applicable however wide, or even unlimited, the scope of the investment clause in a trust instrument may be. Trustees should
not be reckless with trust money. But what the prudent man should do at any time depends on the economic and financial conditions of that time—not on
what judges of the past, however eminent, have held to be the prudent course in the conditions of 50 or 100 years before. It has seemed to me that Mr
Nugee’s submissions placed far too much weight on the actual decisions of the courts in the last century, when investment conditions were very different.
Indeed Mr Nugee’s submissions accorded scant justice to such common sense and initiative as his client the bank actually displayed in the management of
the Nestle trust funds.
I should refer, however, to one decision of the last century on which Mr Nugee particularly relied—the decision of the Court of Appeal in Chancery
in Robinson v Robinson (1851) 1 De GM & G 247, 42 ER 547. The problem in that case was that trustees had been directed by their testator to realise his
investments and invest the proceeds in one or other of two forms of investment; but the trustees had delayed the realisation of the testator’s investments.
When they actually sold they realised more than they would have realised if they had sold immediately after the testator’s death, but less than if they had
sold immediately after the testator’s death and had thereupon invested the proceeds in one, rather than the other, of the two authorised forms of
investment. It was sought to charge the trustees for what they would have received if they had followed that course of realisation and investment which in
the event would have been the most favourable to the beneficiaries, but the court rejected that claim.
The ratio, in the leading judgment of Lord Cranworth LJ, seems to have been in part that (1 De GM & G 247 at 257–258, 42 ER 547 at 551):
‘Where a man is bound by covenants to do one of two things, and does neither, there in an action by the covenantee, the measure of damage is
in general the loss arising by reason of the covenantor having failed to do that which is least, not that which is most, beneficial to the covenantee:
and the same principle may be applied by analogy to the case of a trustee failing to invest in either of two modes equally lawful by the terms of the
trust’,
and in part that the liability of the trustee should not depend on the accident of the subsequent rise of one particular investment (see 1 De GM & G 247 at
259, 42 ER 547 at 552).
With every respect to the court, however, the first ground is flawed since there is no true analogy between a covenantee acting in his own interests
who can choose the cheapest way to himself to perform or get out of his obligations (cf Lavarack v Woods of Colchester Ltd [1966] 3 All ER 683 at 690,
[1967] 1 QB 278 126 at 293) and a trustee who owes duties to his beneficiaries and cannot prefer his personal interest to theirs.
If what had happened in the present case had been that the bank, through failure to inform itself as to the true scope of its investment powers, had
invested the whole of the annuity fund in fixed interest securities, and no part in equities, for the whole period from 1922 to 1960, then, as on the evidence
loss would clearly have been proved to have been suffered, the appropriate course would have been to require the bank to make good to the trust fair
compensation—and not just the minimum that might just have got by without challenge—for failure to follow a proper investment policy. On this I find
the Canadian decision in Guerin v R [1984] 2 SCR 335 helpful.
But the problem here is not one of failure to invest any adequate part of the annuity fund in equities. It is that the part invested in equities was from
1922 to 1960 invested in bank and insurance shares (which were good equities) only and not in a wider spread of equities. Since, therefore, for the
reasons given above I would reject the suggested use of the BZW equity index as proving loss as between bank and insurance shares only and fully
diversified equities, the crucial question is whether the onus remains on Miss Nestle to prove loss for which fair compensation should be paid, or whether
it is enough for her to claim compensation for loss of a chance (as in Chaplin v Hicks [1911] 2 KB 786, [1911–13] All ER Rep 224) that she would have
been better off if the equities had been properly diversified.
The starting point must, in my judgment, be that, as Miss Nestle is claiming compensation, the onus is on her to prove that she has suffered loss
Preamble
because from 1922 to 1960 the equities in the annuity fund were not diversified (see Hotson v East Berkshire Area Health Authority [1987] 1 All ER 210,
[1987] AC 750 and Wilsher v Essex Area Health Authority [1988] 1 All ER 871, [1988] AC 1074). In some cases, it is sufficient to prove loss of a chance
because in such cases, as in Chaplin v Hicks, the outcome, if the plaintiff had not lost the chance, can never be proved. But in the present case, if the
annuity fund had been invested wholly in fixed interest securities, it would have been relatively easy to prove, even though the event never happened, that
the annuity fund would have been worth much more if a substantial part had been invested in equities. Consequently, fair compensation could have been
assessed. Equally it would have been possible, even though more difficult and much more expensive, to prove, if it be the fact, that the equities in the
annuity fund would have performed even better if diversified than they did as concentrated in bank and insurance shares. But Miss Nestle has not
provided any such proof. She has not even provided any material which would enable the court to assess the strength of, or value, the chance which she
claims she has lost. Therefore her claim for compensation or damages in respect of the investment of the annuity fund from 1922 to 1960 must, in my
judgment, fail.
I should add that this has been a hard fought case. There were seven days of oral evidence in the court below together with voluminous documentary
evidence. The hearing of this appeal lasted for eight days. It would be quite wrong now to direct inquiries, as sought in the reamended statement of
claim, so as to give Miss Nestle an opportunity to adduce yet further evidence in relation to this claim, not so far adduced.
127
Winterbourne
Winterbourne and its contents were sold in 1959, when the testator’s widow, being elderly, went to live in a home. The proceeds were around
£5,000.
The bank’s stockbrokers suggested on 9 July 1959 that, to make the portfolio rather more balanced, half the proceeds should be invested in Shell
Transport and Trading Co and the other half in an electrical company, either A Reyrolle Ltd or Electrical and Musical Industries Ltd. The bank preferred,
however, to invest the entire proceeds in conversion stock. The only reason, apparent from the papers, for not accepting the brokers’ recommendations
was that the bank’s investment section was doubtful whether the brokers’ recommendations were authorised by the investment clause; but no attempt was
made to obtain legal advice.
The investment decision was therefore prima facie made for an untenable reason, but that is not the end of the matter since, as Megarry V-C pointed
out in Cowan v Scargill [1984] 2 All ER 750 at 766, [1985] Ch 270 at 294:
‘If trustees make a decision on wholly wrong grounds, and yet it subsequently appears, from matters which they did not express or refer to, that
there are in fact good and sufficient reasons for supporting their decision, then I do not think that they would incur any liability for having decided
the matter on erroneous grounds; for the decision itself was right.’
The court has to look objectively at the circumstances, to see if there are in fact good and sufficient reasons for supporting the decision. Plainly there
is such a reason in relation to the Winterbourne proceeds at that time, since more than 75% of the annuity fund was already invested in equities. There
was therefore a finely balanced decision for the bank, on a correct appreciation of the facts, between increasing the equity share yet further, in the
interests of having a somewhat more balanced portfolio, and leaving the equity percentage where it was and acquiring the conversion stock. In these
circumstances a decision either way can be regarded as objectively right, and the bank cannot be held liable for not having followed the brokers’ advice.
I should add that strictly the proceeds of Winterbourne should have been invested as a separate fund and the income should have been paid to the
widow until she died, since Winterbourne was settled land of which she was tenant for life. In fact the proceeds were blended with the annuity fund, but
nothing turns on that in the present context.
George Nestle’s share

On the death of the testator’s widow, the annuity fund and the proceeds of Winterbourne were divided equally between George’s share and John’s
share, by allocating half of each investment to each share.
The complaint of Miss Nestle thereafter is that the investment policy followed by the bank thereafter was a policy which favoured the income
beneficiaries, George, George’s widow Elsie, and John at the expense of Miss Nestle herself as the capital beneficiary.
In his judgment, in considering the position as between tenant for life and remainderman, Hoffmann J said that the trustee must act ‘fairly’ in making
investment decisions which may have different consequences for different classes of beneficiary. He then gave reasons why he preferred that formulation
to the traditional image of holding the scales equally between tenant for life and remainderman. These passages in his judgment are singled out for
criticism in 128 the notice of appeal, but I do not find it necessary in this judgment to examine the difference, if any, between the judge’s ‘new’
formulation and the traditional image; it is sufficient to examine the facts.
Before I do so, however, I should mention that when the 1961 Act came into force in that year the bank regarded its powers of investment in equities
as extended by that Act and no longer limited to bank and insurance shares.
The most important fact in relation to George Nestle is however that he was resident in Tanganyika from 1933 to 1963 and thereafter in Malta from
1963 until his death there in 1972. He was therefore constantly pressing the bank, after his share was constituted by the division of the annuity fund after
the widow’s death, to invest his share in such a way that the dividends and income payable to him would not be subject to United Kingdom income tax.
The bank therefore had to consider and reject a succession of proposals for investment in ordinary shares in companies incorporated abroad or in ordinary
shares registered on an overseas share register of a United Kingdom company.
The bank did however invest a substantial part of George’s share in exempt British government securities. These are government stocks issued on
the terms, broadly, that the income is free of United Kingdom income tax in the hands of a recipient who is not resident here for United Kingdom tax
purposes and the capital is free of estate duty or capital transfer tax on the death of a beneficiary domiciled abroad. This investment decision on the part
of the bank is strongly criticised by Mr Lyndon-Stanford on the grounds that it was adopted in order to favour the life tenant, George, by giving him an
income which was free of United Kingdom income tax and that it involved a switch from equities with potential capital growth into fixed interest
government securities.
After the sales and reinvestments necessary to give effect to this changed policy, George’s share, as constituted in 1961, was of a total value of
£57,144·22, made up as to £39,581·54 (or 69%) of fixed interest securities which were almost entirely exempt government securities and as to £17,562·68
(or 31%) of equities.
By the time of George’s death in 1972, his share was of a value of £75,040, made up as to £43,735 (or 58%) of fixed interest securities and as to
£31,305 (or 42%) of equities. This gives figures for capital appreciation over the period from 1961 to 1972 of 10% for the fixed interest securities and
78% for the equities.
In selecting the exempt British government securities, the bank avoided those which carried the highest interest rates, and preferred to buy stocks
carrying relatively low interest rates which could be bought at substantially less than par, thus yielding a measure of capital appreciation if the stock was
Preamble
held until near maturity. Much more importantly, however, the exempt securities achieved exemption from estate duty on George’s death. Calculations
show that the net amount of George’s share left after his death and after payment of estate duty merely on the equities then comprised in his share was
more than would have been left if the whole of his share had been invested in equities in 1961 and the equities had all appreciated at 78% until 1972 and
had all then been subject to estate duty on his death. It must follow, in my judgment, that Miss Nestle has suffered no loss from, and can make no claim
about, the management of George’s share from the testator’s widow’s death until his own death.
Mr Lyndon-Stanford suggests that the calculations only cover the position if the whole of George’s share had been put into equities in 1961, and that
a yet more favourable result might have been achieved if something more than 31% 129 but less than the whole had been kept in equities. I am not
persuaded that that would mathematically have been so.
Mr Lyndon-Stanford also submits that the best of both worlds could have been achieved by investing more, if not the whole, in equities and
switching to exempt gilts a few days before George died. That would have achieved the estate duty exemption, but it would have been a very risky policy
for the bank to have followed, since it would have depended on the bank getting notice from Tanganyika or Malta of George’s impending death so that
they could effect the last-minute switch into exempt securities. I have no doubt that the bank was under no obligation to take such a risk, and was not in
breach of trust in not doing so.
Change of domicile of George’s widow, Elsie Nestle

As I have already stated, after George’s death it was accepted that he had validly exercised his power under the testator’s will to appoint the income
of his share to his widow, Elsie Nestle, for her life. The bank, therefore, rightly divided what was left of George’s share into two funds. One comprised
the balance of the equities in George’s share, after payment of estate duty thereon on his death; this fund would be exempt from duty under the surviving
spouse exemption on Elsie’s death. The other fund comprised the exempt government securities which had escaped duty on George’s death.
Elsie continued to have her home in Malta for some time after George’s death, but from 1974 onwards she spent more and more time in England,
partly for medical and surgical attention and partly because of the illness of a sister. In the event she died in 1982 in hospital in England, and the Inland
Revenue claimed successfully that by then she was no longer resident or domiciled in Malta. Therefore, the fund of exempt government securities which
had escaped duty on George’s death bore duty on Elsie’s death.
It was argued for Miss Nestle, particularly in Mr Lyndon-Stanford’s skeleton argument in this court, that the bank should have realised in 1974 that
there was a grave danger of Elsie returning to England and failing to qualify for the exemption and that the bank should therefore have monitored Elsie’s
movements or made inquiries of her as to her plans and should have switched the greater part of the exempt government securities into equities so as to
get the benefit of capital growth from 1974–75 to 1982.
This point however, in my judgment, is not open to Mr Lyndon-Stanford in this court. It was not pleaded, was not clearly taken by counsel then
appearing for Miss Nestle at the trial and is not taken in the notice of appeal. Had it been clearly taken in the court below, other witnesses might have
been called—in particular a member of the staff of the bank’s tax department at Chelmsford who handled Mrs Elsie Nestle’s tax affairs and was the
bank’s direct contact with her.
The only point therefore open to Mr Lyndon-Stanford in relation to the management of George’s share after the death of George is the point taken
also in relation to John Nestle’s share, to which I now come.
John Nestle’s share

After the death of the testator’s widow, John Nestle’s half-share of the annuity fund and of the proceeds of Winterbourne was added to John’s
original share in the residuary estate, which, unlike George’s original share, had not been paid out to him by the bank. Since in 1961 the bank began
applying the 130 provisions of the 1961 Act, there is no particular problem over John’s share in relation to the period from 1960 to 1969. Hoffmann J
records that in 1968 77% of John’s share was in well-diversified equities.
In 1969, however, John emigrated to Cyprus and made his home there until his death in 1986. From the time he decided to move to Cyprus, he
bullied the bank continually to switch more and more of his share from equities into exempt gilts, in order that he, John, could enjoy the income free from
United Kingdom income tax. Although Miss Nestle, the capital beneficiary, was John’s daughter, he does not appear to have had any contact with her or
affection for her.
Although John was continually pressing the bank to increase his income, he was in fact well off. When he died he owned £330,000 of investments
held in Guernsey and he had an English estate of some £250,000, including £150,000 of exempt gilts purchased three days before he died in the place of
equities; it is said he also had English liabilities of £100,000 for legal costs.
There is no indication that the bank had any idea of John’s private wealth. It made no inquiry, but I have no doubt, from the papers we have seen,
that if the bank had made an inquiry it would have received a dusty answer. Equally, though John succeeded in switching so much of his equities into
gilts just before he died, the bank could not have assumed that John would give it warning so that it could make a similar switch of equities in John’s
share in time.
Since the bank had acceded to George’s request to switch investments in his share into exempt government securities, it is not surprising that it
similarly acceded to John’s original request; indeed, in so far as John’s share included fixed interest securities, it was the obvious course to switch them
into exempt government securities. Thereafter the bank fought a rearguard action, succeeding in some skirmishes, but losing in others, and the effect was
that the equity content of John’s share was eroded.
Mr Lyndon-Stanford’s main complaint is that the bank in 1969–70 set itself an initial policy of preserving not less than 50% of the totality of John’s
share and George’s share in equities. But in 1974 the value of the equities in the totality of the two funds dropped below 50%. This was in part due to Mr
Morton, the bank’s investment manager, having thought, in February 1974, that market conditions justified the sale of what Hoffmann J described as ‘a
modest holding of certain equities (worth about £2,600)’ and the switch of the proceeds into fixed interest securities. But the fall below 50% was
primarily due to a slump on the stock market in 1974, when the market went, as it has been put, into free fall following the upset of the oil market by Arab
states in the previous year. That slump was of course not the responsibility of the bank. A mere change of policy does not automatically involve a breach
of trust: the prudent trustee will adjust his investment policy to fit in with market circumstances. No case of breach of trust is, in my judgment, made out
against the bank from the mere fact that in 1974 the value of the equities fell to less than 50% of the total of the two funds.
As a matter of history, the percentage of the equities remained below 50% of the totality from 1974 to 1982, but rose marginally above 50% in 1983
and remained marginally above 50% until John’s death in 1986.
The policy of investing a large part of John’s share in exempt government stocks achieved the desired end of avoiding duty on John’s death. The
exempt stocks were then worth £123,700, and to produce the same net estate would have required those stocks to be replaced by dutiable securities worth
£259,953.
131
On the figures of the relative values of the gilts and equities in the total funds from 1972 onwards, it seems unlikely that a total over £259,953 (in
addition to the actual equities held) could have been achieved by switching all the fixed interest securities into equities at any time from 1972 onwards if
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the equities assumed to have been acquired in place of the fixed interest securities achieved no greater growth than the actual equities held.
The BZW equity index shows massive growth from 1976 to 1986 (and particularly from 1981 to 1986). This growth seems to have passed John’s
share by, although there is no criticism put forward of the actual equities held. This is disturbing, as is the fact that the management by the bank of the
Nestle funds over these years seems to have been weak, with much correspondence and discussion but no one clearly having the responsibility to make
decisions. The problem does not lie, however, in any favouring of the life tenant at the expense of the remainderman; the policy of investing in exempt
government securities was at least as much directed to favouring the remainderman by avoiding inheritance tax on the capital on the life tenant’s death.
The problem seems rather to have been one of lax management of the equities, when equities should have been riding high. But I am unable to say that
any breach of trust has been proved by Miss Nestle in respect of this period 1976 to 1986.
The case for Miss Nestle in the court below seems largely to have been founded on the BZW equity index and the opinions of her expert witnesses,
as against the opinion of the bank’s expert witnesses, on the desirability or prudence of investment in equities at various stages between 1922 and 1986.
On that controversy the judge made his findings, and those findings have not really been challenged on this appeal. Mr Lyndon-Stanford has
concentrated instead on the practicalities of what the bank was actually doing, or failing to do, with the trust funds, rather than on the expert evidence. Mr
Lyndon-Stanford has put his case with very considerable skill, and there is at the end of the day not much for the bank to be proud of in its administration
of the Nestle trusts—particularly since John went to Cyprus in 1969 or the death of George in 1972. But I am unable to see that any breach of trust which
has caused loss to Miss Nestle has been proved. Accordingly this appeal must, in my judgment, be dismissed.
STAUGHTON LJ. When Mr William Nestle died in 1922 the value of his trust fund (after payment of debts, legacies and estate duty) was about
£50,000. In November 1986, when his granddaughter Miss Georgina Nestle became absolutely entitled after the death of the last life tenant, it was worth
£269,203. That, it might be thought, was a substantial improvement. But during the same period the cost of living had multiplied by a factor of 20, so
that it would have required £1m to provide equivalent wealth: see the BZW equity-gilt study of 1988. The same source shows that an equity price index
rose by 5203% in that period. An equivalent appreciation in the value of the trust fund would have left it worth £2·6m in 1986. It is true that a small
portion of the fund was advanced to life tenants, that some capital was used to supplement income for an annuity and that there were no doubt transaction
costs; against that, a sum of about £5,000 was added to the fund in 1959 when Mr Nestle’s house and contents were sold. Nevertheless, it is apparent that
the investments retained or made by the trustees fell woefully short of maintaining the real value of the fund, let alone matching the average increase in
price of ordinary shares.
132
Of course it is not a breach of trust to invest the trust fund in such a manner that its real value is not maintained. At times that will be impossible,
and at others it will require extraordinary skill or luck. The highest that even Miss Nestle puts her claim is that, if the equity portion in the fund as it stood
in 1922 (74%) had been invested so as to achieve no more than the index, the fund as a whole would have been worth over £1·8m in 1986.
In the pleadings it was alleged that the trustees mismanaged the investments throughout their period in office. Despite a request for particulars, little
detail of individual transactions was given. But in my view—and this does not appear to have been contested—it was open to Miss Nestle at the trial to
challenge any and every decision that the trustees took, or did not take.
In the experts’ reports and during the course of the trial it appeared that there were four main strands to Miss Nestle’s case: (1) the trustees
misunderstood the investment clause in the will; (2) the trustees failed to conduct a regular and periodic review of the investments; (3) throughout the trust
period, but in particular in the later stages when there were life tenants domiciled abroad, they retained or bought too high a proportion of fixed interest
securities and too few ordinary shares; and (4) to the extent that the trustees did invest in ordinary shares, they concentrated too heavily on shares in
banking and insurance companies, to the exclusion of other sectors.
Misunderstanding and failure to review

In my judgment the first two charges were proved. It was admitted that at times the trustees misunderstood the investment clause; but the evidence
showed that they continually misunderstood it, and there is nothing to show that they ever understood it correctly. To a novice in these matters it seems
that they might deserve to be forgiven, since only among much other detail are to be found the words ‘stocks shares bonds debentures or securities of any
Railway or other Company’. But there is authority which shows plainly that the word ‘company’ in such a clause is not limited by its context. Trustees
are not allowed to make mistakes in law; they should take legal advice, and if they are still left in doubt they can apply to the court for a ruling. Either
course would have revealed their mistake in this case.
I also consider that, for a substantial period, the trustees failed to conduct regular periodic reviews of the investments. From 1922 to 1959 there was
only one change of an investment, other than changes which were forced on the trustees by rights issues or because a security reached its redemption date.
Seeing that there were 53 holdings in the original portfolio, including a number which sooner or later must have become of little value except as
wallpaper (such as Chinese government bonds and the United Railways of the Havana and Regla Warehouses), I can see little sign of periodic reviews.
There was no evidence of reviews up to 1940, but some evidence that they took place between then and 1959. I would not accept that evidence (although
the judge did), since documents of some kind must have been created if there were reviews, but none were produced.
However, the misunderstanding of the investment clause and the failure to conduct periodic reviews do not by themselves, whether separately or
together, afford Miss Nestle a remedy. They were symptoms of incompetence or idleness—not on the part of National Westminster Bank but of their
predecessors; they were not without more breaches of trust. Miss Nestle must show that, through one or other or both of those causes, the trustees made
133 decisions which they should not have made or failed to make decisions which they should have made. If that were proved, and if at first sight
loss resulted, it would be appropriate to order an inquiry as to the loss suffered by the trust fund.
It may be difficult to discharge that burden, and particularly to show that decisions were not taken when they should have been. But that does not
absolve a plaintiff from discharging it, and I cannot find that it was discharged in this case, with the possible exception of one decision which will be
considered later. We were referred to quite a number of individual transactions, and a number of occasions when nothing was done. But I can find no
other where it was proved that the trustees ought to have acted differently, and failed to do so either because they misunderstood the investment clause or
because, until 1959, they failed to conduct periodic reviews of the investments.
The balance of the fund between equities and gilts

That brings me to what I regard as the substance of the case, the failure to invest a higher proportion of the trust fund in ordinary shares. Here one
must take care to avoid two errors. First, the trustees’ performance must not be judged with hindsight: after the event even a fool is wise, as a poet said
nearly 3,000 years ago. Secondly (unless this is the same point), one must bear in mind that investment philosophy was very different in the early years
of this trust from what it became later. Inflation was non-existent, overall, from 1921 to 1938. It occurred in modest degree during the war years, and
became a more persistent phenomenon from 1947 onwards. Equities were regarded as risky during the 1920s and 1930s, and yielded a higher return than
gilt-edged securities. It was only in 1959 that the so-called reverse yield gap occurred.
During the period from 1922 until the death of Mrs Barbara Nestle in 1960, the proportion of ordinary shares in the trust fund as a whole varied
Preamble
between 46% and 82%. Until 1951 it never rose above 57%; there was then quite a sharp rise until 1960, not caused by any change in investment policy
but presumably by a general rise in the value of ordinary shares (183%, according to the index, between 1950 and 1960).
In my judgment, the trustees are not shown to have failed in their duties at any time up to 1959 in this respect. I cannot say that, in the light of
investment conditions then prevailing, they were in breach of trust by not holding a higher proportion of ordinary shares. In addition, they were charged
with the duty of providing an annuity of £1,500 after tax for the widow of Mr William Nestle, and of setting aside a fund for that purpose. Miss Nestle’s
expert witnesses were themselves disinclined to criticise the balance of the fund, as between fixed interest and ordinary shares, in that period.
After 1959 the situation had changed. Mrs Barbara Nestle died in October 1960, and the trustees were relieved of the task of providing for her
annuity. The cult of the equity had begun by then, if not some years before. From that date I would accept the evidence of Miss Nestle’s experts that, all
other things being equal, there should be at least 50% of the fund in ordinary shares.
The trustees’ experts countered that on two grounds. First, they pointed to evidence that pension funds and life assurance companies continued to
invest less than half their funds in equities, and a substantial proportion in gilt-edged securities. Counsel for Miss Nestle provided us with a calculation
which was said to disprove this in the case of pension funds. But it had not been made in the court below or put to witnesses, and was incomplete for this
purpose: it 134 should have included monetary obligations such as loans with the fixed-interest content, and real assets such as property with the
equities; there were also other assets held where it was doubtful into which category they fell.
There is in my opinion a better answer to this comparison. Life assurance companies and pension funds have as their primary duty an obligation to
pay at some future date a sum that is fixed in monetary terms. No doubt they offer profits, or an increase on the promised pension; and it may be that
even in 1959 there was competition between companies by reference to their past records of success. But I am convinced that they could be expected to
follow a policy of considerable caution in order to ensure that, come what may, their minimum obligations in monetary terms were fulfilled. I do not
regard them as a reliable guide to what would have been done by private investors, or should have been done by trustees of a private family trust.
The second point is this. Professor Briston, who gave evidence for Miss Nestle, made a calculation on the basis that the part of the trust fund which
was invested in ordinary shares initially remained in ordinary shares throughout. His calculation shows that, if one takes the 74% proportion of equities
when Mr William Nestle died, the fund as a whole would have grown to £1·8m in 1986. Alternatively, the portfolio had a proportion of 54% in equities
after the setting up of the annuity fund and some restructuring between 1922 and 1924; if that part of the fund had remained in ordinary shares, the value
of the fund as a whole would in 1986 have been £1·36m.
I have already expressed the view that, in the light of investment conditions then prevailing, the trustees are not to be criticised over the balance of
the fund between fixed interest and equities in the period from 1922 to l959. It follows that I do not accept the evidence of Professor Briston that they
ought to have acted differently in that period. Neither did he persist in it when cross-examined:
‘Q. I see. So you are happy about the composition of the funds as between equities and fixed income up to 1945, 1946. Would you alter that?
A. I said the late ’40s.
Q. Well, the latest ’40 is ’49. You have got £29,000 equities and £53,000 fixed income. Would you alter that? A. I think that by around this
time, possibly a little later, the advantage of equities would have been clearer. I would have thought perhaps in the early 1950s.’
In an earlier passage Professor Briston had described the proportion of the total fund in equities in 1959 (76·8%) as ‘by no means unacceptable’.
For the period after 1959 I consider that Professor Briston is on much firmer ground. But Professor Brealey and Mr Sladen, who gave evidence for
the trustees, asserted that Professor Briston had made a ‘methodological error’ in that—
‘he fails to keep the proportion of equities and fixed income constant throughout the period, ie assumes no rebalancing to maintain the original
proportions.’
For example, Professor Briston’s calculation which led to a final value of £1·8m in 1986 thereby assumed eventual proportions of 99·3% equities and
0·7% fixed interest.
The fact that Professor Briston originally overstated his case and later withdrew from it in part is no reason to reject the whole. Nor do I regard the
135 evidence of the trustees’ experts as immune from criticism; Mr Sladen, for example, regarded it as a reason for selling a share that it had gone up
in value and was showing a profit on its historic cost. And Professor Brealey in his report plainly implied, to my mind, that the Trustee Investments Act
1961 required trustees to maintain no more than 50% of their fund in ordinary shares at all times. This was put forward as a reason why the trustees in
this case were right to carry out a periodical rebalancing exercise, by reducing the equity content of the portfolio when it grew in value. It was said to
show that Professor Briston was wrong to suggest that the equity content should have been allowed to grow in value undisturbed, until it reached 99·3%.
The 1961 Act does not, of course, impose any such rebalancing obligation, as Professor Brealey acknowledged in his oral evidence. The philosophy
of the Act may be said to be curious, in that trustees to whom it applies may place no more than 50% of their fund in ordinary shares initially, and
thereafter they may allow that part of the fund to grow as much as it will. But that is unquestionably its effect.
These trustees were not affected by the 1961 Act, as they already had wider powers than it affords. In my judgment, they should, in the investment
climate prevailing from 1960 onwards, have followed Professor Briston’s policy, subject only to one important consideration—the overseas domicile of
life tenants. If all the beneficiaries had been subject to United Kingdom tax, they should have regarded the 76·8% of the fund that was in ordinary shares
in 1959 (or even the 82·6% in 1960) as devoted to equity investment, and only the balance as available for fixed interest securities. No doubt there were
times during the period from 1960 to 1986 when it would not have been a breach of trust, and may even have been wise, to depart temporarily from that
policy. But in the main I am convinced that it is the policy which they should have followed. With hindsight, one can see that the BZW equity index rose
from 789·9 to 6353·2 in that period; the gilt index fell from 74·6 to 48·4. But my conclusion is based on the evidence of Professor Briston and Mr Harris,
not on hindsight.
That, however, assumes that all the beneficiaries were subject to United Kingdom tax, which they were not. George Nestle lived in Tanganyika from
1933 to 1963, when he moved to Malta and lived there until he died in 1972. Elsie, his widow, continued to live there until 1980, when she returned to
England. She died in 1982. John Nestle went to live in Cyprus in 1969, and died there in 1986. The fiscal effects of residence/ordinary
residence/domicile overseas were, as I understand it, twofold: first, the life tenant would not be liable for United Kingdom income tax on investments
outside the United Kingdom, or (more significantly) on the income from gilt-edged securities which were tax exempt; secondly, neither estate duty nor
capital transfer tax would be payable on the death of a life tenant in respect of such securities.
The obligation of a trustee is to administer the trust fund impartially, or fairly (I can see no significant difference), having regard to the different
interests of beneficiaries. Wilberforce J said in Re Pauling’s Settlement, Younghusband v Coutts & Co (No 2) [1963] 1 All ER 857 at 862, [1963] Ch 576
at 586:
‘The new trustees would be under the normal duty of preserving an equitable balance, and if at any time it was shown that they were inclining
one way or the other, it would not be a difficult matter to bring them to account.’
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136
At times it will not be easy to decide what is an equitable balance. A life tenant may be anxious to receive the highest possible income, whilst the
remainderman will wish the real value of the trust fund to be preserved. If the life tenant is living in penury and the remainderman already has ample
wealth, common sense suggests that a trustee should be able to take that into account, not necessarily by seeking the highest possible income at the
expense of capital but by inclining in that direction. However, before adopting that course a trustee should, I think, require some verification of the facts.
In this case the trustees did not, so far as I am aware, have any reliable information as to the relative wealth of the life tenants and Miss Nestle. They did
send an official to interview Mr John Nestle in Cyprus on one occasion; but the information which they obtained was conflicting and (as it turned out)
incomplete.
Similarly I would not regard it as a breach of trust for the trustees to pay some regard to the relationship between Mr George Nestle and Miss Nestle.
He was merely her uncle, and she would have received nothing from his share of the fund if he had fathered a child who survived him. The trustees
would be entitled, in my view, to incline towards income during his life tenancy and that of his widow, on that ground. Again common sense suggests to
me that such a course might be appropriate, and I do not think that it would be a breach of the duty to act fairly, or impartially.
The dominant consideration for the trustees, however, was that George’s fund from 1960, and John’s from 1969, would not be subject to United
Kingdom income tax in so far as it was invested in exempt gilts. That was a factor which the trustees were entitled—and I would say bound—to take into
account. A beneficiary who has been left a life interest in a trust fund has an arguable case for saying that he should not be compelled to bear tax on the
income if he is not lawfully obliged to do so.
It was no more than a factor for the trustees to bear in mind, and would rarely justify more than a modest degree of preference for income paid gross
over capital growth.
A trustee should also bear in mind, as these trustees did, that estate duty or capital transfer tax is likely to be reduced in such a case if part of the fund
is invested in tax-exempt gilts. That may provide a compensating benefit for the remainderman. Of course it is by no means certain that the benefit will
materialise; the life tenant may return to this country, as happened in the case of Mrs Elsie Nestle. It has been said that nothing in this world is certain
except death and taxes. But even the tax benefit was imponderable, since it could not be forecast what rate of tax would be applicable on the death of a
life tenant.
It is said that the trustees should have anticipated that Elsie would return to the United Kingdom, or at least have made inquiries as to her intentions.
I can see some force in the second part of that argument. It would have been prudent to ask her to let them know if she planned to come back to this
country. But this was never put to the bank’s witnesses. And I cannot find that any loss to the trust fund resulted from failure to request information from
Elsie. From time to time during her life tenancy there were indications that she might return, but it was only at a late stage that this attained any degree of
probability; and I doubt whether even then it would have been right for the trustees to switch investments, thus reducing her income and foregoing any
prospect of a saving in capital transfer tax.
I do not consider it necessary to examine separately the balance of the two different funds from 1961 to 1986. From the point of view of Miss
Nestle, what 137 mattered was the balance of the fund as a whole. The proportion in ordinary shares varied between 59·55% and 35·9%. On
occasion the lower figure may be attributable not to a change in investments but to a fall in the value of equities, for example in 1974 when there was a
catastrophic fall. But there can be no doubt that there were other occasions when money was switched from ordinary shares to gilt-edged securities.
The policy of the trustees during this period was to achieve a 50:50 split between equities and fixed interest. This was not to be an initial division of
the kind favoured by Professor Briston, which would have resulted in a much higher proportion of equities by 1986; it was to be a division that was
rebalanced from time to time, as envisaged by Professor Brealey. Whilst I much prefer Professor Briston’s method in general for trust funds during this
period, I consider that the circumstances of this trust, and in particular the overseas life tenants, justified the policy which the trustees adopted. They did
not fail to act fairly or impartially by adopting it.
But it is said that the trustees failed to implement their own policy: the proportion of ordinary shares fell on one occasion to 35·9%, and in six years
it was below 40%. In my judgment, the trustees were not obliged to rebalance the fund annually, still less at more frequent intervals. It would have been
questionable to switch immediately into equities when they fell through the floor in 1974, merely because the ordinary shares then held were only 36·37%
of the fund. There was evidence that it is not a wise policy for trustees to be changing investments continually; and, whilst I would not regard that as a
justification for sheer inertia, I accept that an ordinary fund manager who has no special expertise should not busy himself with constant changes. The
equity content started as 59·55% in 1961 and ended as 51·31% in 1986. Over those 26 years the average, according to my arithmetic, was 44·56%. I
would not regard that as revealing a serious departure from the trustees’ policy, or a failure to act fairly and impartially. But I should add that, if I had
found a breach of trust in this respect, I would have been reluctant to accept that compensation should be measured by the difference between the actual
performance of the fund and the very least that a prudent trustee might have achieved. There is said to be nineteenth century authority to that effect; but I
would be inclined to prefer a comparison with what a prudent trustee was likely to have achieved—in other words, the average performance of ordinary
shares during the period.
Diversification
The complaint here is that there was undue emphasis on the shares of banks and insurance companies during the period from 1922 to 1960. Indeed
the equities in the annuity fund when it was set up in 1922 were entirely of that description.
However, there was evidence from the experts on both sides that bank and insurance shares were regarded as safest in the earlier period of this trust,
‘a low risk portfolio’. I am inclined to agree with Professor Briston that there should have been diversification in the 1950s, rather than from 1960
onwards. But I cannot accept that failure to diversify in that decade was a course which no prudent trustee would have followed.
The 1959 transaction

I have left this until last, because it presents the greatest difficulty. The proceeds of sale of the house and contents came to £4,947, which became
part 138 of the annuity fund. The broker whom the bank consulted recommended the purchase of Shell and EMI or Reyrolle shares. The trustees
rejected that advice, and bought Conversion 5·25% and Edinburgh Corporation 5%. Whether they did so because they misunderstood their powers of
investment, or for some other reason, does not appear.
On any view there must be some doubt as to the wisdom of this transaction. The securities that were in fact bought had achieved a value of only
£5,444 in 1986, we were told. Investments in ordinary shares would at first sight have been much more profitable. But there then arises the question
whether more tax would have been payable on the deaths of George, Elsie and John Nestle. I do not think that it can be answered by considering a
calculation only at the death of George Nestle. If ordinary shares are assumed to have been bought in 1959, we are asked to assume that they would have
remained in the fund until 1986.
That last assumption is one that I cannot make. In a year or two after 1959 Mrs Barbara Nestle had died, the annuity fund had been divided between
Preamble
the two brothers, and the process of maintaining a high proportion of fixed interest securities in the George Nestle fund had begun. A similar trend, albeit
less marked, is to be found in the John Nestle fund from 1969 onwards. I see no reason to believe that equities bought in 1959 with the proceeds of the
house and contents would have remained exempt from the trustees’ general policy of according some preference to income from tax-exempt gilts and
maintaining roughly speaking proportions of 50:50 overall. So I do not find that there is a prima facie case of loss to the trust from the 1959 transaction.
I would dismiss the appeal. The judge took the view that ‘the bank had acted conscientiously, fairly and carefully throughout the administration of
[the] trust’. I cannot join in that accolade. But it is not shown that there was loss arising from a breach of trust for which the trustees ought to compensate
the trust fund.
LEGGATT LJ. When trusts came into their own in Victorian times they were no doubt intended to preserve capital while assuring beneficiaries of a
steady, if conservative, income. Little was demanded of a trustee beyond the safeguarding of the trust fund by refraining from improvident investment.
This process was no doubt also intended to save beneficiaries from trouble and anxiety, or what is now called ‘hassle’. But during the 64 years for which
the trust set up by the appellant’s grandfather endured, the contentment of his descendants declined. The appellant’s uncle and father conducted with the
respondent bank vigorous campaigns designed to improve their respective incomes, which, if the bank had not resisted them, would have worked to the
ultimate detriment of the appellant, while the appellant herself is now locked in mortal financial combat with the bank.
George and John Nestle saw the bank, or said they saw the bank, as unfairly looking out for the appellant at their expense. In fact John turns out to
have had a fortune of his own, which was invested in equities. So to the extent that he was successful in getting the bank to invest in gilts he was
achieving a balance between his funds. The appellant, on the other hand, with whom her father was latterly at odds, has become obsessed with the idea
that the bank over the years has failed to look after her interests. She claims that the sum of £269,203 which she inherited should have been larger than it
was. It will not be of any consolation to her to reflect that, if since 1986 she had in that period done for 139 the fund what she claims that the bank
ought to have done for it previously, and it had grown at the same rate as the cost of living, it would probably now be worth over £400,000.
There is no dispute about the nature of the bank’s duty. It was, as Lindley LJ has expressed it, a duty ‘to take such care as an ordinary prudent man
would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide’ (see Re Whiteley,
Whiteley v Learoyd (1886) 33 Ch D 347 at 355). The trustee must have regard ‘not only to the interests of those who are entitled to the income, but to the
interests of those who will take in future’ (at 350 per Cotton LJ). ‘A trustee must not choose investments other than those which the terms of his trust
permit’ (see Speight v Gaunt (1883) 9 App Cas 1 at 19 per Lord Blackburn). So confined, the trustee must also ‘avoid all investments of that class that
are attended with hazard’ (see Learoyd v Whiteley (1887) 12 App Cas 727 at 733 per Lord Watson). The power of investment—
‘must be exercised so as to yield the best return for the beneficiaries, judged in relation to the risks of the investments in question; and the
prospects of the yield of income and capital appreciation both have to be considered in judging the return from the investment.’ (See Cowan v
Scargill [1984] 2 All ER 750 at 760, [1985] Ch 270 at 287 per Megarry V-C.)
Since the Trustee Investments Act 1961 came into force a trustee has been required by s 6(1)(a) to have regard in the exercise of his powers of
investment—
‘to the need for diversification of investments of the trust, in so far as is appropriate to the circumstances of the trust …’
It is common ground that a trustee with a power of investment must undertake periodic reviews of the investments held by the trust. In relation to this
trust, that would have meant a review carried out at least annually, and whenever else a reappraisal of the trust portfolio was requested or was otherwise
requisite. It must also be borne in mind that, as expressed by the report of the Scarman Committee, The Powers and Duties of Trustees (Law Com no 23
(1982)) para 2.15:
‘Professional trustees, such as banks, are under a special duty to display expertise in every aspect of their administration of the trust.’
The appellant alleges that the bank is in breach of trust because over the years since her grandfather set up the trust the bank has supposed that its
power of investment was more limited than it was, has failed to carry out periodic reviews of the portfolio and to maintain a proper balance between
equities and gilts and to diversify the equity investments, and has unduly favoured the interests of her father and her uncle as life tenants at the expense of
her own interest as remainderman. She says that in consequence the trust fund was worth less in 1986 than it should have been.
The essence of the bank’s duty was to take such steps as a prudent businessman would have taken to maintain and increase the value of the trust
fund. Unless it failed to do so, it was not in breach of trust. A breach of duty will not be actionable, and therefore will be immaterial, if it does not cause
loss. In this context I would indorse the concession of Mr Nugee QC for the bank that ‘loss’ will be incurred by a trust fund when it makes a gain less
than would have been made by a prudent businessman. A claimant will therefore fail who cannot prove a loss in this sense caused by breach of duty. So
here, in order to make a 140 case for an inquiry, the appellant must show that loss was caused by breach of duty on the part of the bank.
On the appellant’s behalf Mr Lyndon-Stanford QC seeks to rely on a presumption against a wrongdoing trustee. He invokes Brightman LJ’s dictum
in Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] 2 All ER 92 at 96, [1980] Ch 515 at 545 that ‘The trustee’s obligation is to restore to the trust
estate the assets of which he has deprived it’. But that presupposes deprivation.
The appellant alleges, and I am content to assume, that the bank was at all material times under a misapprehension about the meaning of the
investment clause in the will, with the result that the bank believed that the scope of its powers of investment was more confined than it was. I also regard
it as unlikely that the bank conducted any reviews of the portfolio between 1922 and 1959. If any were conducted, they were unplanned, sporadic and
indecisive. Mr Lyndon-Stanford argues that it should be presumed that, had there been a better balance between gilts and equities and had the equity
investment been more diversified, the fund would ultimately have been worth more than it was. The fallacy is that it does not follow from the fact that a
wider power of investment was available to the bank than it realised either that it would have been exercised or that, if it had been, the exercise of it
would have produced a result more beneficial to the bank than actually was produced. Loss cannot be presumed if none would necessarily have resulted.
Until it was proved that there was a loss, no attempt could be made to assess the amount of it.
In Guerin v R [1984] 2 SCR 335 the Crown leased to a golf club land belonging to an Indian band to which the Crown owed a fiduciary duty. Since
the terms of the lease were unsatisfactory and the lease for 85 years was irrevocable, the court had to evaluate the loss to the band, and did so by
presuming against the Crown that the band would have made the most profitable use of the land by letting it for residential development. That loss had
been suffered by the letting to the golf club was obvious; the presumption applied in proving the extent of the loss by relieving the band from the need to
prove that they would have let the land for development.
In my judgment, either there was a loss in the present case or there was not. Unless there was a loss, there was no cause of action. It was for the
appellant to prove on balance of probabilities that there was, or must have been, a loss. If proved, the court would then have had to assess the amount of
it, and for the purpose of doing so might have had recourse to presumptions against the bank. In short, if it were shown that a loss was caused by breach
Preamble
of trust, such a presumption might avail the appellant in quantifying the loss. The appellant’s difficulty is in reaching that stage.
The appellant therefore had to prove that a prudent trustee, knowing of the scope of the bank’s investment power and conducting regular reviews,
would so have invested the trust funds as to make it worth more than it was worth when the appellant inherited it. That was a matter for expert evidence.
In the result, there was evidence which the judge was entitled to accept and did accept that the bank did no less than expected of it up to the death of the
testator’s widow in 1960.
The proportion of the fund already invested in equities at the time when Winterbourne was sold makes it impossible, in my judgment, to impugn the
decision to put the proceeds of sale into conversion stock.
After 1960 investment of the trust funds preponderantly in tax-exempt gilts for the benefit of life tenants resident abroad is not shown to have
produced a 141 less satisfactory result for the remainderman than an investment in equities after taking into account savings in estate duty and capital
transfer tax, because this policy had the effect of preserving the capital. By the time that John Nestle died the equities to replace the tax-exempt gilts
would have had to be worth more than twice as much as the gilts in order to achieve the same benefit net of tax.
It is true that the calculations upon which the bank relied in making these comparisons were based on the assumptions that the whole fund was
subject to estate duty, and that the bank did not contemplate that it might be able to take advantage of a late switch into gilts, especially in relation to Mrs
Elsie Nestle. But, even if a less favourable assumption were made in relation to estate duty, the result would not have been so inferior as to demonstrate
failure to look out for the remainderman amounting to a breach of trust. Similarly, although the fact that Mrs Elsie Nestle returned to live in this country
now indicates that it might have been advantageous if a switch into equities had been made after George’s death, the bank cannot, in my judgment, be
reproached for failing to anticipate that she would outlive her husband by ten years, and that she would destroy the benefit of investment in tax-exempt
gilts by resuming her domicile in England. Had she not done so, it would have been impossible for the bank to assess with any accuracy the timing of a
switch back into gilts. In any event, without having pleaded any defect in the management of Mrs Elsie Nestle’s fund, the appellant cannot now rely on
this argument.
No testator, in the light of this example, would choose this bank for the effective management of his investments. But the bank’s engagement was as
a trustee, and, as such, it is to be judged not so much by success as by absence of proven default. The importance of preservation of a trust fund will
always outweigh success in its advancement. Inevitably, a trustee in the bank’s position wears a complacent air, because the virtue of safety will in
practice put a premium on inactivity. Until the 1950s active management of the portfolio might have been seen as speculative, and even in these days
such dealing would have to be notably successful before the expense would be justified. The very process of attempting to achieve a balance, or (if that
be old fashioned) fairness, as between the interests of life tenants and those of a remainderman inevitably means that each can complain of being less well
served than he or she ought to have been. But by the undemanding standard of prudence the bank is not shown to have committed any breach of trust
resulting in loss.
I am therefore constrained to agree that the appeal must be dismissed.
Carolyn Toulmin Barrister.
142
[1994] 1 All ER 143
Jaffray v Marshall and another

TRUSTS
CHANCERY DIVISION
NICHOLAS STEWART QC SITTING AS A DEPUTY JUDGE OF THE HIGH COURT
23, 24, 25 JUNE, 10 JULY 1992
Trust and trustee – Breach of trust – Compensation – Date at which compensation for breach of trust is to be assessed – Trustee mortgaging trust
property in breach of trust – Property sold by mortgagee resulting in total loss of trust funds – Value of property falling between issue of writ and
judgment – Whether compensation to be assessed as at date of issue of writ or judgment.
Certain property was held under a trust for the plaintiff’s mother for life with the remainder to her children, namely the plaintiff and another. The mother
wished to purchase a new house but had insufficient funds. Accordingly, the plaintiff agreed to provide part of the purchase price from the trust funds.
The conveyance was completed and the trustees acquired an interest in the new house as tenant in common with the mother. However, in breach of trust,
the trustees permitted a mortgage to be registered in favour of the mother’s bank. The property was later sold by the mortgagees and all the proceeds
were used to repay the mother’s borrowing. In proceedings brought by the plaintiff against the trustees for breach of trust, the trustees admitted liability
but contended that the plaintiff’s compensation should be limited to the value of the property as at the date of judgment. The plaintiff contended that he
should be compensated by the value as at the date of the issue of the writ. The value of the house had fallen substantially between the issue of the writ
and the date of judgment.
Held – On the basis that everything was to be presumed against a trustee in breach of a continuing obligation to restore property or funds, a plaintiff
deprived by a breach of trust of the opportunity of realising assets was to be compensated at the best price obtainable during the time the property was in
the trustee’s hands. On the facts, at the date of the writ the trustees were in continuing default and such breach had deprived the plaintiff of the
opportunity to sell the property in accordance with the terms of the trust. The plaintiff should therefore be compensated at the value as at the date of the
issue of the writ, being the highest value of the lost opportunity (see p 150 d and p 153 f to p 154 c, post).
Preamble
Dictum of Wills J in Michael v Hart & Co [1901] 2 KB 867 at 869–870 applied.

Guerin v R [1984] 2 SCR 335 adopted.
Notes
For the extent of a trustee’s liability for breach of trust in respect of principal, see 48 Halsbury’s Laws (4th edn) paras 951–953, and for cases on the
subject, see 48 Digest (Reissue) 628–630 5705–5722.

Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] 2 All ER 92, [1980] Ch 515, [1980] 2 WLR 430.
Bell’s Indenture, Re, Bell v Hickley [1980] 3 All ER 425, [1980] 1 WLR 1217.
143
Dawson, Re, Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd (1966) 84 WN (Pt 1) (NSW) 399, NSW SC.
Guerin v R [1984] 2 SCR 335, Can SC.
McNeil v Fulz (1906) 38 SCR 198, Can SC.
Massingberd’s Settlement, Re, Clark v Trelawney (1890) 63 LT 296, CA.
Michael v Hart & Co [1901] 2 KB 867; on appeal [1902] 1 KB 482, CA; affd (1903) 89 LT 422, HL.
Nant-y-glo and Blaina Ironworks Co v Grave (1878) 12 Ch D 738.
Nestle v National Westminster Bank plc [1994] 1 All ER 118, [1993] 1 WLR 1260, CA.
Wright v British Railways Board [1983] 2 All ER 698, [1983] 2 AC 773, [1983] 3 WLR 211, HL.
Cases also cited

Morvah Consols Tin Mining Co, Re, McKay’s Case (1875) 2 Ch D 1, CA.
Pauling’s Settlement, Re, Younghusband v Coutts & Co (No 2) [1963] 1 All ER 857, [1963] Ch 576.
Action
The plaintiff, Sir William Otho Jaffray Bt, by a writ dated 11 August 1989 sought a declaration that the defendants, Neil Francis Marshall and Nicholas
John Murphy, the trustees of three family settlements (the Anne Paget settlement dated 7 December 1940, the Gertrude Paget settlement dated 9
December 1940 and a settlement dated 6 April 1980), were liable to make good to the Anne Paget settlement and the 1980 settlement all amounts lost to
such settlements by reason of the defendants’ breaches of trust, an inquiry as to what sums had been lost and what sums were needed to replace them and
an order that the defendants make good to the settlements the sums found due on taking such inquiry. The facts are set out in the judgment.
Christopher Nugee (instructed by Norton Rose) for the plaintiff.

Geoffrey Vos (instructed by Nicholson Graham & Jones) for the defendants.
Cur adv vult
10 July 1992. The following judgment was delivered.
NICHOLAS STEWART QC. This is a breach of trust action in which there has been a large measure of agreement of the facts and very little oral
evidence. It concerns an admitted breach of trust by the two defendants, whom I shall simply call ‘the trustees’, in relation to family settlements of the
Jaffray family. The main (though not the only) issue in the case is the level of compensation to be paid for that breach of trust.
The first settlement, which has been called ‘the Anne Paget settlement’, was established by a deed dated 7 December 1940. The settlor, who was
then called Anne Paget, is now Lady Jaffray. She is the mother of the plaintiff, Sir William Otho Jaffray Bt. The effective trusts of the Anne Paget
settlement are and have been for many years that the whole of the trust property is held on trust for Lady Jaffray for life with the remainder (subject to
certain so far unexercised powers of appointment) to her children. Lady Jaffray had one child other than the plaintiff.
144
The other settlement, which has been called ‘the Gertrude Paget settlement’, was established by a deed dated 9 December 1940. The settlor was the
plaintiff’s grandmother, Gertrude Paget. The former trusts of that settlement are not material, because on the death of Gertrude Paget on 12 December
1978 the whole of the trust property fell to be transferred to the trustees of the Anne Paget settlement to be held by them upon the trusts of that settlement.
I shall refer to those settlements together as ‘the 1940 settlements’. It is not necessary to differentiate between them for the purposes of the matters I
have to decide.
Since 1979 the two defendants have been the trustees of both the 1940 settlements. The plaintiff brings this action as one of the remainder
beneficiaries of those trusts.
The claim arises out of events in late 1979 and the first part of 1980. They occurred against a background of continuing dispute between the plaintiff
and Lady Jaffray, but it is not necessary to go into all that here. The basic point is that Lady Jaffray was looking for somewhere to live so that she could
move out of the Manor House, Prior’s Dean, Petersfield, Hampshire, where she had lived for many years. Lady Jaffray eventually entered into a contract
dated 19 February 1980 to buy a property known as Haydown at Weston Patrick, near Basingstoke, for the sum of £75,000. However, she did not have
the funds and could not obtain the funds to complete the purchase in her own name for her own sole benefit.
Arrangements were made within the family, and involving the family settlements, to enable that purchase to be completed on 1 April 1980, as it was.
The overall cost for present purposes is now agreed between the parties to this action, who do not include Lady Jaffray, to have been as follows: the
purchase price, £75,000; stamp duty, £1,500; solicitor’s costs (including value added tax), £1,268·45; and search fees, £23·65. The total of those figures
is £77,792·10.
It is agreed between the parties that the trustees contributed at least £35,612·46 towards the purchase of Haydown, which was 47·48% of the
purchase price of £75,000. That sum came from the 1940 settlements and from a new settlement which I shall mention below. The balance came from
Lady Jaffray. The defendants say that is the correct way to look at it. However, the reason I say ‘at least’ that figure is that it leaves out a further sum of
£2,000 which the plaintiff says should have been treated as contributed by the trustees.
His case is that the correct calculation was to treat the trustees’ contribution as one of £37,612·46, that is the sum of £35,612·46, plus £2,000, towards
an overall cost of £77,792·10, which would be a contribution of 48·35%.
Preamble
In order to identify the dispute in relation to that sum of £2,000 it is necessary to describe the arrangements for the purchase of Haydown in a little
more detail. What happened was that the plaintiff agreed to pay, and did pay, £30,000 to the trustees to be used by them for the purchase of Haydown.
That sum was settled by the plaintiff under a new deed of settlement dated 6 April 1980 (the 1980 settlement) on trust for Lady Jaffray for life with
remainder to the plaintiff absolutely. There is no dispute that the whole of that sum was used towards the purchase of Haydown. It forms the major part
of the trustees’ agreed minimum contribution of £35,612·46, the balance of which was provided by them as trustees of the 1940 settlements. Though the
date of the 1980 settlement is five days later than the conveyance of Haydown, it had been completely agreed by 18 March 1980 and nothing turns on its
precise date.
The purchasers under the conveyance of Haydown were Lady Jaffray and the trustees. Clause 3 expressly stated the purchasers’ agreement that they
were in equity tenants in common as to 8/15ths for Lady Jaffray and 7/15ths for the 145 trustees (which is 53·33% and 46·66%). The plaintiff’s
complaint on this aspect of the case is that the trustees should have obtained a total beneficial trust of 48·35% in Haydown, their failure to do so being
attributable to the sum of £2,000 being left out of account in breach of trust.
There is a great deal of background correspondence dealing with the sums to be contributed by the plaintiff, and in particular the £2,000. It is
necessary only to mention the more significant steps in the progress to completion of the purchase.
On 7 December 1979 the first defendant, Mr Marshall, who was also Lady Jaffray’s accountant, wrote to the plaintiff confirming the trustees’
acceptance of the plaintiff’s offer to provide £30,000 towards the purchase. He also wrote that in addition to the £30,000, they required from him a sum
of £2,000 for stamp duty, the surveyor’s report, valuation and legal expenses. The letter continued: ‘This will be treated quite separately from the amount
you place in the Trust of £30,000.’
The proposal at that time was that the £30,000 should be paid into one of the 1940 settlements. The letter expressly contemplated two separate
cheques, one for £30,000 and one for £2,000. Subsequently, however, there are many letters in which the total of £32,000 was treated as a single sum:
see, for example, Mr Marshall’s letter of 7 December 1979 to the plaintiff.
Over the next four months there were more or less continuous negotiations about the acquisition of a house for Lady Jaffray and the terms on which
the plaintiff would contribute funds. There was a wider dispute going on between Lady Jaffray and the plaintiff which also came into the negotiations but
the details of which are not important for present purposes. There are points in the correspondence at which the plaintiff himself appears to have been
thinking in terms of his interest in the house being related to the contribution of £30,000 without mention of the £2,000: see his telex of 12 December
1979 and his letter of 19 January 1980 both to Mr Marshall. Moreover, the plaintiff’s own solicitors wrote to Mr Marshall’s firm on 17 December 1979 in
terms which also referred to the transfer of £30,000 (as opposed to £32,000) into one of the 1940 settlements.
However, the precise thinking of the parties at those earlier stages appears to have been, and probably was, rather unclear. On 22 January 1980 Mr
Marshall wrote to Messrs Coutts & Co, who were Lady Jaffray’s bankers, a letter which said:
‘Negotiations are also being conducted with [the plaintiff] for him to give to [one of the 1940 settlements] in which he has an ultimate interest,
£32,000 so that the trust may acquire an interest in the proposed property and in this case Lady Jaffray would only have to find the balance.’
He wrote on the same day to Mr Littman, who was the plaintiff’s accountant, in similar terms, but also including the following sentence: ‘It is
confirmed that whatever amount is contributed by the trust from the advance from the plaintiff will represent a proportional value of the house to be
purchased.’ The only figure referred to in that letter as coming from the plaintiff is the single overall sum of £32,000.
Before moving on to the last phase of the negotiations, leading up to completion of the purchase, it is worth considering the principles and arguments
under consideration. Mr Nugee’s starting point, and effectively his finishing point as well, is that the £2,000 was given by the plaintiff to the trustees to
be held by them as trustees, but the trusts were always clearly understood to 146 be for Lady Jaffray for life with remainder to himself; that the £2,000
was intended to be used by the trustees towards the cost of the house and was so used: and that on ordinary principles applicable where two purchasers
make different contributions towards the purchase, in the absence of any other agreement Lady Jaffray and the trustees acquired interests in proportion to
their respective contributions to the overall cost of purchase (including legal expenses).
I accept those submissions as a starting point. The plaintiff’s claim which follows from them is that when after completion of the purchase the
trustees agreed to complete cl 3 of the conveyance in terms which gave only 7/15ths, that is 46·66%, of the beneficial interest to themselves as trustees,
they acted in breach of trust because as against Lady Jaffray they already had at that point a beneficial share of 48·35%, so they gave away the difference
without any approval from the plaintiff, who was a capital beneficiary.
It is a fact that the trustees obtained Lady Jaffray’s agreement to the 7/8th apportionment, but unfortunately did not trouble to obtain a corresponding
agreement from the plaintiff. Mr Vos answers those submissions by saying that on the evidence the £2,000 was never intended to be part of the trust
assets and was therefore properly left out of account in working out the respective shares of Lady Jaffray and the trustees.
Picking up the negotiations again, by the end of January 1980 it had been thought that there were difficulties about using one of the 1940 settlements
as a vehicle for the plaintiff’s contribution to the purchase price. It was therefore decided to establish the 1980 settlement for that purpose. By 13
February 1980 Lady Jaffray was anxious to enter into the contract to buy Haydown and her solicitors were pressing the plaintiff’s solicitors to reach
agreement that would enable them to use the sum of £22,000 which had already been advanced by the plaintiff.
There were several exchanges of letters and telexes leading up to a critical exchange between 15 and 18 February 1980. On 15 February Messrs
White Brooks & Gilman, a firm of solicitors of which the second defendant was a partner, sent a telex to the plaintiff’s solicitors in the following terms so
far as material:
‘For the avoidance of doubt we understand position now as follows sum of £32,000 held by us represents £30,000 for purchase of house and
£2,000 towards costs ancillary to purchase money to be placed in new trust in form as set out in previous telexes and correspondence and used by
trustees for the purchase of house Lady Jaffray to give undertaking to vacate Manor House no later than midnight 31st July 1980 the plaintiff to
withdraw action for possession of Manor House and Lady Jaffray to withdraw her defence and counterclaim to that action only any other causes of
action or claims between the parties to be unaffected (these conditions are acceptable to Lady Jaffray) please confirm that we have understood
terms of agreement correctly.’
It was suggested to the plaintiff in cross-examination that this telex, which was unpunctuated, was ambiguous as to whether it was £30,000 or
£32,000 which was said to be placed in the new trust. I have considerable sympathy with the plaintiff’s response that it depended who was trying to be
ambiguous. The more natural reading to me was that £32,000 was to be placed in the new trust and that is how I should construe the telex if I had to. But
if there is an 147 unresolved ambiguity I see that as a problem for Mr Vos’s clients rather than the plaintiff.
The response by telex dated 18 February 1980 from the solicitors was in the following terms:
‘It is confirmed that the sum of £32,000 held by you represents £30,000 for the purchase of the house and £2,000 as a contribution towards the
Preamble
costs of the house. We should be obliged if you would let us have a form of undertaking by Lady Jaffray to vacate the Manor House not later than
31st July one thousand nine hundred and eighty. We also confirm that as part of the compromise the plaintiff will withdraw his action for
possession of the Manor House and Lady Jaffray will withdraw her defence and counterclaim to that action only. Please confirm to us once
contracts have been exchanged so that we can advise our client accordingly. It is a small matter, but for the period up to date on which agreement
was reached between the parties the money would, as a matter of construction, have been held on behalf of our client and therefore he would be
entitled to the interest. We should be grateful if you would confirm your agreement to this point.’
That reference to interest was to interest accrued on money advanced by the plaintiff without any differentiation between the £2,000 and the rest.
On 19 February there was exchange of contracts for the purchase of Haydown. I have heard evidence from the plaintiff and from Mr Marshall.
Taking that evidence, together with the correspondence and other documentary material, I do not consider that, subject to the question of the 1980
settlement, which I come to next, up to that point there had been any clear agreement by or on behalf of the plaintiff which justified the trustees in
assuming that they could treat the £2,000 as a contribution from the plaintiff which was to be left out of account in determining the equitable shares in the
house. However, just about the time contracts were exchanged there was agreement over the terms of the 1980 settlement, which was to be used as the
vehicle for the plaintiff’s contribution towards Haydown. The plaintiff was to be the settlor and Mr Marshall and Mr Murphy the trustees. By 10 March
the plaintiff had executed the deed of settlement and its terms had been approved by the trustees and also by Lady Jaffray, though she was not a party.
Mr Vos relies on the terms of the 1980 settlement as showing that the £2,000 should be left out of account in ascertaining the beneficial interest in
Haydown. Recital B referred to the payment of £30,000 by the plaintiff to the trustees and the definition of the trust fund refers specifically to the sum of
£30,000.
It is relevant to note that nobody is claiming rectification of any document or seeking, as against Lady Jaffray, to go behind the declaration of
beneficial shares in the conveyance of Haydown. Lady Jaffray is not even a party to these proceedings.
Mr Nugee says quite simply that the fact that the 1980 settlement only refers to the £30,000 did not in any way exclude the further £2,000 from being
trust assets. He relied, if necessary, on the inclusion of the definition of 1980 settlement trust fund of the words ‘all monies and investments paid or
transferred to and accepted by the trustees as additions to the trust fund’, which he said were apt to include the £2,000. However, that was rather a
makeweight point and I do not think those words do help him, as they do not answer the question whether the £2,000 falls within that definition in the
first place.
148
Mr Nugee’s main submission on this point was that the fact that the 1980 settlement did not include the £2,000 did not prevent it from being held
upon trust. Mr Vos on the other hand said that the 1980 settlement did not deal with the £2,000 because it was never intended to be part of the trust.
In cross-examination he pressed the plaintiff hard on the point that the settlement only referred to the £30,000 and towards the end of his evidence
the plaintiff suggested that it was because it would have been foolish to be updating the figures in the settlement when the amount had not been finalised.
The reason he said the amount had not been finalised was that there were unresolved questions of costs and interest. Although there were such questions,
I regard that part of the plaintiff’s evidence as an explanation given after having read the correspondence with the benefit of hindsight. Although I
certainly accept it was an honest attempt to explain what happened, I do not think it is correct.
That does not, however, destroy Mr Nugee’s submissions. It seems to me that the absence of any mention of the £2,000 in the 1980 settlement
reflects the distinct lack of clarity running through the correspondence right up to and after completion about the treatment of that sum and its
consequences for the beneficial interests in the property. Once Mr Nugee’s starting point is accepted, it is for the defendants to show that at some point
the plaintiff agreed or in some other way clearly indicated that he relinquished any claim to a beneficial interest in the £2,000 or the property, for which
purpose it was used.
I do not find any such agreement or indication and accordingly I find for the plaintiff on this point. The trustees should have obtained a share of
48·35% in Haydown. To the extent they did not so do, and of course they did not even attempt to negotiate a higher share than 46·66%, they acted in
breach of trust and are liable to make good the shortfall.
It is not necessary to consider whether or not, as a matter of strict analysis, the £2,000 was ever held as part of the trust fund of the 1980 settlement.
The plaintiff is not asserting any interest in respect of that £2,000 other than in accordance with the trust of that settlement and neither Mr Nugee nor Mr
Vos has suggested that if, as I have held, there was a breach of trust in relation to the £2,000 it should be treated as anything other than a breach by the
trustees of the 1980 settlement.
The next point to consider is now the main issue in this action. As a result of admissions made by the defendants, and a measure of agreement
reached early in the trial, the area of dispute has been narrowed very considerably. Accordingly only the briefest of factual introduction is necessary. At
the same time as they completed the acquisition of Haydown, the purchasers executed a mortgage of the property in favour of Coutts & Co. That is now
admitted by the defendants to have been a breach of trust. Though it should be noted that the writ was issued on 11 August 1989, it was not until 30 April
1992 that a notice of admissions by the defendants admitted the breach and at the same time dropped reliance on s 61 of the Trustee Act 1925.
It is enough to say that on 17 December 1985 Haydown was sold by Coutts & Co as mortgagees and that they took the whole net proceeds to repay
borrowings due to them from Lady Jaffray. In effect the whole of the trustees’ interest was lost as a result of their breach of trust. The question now is
what compensation should be made by the trustees.
The parties have agreed figures which establish what a specified investment in Haydown or another notional small house would have been worth
now, if the property had been retained, and what it would have been worth at the date 149 of the writ. On the basis of my conclusion in relation to the
£2,000, which means that a contribution of £37,612·46 was made by the trustees on the original purchase, the agreed updated figures corresponding to an
initial investment of that amount are £160,786·68 when the writ was issued and £117,243·56 now. If I had held in favour of the defendants on the £2,000
the corresponding figures would have been £157,904·16 and £115,141·66. The lower figures now, as compared with those at the date of the writ, reflect
the considerable slump in the property market since 1989.
There is no issue between the parties on the basic approach to compensation for this admitted breach of trust. The trustees are to replace the trust
asset lost by their breach of trust or its monetary value. In the present case it must be the monetary value, as it is not suggested that the actual interest in
Haydown can be restored. The issue between the parties is whether that value is to be taken at the date of issue of the writ or at the date of judgment.
Nobody is arguing for any other date.
Mr Nugee submits that the trustees should have accounted at the date of the writ at the latest because by that time it was absolutely clear that the
plaintiff was asserting his right. Therefore, he says, they cannot now properly claim to be able to make compensation only on the basis of present lower
values. He says if they were only to make compensation on the basis of values at the date of judgment, they will be taking advantage of their own wrong
and it would be contrary to principle to allow them to do so.
Alternatively, he submits that on the authorities the correct approach to compensation for a breach of trust which deprives the trust of one of its
assets is to order payment of the highest intermediate value of that asset at any time between the date of the breach and the date of judgment. He is
content to adopt the value at the date of the writ as the highest intermediate value.
Preamble
Mr Nugee accepted that these two approaches were related. In my judgment the first adds nothing. Though the principle that you may not take
advantage of your own wrong is fundamental and has a very wide application, I do not understand it to operate punitively. The basic principle in this type
of breach of trust case is that the trustees must make restitution. If a payment based on values at the date of judgment would otherwise achieve that, to
award more in order to prevent the trustees from taking advantage of their own continuing wrong would overcompensate the plaintiff and be punitive.
Accordingly, the right approach is to consider whether on principle and authority restitution requires the higher value at the date of the writ to be
adopted in this case.
It was confirmed by the plaintiff’s evidence that the whole purpose of the 1980 settlement was to provide housing for Lady Jaffray and that if the
trust assets had not been lost they would have been used for the same purpose. It was clear that whether or not it would continue to be Haydown, in all
expected circumstances the trust assets would have continued at all times to be invested in a residence for Lady Jaffray. Each side approached the case on
the footing that on the evidence the trust assets would have been invested in a residence throughout the period of the writ until now and would therefore
have suffered a drop in value commensurate with the agreed figures set out above. There is an obvious sense therefore in which the sum claimed by the
plaintiff might be said to over-compensate the trust, but Mr Nugee says that on a correct analysis based on the authorities there would be no
over-compensation and that the date of the writ is the right date.
150
He referred me first to a case in the Supreme Court of Canada, whose views are not binding on this court but are entitled to great respect, McNeil v
Fulz (1906) 38 SCR 198. That was a case in which the defendant was treated as a trustee of securities which he had wrongfully withheld over a period.
As he had been under a continuing obligation to account to the plaintiffs for what he had received as trustee for them, he was liable to make reparation for
the loss. It was held that every presumption must be made against him as a wrongdoer and that the loss must be calculated on the assumption that the
securities would have been sold at the best price obtainable during the time they had been in the defendant’s hands.
A distinction was drawn between that approach in the case of a trustee and the position of a defendant liable simply for breach of contract, who
would have to pay damages based only on the selling price of the securities when the obligation to deliver arose.
The judgment in McNeil v Fulz referred (at 205) to two cases which Mr Nugee also relied upon: Nant-y-glo and Blaina Ironworks Co v Grave (1878)
12 Ch D 738 and Michael v Hart & Co [1902] 1 KB 482.
In the first of those cases, a decision of Bacon V-C, the defendant was a trustee of shares for the plaintiff company which he had wrongfully withheld
for some years. He still held the shares by the time of trial and argued that his liability should only be to restore them with dividends and interest,
although by that time they had fallen to a very low value. He was ordered to pay the plaintiff the highest value at which they might have been sold over
the period on the footing that he was liable for whatever he ‘did derive, or might have derived, from this transaction’ (see 12 Ch D 738 at 750).
Michael v Hart & Co was relied upon by Mr Nugee not for the decision itself but for an interlocutory observation by Collins MR in the Court of
Appeal (at 488) which implied clear recognition of the principle that in a case of a continuous obligation to restore property or funds everything might be
presumed against a wrongdoer.
These cases certainly support the view that in cases of continuing breach of trust by a failure to restore trust property, it is not necessary for the
plaintiff to establish by evidence what would have happened if there had been no breach of trust. In fact they go further. It would not apparently have
been open to the defendant to adduce such evidence either since otherwise it is unrealistic to suppose that the defendants in McNeil v Fulz, for example,
would not have attempted to show the improbability that the highest price would actually have been achieved.
Mr Nugee also relied upon another case in the Supreme Court of Canada, Guerin v R [1984] 2 SCR 335. The essential facts can be summarised quite
briefly. The Crown was held to have been in breach of a fiduciary obligation to an Indian band. The band had surrendered part of its reserve to the
Crown to be leased by the Crown for the benefit of the band. The band had agreed to a lease to a golf club on certain terms, but in breach of duty the
Crown had leased the land on less favourable terms. The evidence was that a golf club lease on the more favourable terms approved by the band, or any
acceptably fair terms, would not have been achievable. Damages for breach of trust were awarded on the footing that it would have been possible to lease
the land for development. McNeil v Fulz was cited (at 362), where it was said that just as it was to be presumed that a beneficiary would have wished to
sell his securities at the highest price available during the period they were wrongfully withheld from him by the trustees, so also it should be presumed
that the band would have 151 wished to develop its land in the most advantageous way possible during the period covered by the unauthorised lease.
It did not have to be proved that they would have done so.
What the trial judge had done in Guerin v R, and on that he was upheld by the Supreme Court, was put a value at the date of the trial on the lost
opportunity of the band to develop the land for residential purposes. Though it had to be established by evidence that on the balance of probability the
opportunity had been there, it was to be presumed that they would have taken advantage of it. The Guerin approach has been approved, although it was
not necessary to the actual decision to which Mr Nugee referred me to, in Nestle v Westminster Bank plc [1994] 1 All ER 118, [1993] 1 WLR 1260.
Mr Nugee submits that the presumptions are irrebuttable and it does not make any difference that the defendants might be able to say that they would
never have sold the property.
All this, said Mr Vos, was fatally flawed. Since there was no doubt that at all times the trust money was to be used for the purchase of a house for
Lady Jaffray, the trusts could never have been in a better position than being invested in residential property. Accordingly, the plaintiff’s case cut right
across the restitutionary principle, on which he cited Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] 2 All ER 92 at 96, [1980] Ch 515 stressing that
the defaulting trustee’s obligation is to restore to the trust estate the assets of which he had deprived it (see per Brightman LJ).
I was referred to a passage in the judgment of Vinelott J in Re Bell’s Indenture, Bell v Hickley [1980] 3 All ER 425 at 439, [1980] 1 WLR 1217 at
1233 for his comments on Re Massingberd’s Settlement, Clark v Trelawney (1890) 63 LT 296. However, it is clear from the report of Re Massingberd’s
Settlement that no relevant distinction was being drawn between the date of writ and the date of judgment and Vinelott J did not have to consider the
questions now before me. Those cases therefore do not assist.
Mr Vos also cited Guerin v R [1984] 2 SCR 335 at 360–361, particularly for a passage relied upon in that case from an Australian case, Re Dawson,
Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd (1966) 84 WN (Pt 1) (NSW) 399 at 404–406. However, I do not think the passage in question
adds anything to the other authorities which have been cited.
The essential point in Mr Vos’s submissions was that the court could not find that something could have happened which, he says on the evidence,
definitely would not have happened, ie the sale of Haydown or the notional replacement residence. Although all presumptions were to be made against a
defaulting trustee, they were rebuttable presumptions only. That was his answer to Mr Nugee’s submissions and the authorities upon which they were
based. He did say, however, that if we had been considering shares as opposed to a house, he would not have been resisting a claim for the highest price.
Mr Nugee expressly disclaimed any contention that on a balance of probabilities there would have been a sale of the house and I do accept that it is
improbable (although he did suggest circumstances in which it might have happened and I think it is putting it too high on the defendants’ side to say that
we know for certain that the property would not have been sold). But he pointed out that the argument that presumptions against a defaulting party led to
a result which would never have happened in practice was exactly the argument put at first instance in Michael v Hart & Co [1901] 2 KB 867 and rejected
by Wills J.
Preamble
152
That was a case in which the defendant stockbrokers, who had undertaken to sell shares at the direction of their principal at any time before settling
day, sold them before that day without their principal’s consent and in breach of contract. They were held liable to the plaintiff for the highest prices
which the shares might have realised in the market at any time between the date of sale and the settling day. It was argued for the defendant that the
plaintiff could not select any of the intermediate dates which were most unfavourable to the brokers on the fictitious assumption that he would have given
instructions to the brokers to close each separate parcel of stock at the time when it was at the highest price.
The actual decision proceeded on the basis of breach of contract (which was exactly the point questioned by Collins MR in the Court of Appeal) and
was compromised on appeal before the Court of Appeal had to rule on this point. But with necessary adjustments, the following passage in the judgment
of Wills J is relevant ([1901] 2 KB 867 at 869–870):
‘… it seems to me that the plaintiff is entitled to all the advantages that would have been his or that might have been his if the contract had been
carried out. Amongst those advantages was the right to sell the shares whenever he chose during the period over which the transactions were to run,
and at different times different prices might have been realized. No doubt the plaintiff would in fact never have realized the best prices that ruled
during that period. But I think I am right in saying that the Courts have never allowed the improbability of the plaintiff’s obtaining the highest
prices to be taken into consideration for the purpose of reducing the damages. The defendants are wrong-doers, and every presumption is to be
made against them. In my opinion the plaintiff is entitled to the highest prices which were obtainable during the period during which he had the
option of selling.’
I cannot claim to find this an easy point, but there are considerable difficulties in reconciling with the authorities Mr Vos’s suggested way of looking
at what the court is doing in ordering restitution in respect of a continuing breach of trust on the basis of the highest intermediate value—that the
presumed sale at that value is merely a rebuttable presumption.
If that is so it is hard to see why there should be any difference between rebutting the presumption on the balance of probability and rebutting it as a
matter of certainty (or near certainty, which would perhaps be more accurate in the present case). It is also difficult to see why evidence would not have
been adduced in some of the cited cases in order to attempt to rebut the presumption: for example in Michael v Hart & Co.
The underlying point of the authorities seems to be that the breach of trust has deprived the party who ought to have had the assets throughout the
relevant period of the opportunity of realising them at any point he chose. Evidence may have to be considered to see whether that opportunity was there
at all. In Guerin v R the opportunity of leasing on the terms approved by the Indian band was not, so that possibility had to be left out of account. But if
the opportunity was there at every point during the continuing breach of trust, the defaulting party must make compensation on the footing of the lost
value of the opportunity at its highest point.
As at the date of the writ in this case, the defendants were in continuing default: see Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] 2 All ER 92
at 95, [1980] Ch 515 at 543. The trustees at that point had the opportunity, 153 consistently with the strict terms of the trust, of selling the property.
The continuing breach deprived them of that opportunity. It was an opportunity whose value was the value of their share in Haydown, or the notional
replacement house at that time. They may have decided not to avail themselves of the opportunity, but that was their decision. They could have derived
that value.
I do not see a distinction in principle between shares and other types of property. They are different in the sense that shares generally have no use to
a trust except as a pure investment, whereas a house which provided a residence for Lady Jaffray fulfilled the basic purpose behind the trust and was in a
sense only secondarily an investment. But each type of property is nevertheless a trust investment and the opportunity of selling it is there at any time.
In my judgment the principles and authorities do support the plaintiff’s case on this point and the defendants must make compensation on the basis of
the agreed value at the date of the writ.
That conclusion leaves the question of interest since the date of the writ. It is agreed that there should be interest from that date until judgment at
what is now known as the special account rate. The only remaining issue is apportionment of that interest as between the life and remainder interests.
The parties, who do not include Lady Jaffray, ask me to make that apportionment, which will not affect Lady Jaffray in practice as her interest will be
impounded.
It is accepted that the high rates of interest in modern times contain a large element which merely preserves capital values. In principle that element
should belong to the capital or remainder beneficiaries. Mr Vos says that the bulk of any interest would have been used for the income beneficiary and I
should allow at least half to her. Mr Nugee argues, by reference to Wright v British Railways Board [1983] 2 All ER 698, [1983] 2 AC 773, that I should
apportion to the income beneficiary the same figure of 2%, which has been adopted as what might be called the real rate of the interest in cases of
damages for personal injuries. However, though the analysis of what constitutes a ‘real’ rate of interest is equally applicable to the present case, the actual
figure of 2% is a rather broad guideline adopted some years ago in a different context. An alternative suggested by Mr Nugee, if I thought 2% was too
low, was the rate of 4% generally adopted by equity in pre-inflationary days. Both figures seem low to me. Though there are distinct limits to judicial
notice, in the very broadest terms I take account of the fact that the period since 1989 has not been a period of the very high level of inflation that had
been seen at times in fairly recent years. Accordingly, the rate of return needed to preserve capital is not as high as it has been in the past, which is only
another way of saying the same thing. I stress the broadness of that view and no expert evidence has been adduced on these matters. In my view a fair
apportionment of the interest in this case is that half should go to income and half to capital.
The parties do not need me to apportion the overall figure between the 1940 settlements and the 1980 settlement, which is a matter of pure
arithmetic. They are happy to take care of that themselves.
The result is that I order the trustees to restore to the relevant trusts the sum of £160,786·68 together with interest at the special account rate from 11
August 154 1989 up to today. That interest is to be apportioned equally between income and capital.
Order accordingly.
Hazel Hartman Barrister.

[1994] 1 All ER 155
Practice Direction
(Children proceedings: Time estimate)
PRACTICE DIRECTIONS
FAMILY DIVISION
22 November 1993
Practice – Family Division – Proceedings relating to children – Estimated length of hearing – Duty of parties to give time estimate – Revision of time
estimate – Children Act 1989.
1. As from the date of this direction, parties to proceedings under the Children Act 1989 or under the inherent jurisdiction of the High Court relating to
children, which are pending in the High Court in London and in other centres and which are to be heard by a judge, will be required to provide an
estimate of length of the hearing (a ‘time estimate’) in accordance with the procedure set out in the following paragraphs. This procedure is intended to
enable the court and the parties to be kept fully informed of any changes in time estimates so as to facilitate the listing and disposal of cases in the most
effective manner.
2. When any hearing which is expected to last one day or more is fixed, whether upon application or at a directions hearing or on any other occasion,
the party applying for the hearing (‘the applicant’) and such other parties as may then be before the court shall give a time estimate. Unless otherwise
directed, this shall be in writing and shall be signed by the solicitor and by counsel, if instructed. A suitable form will be available from the court.
3. If any party to the proceedings is not before the court when the hearing is fixed, the applicant shall serve that party forthwith with a copy of the
time estimate.
4. Any party served with a time estimate shall acknowledge receipt and shall inform the applicant and the court forthwith whether they agree or
disagree with the estimate and in the latter case shall also give their own time estimate.
5. If at any time after a time estimate has been given any party considers that the time estimate should be revised, that party shall forthwith provide
the court with a further time estimate and shall serve a copy on the other parties. It is the duty of solicitors to keep counsel informed of the time estimates
given in the case and it is the duty of both solicitors and counsel to keep the length of the hearing under review and to inform the court promptly of any
change in the time estimate.
6. In cases where a hearing has been fixed for less than a day, if any party considers that it is likely to last for one day or more, then a time estimate
shall be given by that party to the court and served on the other parties. If an additional application or cross-application is issued returnable on the same
date, a further time estimate will only be required if the latest time estimate is affected.
7. A party shall provide a time estimate if so required by the court.
155
8. If, in the light of the information provided, the court considers that further directions are necessary or if any of the parties fail to provided the
requisite information, a directions hearing will be fixed and notice of the appointment given to all parties by the court. In the event of a party failing to
provide information when requested or if default is otherwise made in the provision of time estimates, liability for any wasted costs may arise for
consideration.
9. This direction does not apply to parties in person. Where the applicant is a party in person, the other parties to the proceedings, if represented by a
solicitor, must provide a time estimate to the court immediately upon being notified of the hearing.
10. This direction is not to be read as affecting the right of any party to apply to the court for directions at any time in relation to the listing of any
application or for any other purpose.
11. The direction dated 1 March 1984 ([1984] 1 All ER 783, [1984] 1 WLR 475) shall continue to apply to proceedings other than proceedings under
the Children Act 1989 or the inherent jurisdiction of the court relating to children.
12. Issued with the concurrence of the Lord Chancellor.
22 November 1993
STEPHEN BROWN P.
[1994] 1 All ER 156
National Westminster Bank plc v Daniel and others

CIVIL PROCEDURE

GLIDEWELL AND BUTLER-SLOSS LJJ
19 FEBRUARY 1993
Practice – Summary judgment – Leave to defend – Unconditional leave to defend – Test of whether leave should be granted – Defendant seeking
unconditional leave to defend – Defendant’s affidavits giving conflicting evidence – Whether fair or reasonable probability of defendant having a real or
bona fide defence – Whether defendant having credible defence – RSC Ord 14.
On an application by the plaintiff for summary judgment under RSC Ord 14 a defendant seeking unconditional leave to defend must satisfy the court that
there is a fair or reasonable probability of his having a credible defence and not merely that there is a faint possibility that he has a defence. If it is not
credible, then there is no fair or reasonable probability of him setting up a defence. If the affidavits in support of the application for leave to defend give
Preamble
conflicting evidence the court may conclude that, because they cannot both be correct and the inconsistency is such as to cast doubt on whether either is
correct, there can be no fair or reasonable probability of the defendant having a real or bona fide defence (see p 159 c d f g and p 160 a b d e h, post).
Dictum of Ackner LJ in Banque de Paris et des Pays-Bas (Suisse) SA v de Naray [1984] 1 Lloyd’s Rep 21 at 23 applied.
Dictum of Webster J in Paclantic Financing Co Inc v Moscow Narodny Bank Ltd [1983] 1 WLR 1063 at 1067 disapproved.
156
Notes
For summary judgment under RSC Ord 14 generally, see 37 Halsbury’s Laws (4th edn) paras 410–419, and for cases on the subject, see 37(3) Digest
(Reissue) 29–47, 3101–3226.

Banque de Paris et des Pays-Bas (Suisse) SA v de Naray [1984] 1 Lloyd’s Rep 21, CA.
Bhogal v Punjab National Bank, Basna v Punjab National Bank [1988] 2 All ER 296, CA.
Paclantic Financing Co Inc v Moscow Narodny Bank Ltd [1984] 1 WLR 930, CA; affg [1983] 1 WLR 1063.
Standard Chartered Bank v Yaacoub [1990] CA Transcript 699.
Interlocutory appeal and cross-appeal

The second defendant, Paul Leonard Stephen Harvey, appealed from the order of John Dyson QC, sitting as deputy judge of the High Court in the
Queen’s Bench Division on 10 November 1992 whereby he gave Mr Harvey leave to defend the application made by the plaintiff, National Westminster
Bank plc, for summary judgment on a writ of summons dated 3 June 1992 claiming the sum of £131,758 from Mr Harvey and others under a guarantee of
the liabilities of a company, Jomini Highlight plc, but made the leave conditional on Mr Harvey paying into court the sum of £25,000 within 42 days.
The bank cross-appealed, seeking an order that judgment be given for £131,758, the full sum in dispute, plus interest, or alternatively that Mr Harvey
have leave to defend conditionally on him paying into court the full sum in dispute plus interest. The facts are set out in the judgment of Glidewell LJ.
Stephen Jones (instructed by Cooper Carter Claremont, Hailsham) for Mr Harvey.

Ali Malek (instructed by Isadore Goldman) for the bank.
GLIDEWELL LJ. By a specially indorsed writ issued on 3 June 1992 the plaintiff, National Westminster Bank plc, claimed against three defendants, of
whom the present appellant, Mr Paul Harvey, was the second, upon a guarantee signed by each of them, guaranteeing the liability to the plaintiff bank of
Jomini Highlight plc. The principal sum claimed was £131,758·56, which, together with interest, came to £140,840·73.
Neither the first nor the third defendant gave notice of intention to defend, and judgment in default was entered against them.
The plaintiff made application under RSC Ord 14 for summary judgment against Mr Harvey. On 9 October 1992 the master had before him two
affidavits sworn by Mr Schaffer (the solicitor acting for the plaintiff) and an affidavit sworn by Mr Harvey on 20 July 1992. The master ordered that Mr
Harvey might have leave to defend upon the payment into court of the whole of the sum claimed (not including interest).
He was required to make that payment into court within 28 days; if he did not do so, the plaintiff might enter final judgment against him for the
capital sum, with interest.
Mr Harvey appealed that decision. On 10 November 1992 Mr John Dyson QC, sitting as a deputy judge of the High Court, allowed the appeal to the
extent of reducing the sum required to be brought into court as a condition for leave to defend to the sum of £25,000.
157
Mr Harvey appeals further to this court against that decision on the basis that he is unable to pay any sum at all. He seeks leave to adduce additional
evidence before this court which was not before the judge, and he urges us to say that the proper course was to grant him unconditional leave to defend.
The plaintiff bank counter-appeals, arguing that, on the material before the judge, leave to defend should not be given. Their evidence included a
second affidavit sworn by Mr Harvey on 5 October 1992, together with a third affidavit sworn on 21 October 1992, and a short affidavit sworn by Mr
Holste, the manager (at the relevant time) of the branch of the plaintiff bank with which Mr Harvey dealt, confirming Mr Schaffer’s affidavit.
Mr Malek for the plaintiff bank submits that the proper course is to enter judgment for the plaintiff bank in the sum claimed.
I start by considering what is the proper test for the court to adopt in circumstances where (as here) it has before it, on an application for summary
judgment under Ord 14, affidavits which give completely conflicting accounts of a transaction.
Chronologically the matter begins with a judgment of Webster J in Paclantic Financing Co Inc v Moscow Narodny Bank Ltd [1983] 1 WLR 1063, in
which this very situation arose. The judge said (at 1067):
‘Where in matters of this kind leave to defend is given the subsequent trial, if it takes place, may take many months and the bank may be kept
out of money to which it is entitled for many years. On the other hand, if summary judgment is given, a defendant may be deprived of a legitimate
defence without trial, without even having been heard and without his evidence having been heard and tested. It does not seem to me that
cross-examination of the defendant on his affidavit is likely to assist. If the case is complicated the preparation for and hearing of the
cross-examination may involve almost as much time and expense as the trial. If the case is straightforward a speedy trial could be ordered. But in
the absence of an opportunity to test the defendant’s veracity, it seems to me that the court should never give summary judgment for the plaintiff
where, upon the evidence before it, even a faint possibility of a defence exists.’
Then in relation to that particular case, he said (at 1067):
‘I conclude, therefore, that I can reject Mr. Wong’s affidavit, or any evidence contained in it only if the affidavit, or that evidence, is inherently
unreliable because it is self-contradictory, or if it is inadmissible, or if it is irrelevant. I conclude that I could reject a defendant’s evidence when
there is affirmative evidence which is either admitted by the defendant or unchallengeable by him, and which is unequivocally inconsistent with his
own evidence; and where no, or no plausible, explanation is given of the inconsistency; because in such a case I could, but would not necessarily,
conclude that on the evidence not even a faint possibility of a defence existed. But I conclude that I should not reject the defendant’s evidence if,
merely because of its inherent implausibility or its inconsistency with other evidence, I find it incredible or almost incredible’.
That case came on appeal to this court, which upheld the decision of Webster J, but giving the judgment of the court Robert Goff LJ said ([1984] 1
WLR 930 at 939):
Preamble
158
‘There has not been, before this court, either full citation of authority or full argument upon this point [referring to Webster J’s observations
which I have just read]. Accordingly, we desist from expressing any concluded view upon it. We wish, however, to express our reservations about
a statement which seeks to categorise, in exclusive terms, the circumstances in which such affidavit evidence can be rejected.’
After Webster J’s decision, but before the decision of this court in Paclantic Financing Co Inc v Moscow Narodny Bank Ltd, there was another
decision of this court, Banque de Paris et des Pays-Bas (Suisse) SA v de Naray [1984] 1 Lloyd’s Rep 21. Ackner LJ said (at 23):
‘It is of course trite law that O. 14 proceedings are not decided by weighing the two affidavits. It is also trite that the mere assertion in an
affidavit of a given situation which is to be the basis of a defence does not, ipso facto, provide leave to defend; the Court must look at the whole
situation and ask itself whether the defendant has satisfied the Court that there is a fair or reasonable probability of the defendants’ having a real or
bona fide defence.’
O’Connor LJ agreed.
In Bhogal v Punjab National Bank, Basna v Punjab National Bank [1988] 2 All ER 296 at 303 Bingham LJ, putting the matter differently, said:
‘But the correctness of factual assertions such as these cannot be decided on an application for summary judgment unless the assertions are
shown to be manifestly false either because of their inherent implausibility or because of their inconsistency with the contemporary documents or
other compelling evidence.’
Finally, in Standard Chartered Bank v Yaacoub [1990] CA Transcript 699 Lloyd LJ, giving the decision of the court with which Nicholls LJ agreed,
said:
‘It is sometimes said that in an application under Ord 14 the court is bound to accept the assertion of a defendant on affidavit unless it is
self-contradictory or inconsistent with other parts of the defendant’s own evidence, and that the court cannot reject an assertion on the simple
ground that it is inherently incredible.’
Lloyd LJ then referred to Webster J’s decision in Paclantic Financing Co Inc v Moscow Norodny Bank Ltd, saying that it was not approved by the
Court of Appeal. He then referred to the judgment of Bingham LJ in Bhogal v Punjab National Bank and continued:
‘In the present case I ask myself whether it is credible that an oral agreement was made in mid-January of 1985 as alleged by Mr Naidoo in his
third affidavit. I have come to the conclusion that it is not.’
It is right to say that in The Supreme Court Practice 1993 vol 1, para 14/3-4/8 reference is made to Webster J’s decision in relation to this matter
with the qualification that it was not wholeheartedly approved in the Court of Appeal. In the latest supplement, reference is also made to the judgment of
Ackner LJ in the Banque de Paris case, with the qualification that Paclantic (Webster J’s decision) was not cited in that case and the editors submit that
the Banque de Paris case should be followed.
159
In my judgment that last observation is correct. I regard the test formulated by Webster J, with respect to him, as being too narrow and too
restrictive. I think it right to follow the words of Ackner LJ in the Banque de Paris case, or indeed those which amount to much the same thing (as I see
it) of Lloyd LJ in Standard Chartered Bank v Yaacoub: is there a fair or reasonable probability of the defendants having a real or bona fide defence?
Lloyd LJ posed the test: is what the defendant says credible? If it is not, then there is no fair or reasonable probability of him setting up a defence.
In this case the learned deputy judge adopted Ackner LJ’s test, and therefore we cannot say that he misdirected himself. It follows, in my judgment,
that essentially we can only differ from him if we can say that he was wholly wrong in the decision to which he came.
So far we have only heard argument on the plaintiff bank’s cross-appeal, so therefore we are only dealing with the question whether the judge was
wholly wrong in the conclusion to which he came on the material before him, which is now before this court.
[His Lordship then considered the evidence and stated that the accounts given in Mr Harvey’s two affidavits, relating to the alleged discharge of
personal guarantees given by the two defendants, were totally inconsistent and could not both be correct, which cast doubt upon whether either of them
were correct. His Lordship continued:] In my judgment, upon that material, the only proper conclusion to which the judge could have come was that the
account given by Mr Harvey of an agreement reached with the bank manager of 12 October 1990 to release the personal guarantees was incredible, to use
the words of Lloyd LJ. In other words, it falls fairly and squarely within Ackner LJ’s dictum.
Looking at the whole situation I conclude that there is no fair or reasonable probability of the defendant having a real or bona fide defence.
Mr Jones has not sought to argue as an alternative, and logically, of course, he could not possibly have done so, that, if the court took the view that
there was no arguable defence in relation to the October meeting, these could conceivably be a defence in relation to the alleged agreement in June.
Accordingly, with the greatest respect to him, I take the view that the deputy judge was plainly wrong in the decision to which he came on this
material; that although in terms he applied the right test, he understood it (perhaps this is the explanation) too narrowly and accordingly he fell into error.
For that reason I would allow the appeal; I would set aside the judge’s order and I would enter judgment for the plaintiff bank in the sum claimed.
BUTLER-SLOSS LJ. For the reasons given in the judgment of Glidewell LJ, with which I respectfully agree, I agree that the cross-appeal should be
allowed and that the appeal should be dismissed.
Appeal dismissed. Cross-appeal allowed.
Raina Levy Barrister.

160
[1994] 1 All ER 161
Preamble
R v South Western Hospital Managers and another, ex parte M

HEALTH; Mental Health
QUEEN’S BENCH DIVISION (CROWN OFFICE LIST)

LAWS J
29, 30, 31 DECEMBER 1992
Mental health – Admission of patient to hospital – Admission for treatment – Compulsory admission – Compulsory admission after discharge of patient
by mental health review tribunal – Whether patient can be compulsorily admitted to hospital for treatment immediately following discharge by mental
health review tribunal – Whether doctors, social workers and hospital managers required to exercise independent judgment irrespective of tribunal
decision – Whether change of circumstances necessary since tribunal’s decision – Mental Health Act 1983, ss 3, 6(3), 13, 72(1).
Mental health – Admission of patient to hospital – Admission for treatment – Application – Nearest relative – Consent to application – Consent of nearest
relative not obtained in proper form – Effect on patient’s admission – Whether patient’s admission unlawful – Mental Health Act 1983, ss 6(3), 11(4), 26.
The applicant was compulsorily admitted to hospital under s 4 of the Mental Health Act 1983 on the recommendation of a doctor for assessment as a
matter of urgent necessity after she had started a number of fires in the flat where she lived with her four young children. After a second medical
recommendation the next day she was compulsorily detained under s 2 of the 1983 Act for assessment because it was considered that her detention was
necessary for her own health or safety or the protection of others. The applicant applied to a mental health review tribunal, which found that she was
suffering from mental disorder but not to the degree which warranted her detention in a hospital for assessment and therefore it was bound to direct her
discharge under s 72(1)(a)(i)a of the 1983 Act. On the same day that the tribunal made its decision the consultant psychiatrist who had seen the applicant
when she was admitted to hospital recommended that, notwithstanding the tribunal’s decision, she be admitted to hospital under s 3b of the 1983 Act for
treatment on the grounds that she had behaved in a way which endangered the health and safety of herself and others. On the following day a second
doctor also made a s 3 recommendation. Under s 3 a patient could be detained in hospital, on the application of a social worker following the
recommendation of two medical practitioners, for treatment if he was suffering from mental illness, severe mental impairment, psychopathic disorder or
mental impairment and his mental disorder was of a nature or degree which made it appropriate for him to receive medical treatment in hospital and it was
necessary for his own health or safety or the protection of others that he received such treatment. The social workers to whom the case was referred
contacted the applicant’s mother in Ireland believing her to be the applicant’s nearest relative. The mother raised no objection to the applicant’s detention
under s 3. The social workers also contacted an uncle of the applicant living in England who had attended the 161 tribunal hearing and who also
considered that the applicant should be detained in hospital for treatment. The hospital managers then approved an application by the social workers
under s 13c of the 1983 Act that the applicant be detained under s 3. The applicant applied for judicial review of the decision of the hospital managers to
detain her but leave was refused. The applicant then applied for a writ of habeas corpus directed to the hospital managers and the consultant psychiatrist
to release her from detention, contending (i) that the respondents could not ignore or frustrate the tribunal’s decision to discharge her by detaining her
under s 3 immediately after the tribunal’s decision when there had been no change of circumstances since that decision, (ii) that it was an abuse of the
tribunal’s process to do so, and (iii) that the applicant’s detention was unlawful because the social workers had not in fact in fact consulted the applicant’s
‘nearest relative’ because the mother did not qualify as the nearest relative under s 26d because she was not ordinarily resident in the United Kingdom and
the uncle, although he was the statutory nearest relative and had been consulted, had not been consulted in that capacity, with the result that the
requirements of s 11(4)e of the 1983 Act relating to consultation with the applicant’s ‘nearest relative’ had not been fulfilled.
________________________________________
a Section 72(1), so far as material, is set out at p 166 h j, post
b Section 3, so far as material, is set out at p 164 e to g, post
c Section 13, so far as material, is set out at p 165 e f, post
d Section 26, so far as material, is set out at p 166 g, post
e Section 11, so far as material, is set out at p 164 j to p 165 c, post
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Held – The application would be dismissed for the following reasons—

(1) On the true construction of the 1983 Act, the duty of a social worker under s 13 to make an application under s 3 for admission to hospital of a
patient where the social worker was satisfied that detention in hospital was in all the circumstances the most appropriate way of providing the care and
medical treatment which the patient needed was independent of, and not abrogated or qualified by, the fact that a mental health review tribunal had
directed the patient’s discharge. Neither s 3 nor s 13 contained any words of qualification to show that no application was to be made, even where
otherwise it would be the social worker’s duty to make it, where the application would conflict with an extant tribunal decision. Accordingly, the doctors,
social workers and hospital managers were required under the 1983 Act to exercise their independent judgment to detain a patient under s 3 irrespective of
whether there was an extant tribunal decision relating to the patient. In any event, there had been a change of circumstances since the tribunal’s decision,
namely the discovery that the applicant was refusing to take her medication in hospital. Furthermore, even if the detention of the applicant under s 3 was
flawed because of the failure to have regard to the tribunal’s decision, that was a matter which would go to judicial review (which had already been
refused) and not to habeas corpus, since under s 6(3)f if the application ‘appear[ed] to be duly made’ the managers could act upon it without being bound
to investigate the possibility that, even though on the face of the application all the apparent requirements of the 1983 Act had been complied with,
nevertheless there might be a latent defect constituted by a failure to have regard to a recent tribunal decision (see p 170 c, p 171 e to p 172 d, p 173 b f to
p 174 d g and p 177 b, post).
________________________________________
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f Section 6, so far as material, is set out at p 165 j to p 166 a, post
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(2) The social workers had not fulfilled the requirements of s 11(4) of the 1983 Act relating to consultation with the applicant’s ‘nearest relative’
because the statutory nearest relative, the applicant’s uncle, had not been consulted in 162 that capacity and therefore it could not be assumed that his
rights and functions as the nearest relative had been explained to him. However, although the requirements of s 11(4) had not been complied with, the
hospital managers were entitled to proceed on the basis that the application appeared to be duly made within s 6(3) and to detain the patient. Accordingly,
the applicant’s detention was not unlawful (see p 175 e to g, p 176 c to f j and p 177 b, post).
Notes
For the powers of a mental health review tribunal to direct the discharge of non-restricted hospital patients, see 30 Halsbury’s Laws (4th edn reissue) para
1360.
For the Mental Health Act 1983, ss 2, 3, 4, 6, 11, 13, 26, 72, see 28 Halsbury’s Statutes (4th edn) 638, 639, 640, 643, 648, 651, 664, 712.

Associated Provincial Picture Houses Ltd v Wednesbury Corp [1947] 2 All ER 680, [1948] 1 KB 223, CA.
London and Clydeside Estates Ltd v Aberdeen DC [1979] 3 All ER 876, [1980] 1 WLR 182, HL.
Padfield v Minister of Agriculture Fisheries and Food [1968] 1 All ER 694, [1968] AC 997, [1968] 2 WLR 924, HL.
Pickering v Liverpool Daily Post and Echo Newspapers plc [1991] 1 All ER 622, [1991] 2 AC 370, [1991] 2 WLR 513, HL.
R v Nottingham Justices, ex p Davies [1980] 2 All ER 775, [1981] QB 38, [1980] 3 WLR 15, DC.
R v Secretary of State for the Environment, ex p Hackney London BC [1983] 3 All ER 358, [1983] 1 WLR 524, DC.
R v Secretary of State for the Home Dept, ex p K [1990] 1 All ER 703, [1990] 1 WLR 168; affd [1990] 3 All ER 562, [1991] 1 QB 270, [1990] 3 WLR
755, CA.
Application for writ of habeas corpus

The applicant applied by notice of motion dated 18 December 1992 for a writ of habeas corpus ad subjiciendum directed to the managers of the South
Western Hospital and Dr Lawrence, a consultant psychiatrist at the hospital, to release her from detention at the hospital, to which she had been admitted
on 17 December 1992 and where she had been detained under s 3 of the Mental Health Act 1983 on the recommendation of Dr Lawrence. The facts are
set out in the judgment.
Andrew Buchan and Fenella Morris (instructed by Wilford McBain) for the applicant.
Richard Gordon (instructed by J Tickle & Co) for the respondents.
LAWS J. This is an application for a writ of habeas corpus. The case is an important one and not without its fair share of intricacy. I hope, because the
constraints of time have been such as to make it necessary for me to deliver judgment sooner than otherwise I might, I shall not fail to do justice to the
points that have been argued in front of me.
The application relates to the applicant’s continuing detention in hospital under the provisions of s 3 of the Mental Health Act 1983. On 22
December 1992 an application for leave to move for judicial review, based on the same facts, was refused by Potts J.
163
It is convenient at once to set out or summarise the material parts of the 1983 Act. Section 4, which I need not read, permits the compulsory
admission to hospital of a patient ‘for assessment’ where the case is one of ‘urgent necessity’. One medical recommendation is sufficient. An emergency
application under s 4 runs only for 72 hours, but the patient’s admission may be converted to a compulsory detention under s 2 of the Act if (so far as
relevant for these proceedings) a second medical recommendation is made as s 2 requires. Section 2 provides in part:
‘… (2) An application for admission for assessment may be made in respect of a patient on the grounds that—(a) he is suffering from mental
disorder of a nature or degree which warrants the detention of the patient in a hospital for assessment (or for assessment followed by medical
treatment) for at least a limited period; and (b) he ought to be so detained in the interests of his own health or safety or with a view to the protection
of other persons …’
Subsection (3) imposes the requirement of two written medical recommendations and sub-s (4) limits the period for which a s 2 admission may be
effective to 29 days.
Section 3 provides in part:
‘(1) A patient may be admitted to a hospital and detained there for the period allowed by the following provisions of this Act in pursuance of an
application … made in accordance with this section.
(2) An application for admission for treatment may be made in respect of a patient on the grounds that —(a) he is suffering from mental illness,
severe mental impairment, psychopathic disorder or mental impairment and his mental disorder is of a nature or degree which makes it appropriate
for him to receive medical treatment in hospital; and (b) in the case of psychopathic disorder or mental impairment, such treatment is likely to
alleviate or prevent a deterioration of his condition; and (c) it is necessary for the health or safety of the patient or for the protection of other persons
that he should receive such treatment and it cannot be provided unless he is detained under this section …’
Subsection (3) requires that a s 3 application be founded on the written recommendations of two registered medical practitioners. It is to be noted that it is
not the doctors who make the application.
Section 11 provides:
‘(1) Subject to the provisions of this section, an application for admission for assessment … may be made either by the nearest relative of the
patient or by an approved social worker …’
Subsection (2) requires that every s 3 application be addressed to the managers of the hospital where admission is sought, so that it is their decision which
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has executive force to require the patient’s detention. I should read other provisions from s 11:
‘… (3) Before or within a reasonable time after an application for the admission of a patient for assessment is made by an approved social
worker, that social worker shall take such steps as are practicable to inform the person (if any) appearing to be the nearest relative of the patient that
164 the application is to be or has been made and of the power of the nearest relative under section 23(2)(a) below.
(4) Neither an application for admission for treatment nor a guardianship application shall be made by an approved social worker if the nearest
relative of the patient has notified that social worker, or the local social services authority by whom that social worker is appointed, that he objects
to the application being made and, without prejudice to the foregoing provision, no such application shall be made by such a social worker except
after consultation with the person (if any) appearing to be the nearest relative of the patient unless it appears to that social worker that in the
circumstances such consultation is not reasonably practicable or would involve unreasonable delay.
(5) None of the applications mentioned in subsection (1) above shall be made by any person in respect of a patient unless that person has
personally seen the patient within the period of 14 days ending with the date of the application …’
Section 13 provides in part:
‘(1) It shall be the duty of an approved social worker to make an application for admission to hospital … in respect of a patient within the area
of the local social services authority by which that officer is appointed in any case where he is satisfied that such an application ought to be made
and is of the opinion, having regard to any wishes expressed by relatives of the patient or any other relevant circumstances, that it is necessary or
proper for the application to be made by him.
(2) Before making an application for the admission of a patient to hospital an approved social worker shall interview the patient in a suitable
manner and satisfy himself that detention in a hospital is in all the circumstances of the case the most appropriate way of providing the care and
medical treatment of which the patient stands in need …
(5) Nothing in this section shall be construed as authorising or requiring an application to be made by an approved social worker in
contravention of the provisions of section 11(4) above, or as restricting the power of an approved social worker to make any application under this
Act.’
Section 5 includes provision to the effect that a s 3 application may be made in respect of a patient who is already detained in the hospital pursuant to
s 2. I should go to s 6 next, which provides in part:
‘(1) An application for the admission of a patient to a hospital under this Part of this Act, duly completed in accordance with the provisions of
this Part of this Act, shall be sufficient authority for the applicant, or any person authorised by the applicant, to take the patient and convey him to
the hospital …
(2) Where a patient is admitted … to the hospital specified in such an application as is mentioned in subsection (1) above, or, being within that
hospital, is treated by virtue of section 5 above as if he had been so admitted, the application shall be sufficient authority for the managers to detain
the patient in the hospital in accordance with the provisions of this Act.
(3) Any application for the admission of a patient under this Part of this Act which appears to be duly made and to be founded on the necessary
medical recommendations may be acted upon without further proof of the 165 signature or qualification of the person by whom the application
or any such medical recommendation is made or given or of any matter of fact or opinion stated in it …’
Section 15(1) is in these terms:
‘If within the period of 14 days beginning with the day on which a patient has been admitted to a hospital in pursuance of an application for
admission for assessment or for treatment the application, or any medical recommendation given for the purposes of the application, is found to be
in any respect incorrect or defective, the application or recommendation may, within that period and with the consent of the managers … be
amended by the person by whom it was signed; and upon such amendment being made the application or recommendation shall have effect and
shall be deemed to have had effect as if it had been originally made as so amended.’
Next, s 23 provides:
‘(1) Subject to the provisions of this section and section 25 below, a patient who is for the time being liable to be detained … under this Part of
this Act shall cease to be liable … if an order in writing discharging him from detention … is made in accordance with this section.
(2) An order for discharge may be made in respect of a patient—(a) where the patient is liable to be detained in a hospital in pursuance of an
application for admission for assessment or for treatment by the responsible medical officer, by the managers or by the nearest relative of the
patient …’
Section 25, which I need not read, provides for certain restrictions upon the discharge of a patient liable to be detained in a hospital when that is
sought to be done by order made by the nearest relative.
Section 26(1) defines ‘relative’, and the definition includes, as one would expect, ‘mother’ and ‘uncle’. Section 26(2) and (3) makes provision for
the ascertainment of the nearest relative; unsurprisingly a mother comes before an uncle. Section 26(5) in part provides that where the person who would
be the nearest relative is not ordinarily resident in the United Kingdom ‘the nearest relative... shall be ascertained as if that person were dead’.
Section 66, inter alia, confers the right on a s 2 detainee to apply to a mental health review tribunal whose functions on such an application are
provided for by s 72, which in part is in these terms:
‘(1) Where application is made to a Mental Health Review Tribunal by or in respect of a patient who is liable to be detained under this Act, the
tribunal may in any case direct that the patient be discharged, and—(a) the tribunal shall direct the discharge of a patient liable to be detained under
section 2 above if they are satisfied—(i) that he is not then suffering from mental disorder or from mental disorder of a nature or degree which
warrants his detention in a hospital for assessment (or for assessment followed by medical treatment) for at least a limited period; or (ii) that his
detention as aforesaid is not justified in the interests of his own health or safety or with a view to the protection of other persons …’
On 30 November 1992 the applicant was admitted to St Thomas’s Hospital under s 4. She had set a number of small fires in the flat where she lived
with 166 her four young children: all four are under the age of 10. The necessary medical recommendation was made by Dr Clark. On 1 December
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1992 the applicant’s status as a patient was converted to a s 2 admission, there having been made a second recommendation by Dr Roberts. The applicant
was transferred to South Western Hospital on 3 December 1992. She was seen by Dr Lawrence, who is a consultant psychiatrist both at South Western
and St Thomas’s, on 7 December 1992. There was an unsuccessful appeal by her to the hospital managers, who decided that she should not be discharged
from her s 2 detention; but she also applied, as was her right under s 66, to a mental health review tribunal.
The hearing before the tribunal took place on 14 December 1992. The following material was before the tribunal: a report from a psychiatric social
worker, Mrs Haugen; a report from Dr Lawrence; and oral evidence from the applicant herself, her uncle, who is a Roman Catholic priest living in
London, a friend of hers, Miss Pirelli, Dr Lawrence and Mrs Haugen.
The social worker’s report described background material in the case, and in the conclusion indicated that the applicant ‘feels she is being punished
unjustly and does not accept that she has an illness’. It says that Mrs Haugen had had only a limited time to interview the patient, that the applicant has
‘many friends and they all speak highly of her many activities and kindness’, refers to the very close relationship with her children, and says finally that
‘she is a sensitive, articulate lady and becomes quite distressed being parted from her children’.
Dr Lawrence’s report describes the circumstances of her admission under s 4 and her transfer to South Western Hospital. It contains a degree of
detail as to his findings when he saw her on 7 December, and includes these observations:
‘… today, 10th December, when I saw her, she was histrionic, irritable, argumentative and tearful. She claimed that I might as well kill her as I
have taken everything else from her. She was grandiose and distractible, unwilling to stay in the hospital and unwilling to accept treatment, still
completely lacking in any insight into her condition or that her behaviour could be construed as dangerous.’
He says that she had a ‘well documented 11-year history of bipolar affective disorder’. His conclusions were that this disorder was of a manic type and
she was—
‘without insight. She has endangered her life and the lives of others by setting fires within the last two weeks. She has no insight into the
dangerousness of this behaviour. She is unwilling to stay or accept medication. I plan therefore to place her on a section 3 of the Mental Health
Act [admission] and treat her with neuroleptic lithium and/or carpamazepine.’
The tribunal concluded that they were—
‘satisfied that the patient is suffering from mental disorder but not of a nature or degree which warrants her detention in a hospital for
assessment. However, the discharge shall be deferred until Thursday, 17th December 1992 in order that the social services can make arrangements
for a suitable support programme for both her and her family.’
Thus they held, in effect, that they were bound to direct her discharge pursuant to the duty cast upon them by s 72(1)(a)(i). They proceeded to
explain 167 these conclusions by indicating that although they did not accept that the behaviour which had led to her initial admission was merely
eccentric—
‘there was, however, no firm evidence that her children were at risk and she had a good deal of support from neighbours and relatives when in
her own home. We were persuaded to accept her undertaking that she would co-operate with a programme of treatment organised for her by the
hospital and would take medication as advised and attend hospital when required.’
Dr Lawrence left the tribunal before the evidence which was to be called after his own had been heard. On the same day, after he had received a
copy of the tribunal’s decision, he saw the applicant. He then recommended that she be admitted to the South Western Hospital for treatment under s 3 of
the Act, believing that the applicant had behaved in a way which endangered the health and safety of others, and indeed her own health and safety. He
had examined the applicant before the hearing, though, while seeing her afterwards, he had not, it seems, carried out a further examination then. He
indicates in his affidavit that his recommendation was based on his latest examination, and he took into account the tribunal’s decision. He says that
notwithstanding that decision, he—
‘remained concerned that the applicant would not take her medication or fulfil her undertaking to the tribunal because she continued to insist
both during and after the tribunal hearing that she was not mentally ill. Further, after the tribunal hearing, I was informed by a member of the
Nelson Ward staff and therefore believed that the applicant was pretending to take her medication, but in fact hid it under her tongue and spat it out
afterwards.’
On the following day a second doctor, Dr Muller, also made a s 3 recommendation. She is a general practitioner and a partner in the practice where
the applicant was a patient. She had not often seen her in that capacity since, it seems, the applicant was usually seen by one of the other partners. She
was told on the telephone on 15 December that the applicant was an in-patient at the South Western Hospital, where she went on that day and saw the
applicant at about midday. She describes bizarre behaviour on the applicant’s part; she says that the applicant was very difficult to understand and spoke
without stopping for about ten minutes; she considered that the applicant was ‘speaking nonsense’ and ‘that someone who lit a fire in their home, and
considered it normal to do so, was not fit to be discharged from hospital and to look after her children’. She was not aware of the tribunal’s decision. She
makes it quite clear that, had she known of it, it would not have affected her recommendation. She considered that it was necessary for the applicant’s
own health or safety, and for the protection of others, that she should receive treatment and that it would not be provided unless she was detained under s
3. She also indicates that she had been told by one of the nurses that the applicant had refused to accept medication.
On the same day, the case was referred to Irene Stiller, an approved social worker. She was told that the two medical recommendations had been
made. She interviewed the applicant and read the recommendations. On the evening of 15 December she was informed by Mrs Haugen that the latter had
been in touch with the applicant’s mother in Ireland; her mother was, factually, the nearest relative, though, given that all the indications are that she is
ordinarily 168 resident in the Republic of Ireland, she was in effect deemed by s 26(5) not to be so.
It is, however, quite clear from the material before me that both Miss Stiller and Mrs Haugen believed that the mother was the statutory nearest
relative; no doubt they did not have s 26(5) in mind. Mrs Haugen was informed by the mother that she had no objection to the s 3 process. Miss Stiller’s
first affidavit shows that she had other discussions before she interviewed the applicant on 16 December. When she did so, she was told by the applicant
that she was not taking her medication but was hiding it under her tongue. Miss Stiller recorded her decision in the medical notes to make an application
under s 3, as the approved social worker, in the interests of the applicant’s own health and safety.
In her affidavit she describes her interview with the applicant at length and says that her professional assessment was—
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‘that if the applicant [were] allowed out of hospital without treatment, she would not take her medication: she did not take it in hospital. She
would refuse out-patient treatment … I consider that she would until well continue to do bizarre things and threaten her neighbours. She would
alienate herself further from the community and her family.’
I should say at this stage that, although it was not originally in evidence in the case, it is now clear that the uncle, who is the statutory nearest
relative, was factually consulted by Mrs Haugen between the tribunal decision and the s 3 detention being authorised and indicated that he had no
objection to it; though the inference is that he was not so consulted in his capacity as nearest relative. There are now before me affidavits from the uncle,
Father O’Connor (who, as I have said, is resident in London), and Miss Stiller dealing with this consultation. The uncle was present for part of the
tribunal hearing; after it, Mrs Haugen telephoned him. He made it clear that he disagreed with the tribunal decision and believed that the applicant should
be detained in hospital for treatment. Though I do not think it affects the outcome of the case, I should also notice Miss Stiller’s evidence that she spoke
to the uncle yesterday (30 December 1992) and he informed her that he had had no objection to the applicant’s s 3 detention at the time of Miss Stiller’s
application.
Miss Stiller filled in a standard form on 16 December which constituted her application for the applicant’s admission for treatment under s 3. This is
an important document. The form is prescribed by the Mental Health (Hospital Guardianship and Consent to Treatment) Regulations 1983, SI 1983/893.
It contained the statement:
‘I have interviewed the patient and I am satisfied that detention in a hospital is in all the circumstances of the case the most appropriate way of
providing the care and medical treatment of which the patient stands in need.’
These words reflect those of s 13(2) of the Act. The form also set out the name and address (in Ireland) of the applicant’s mother and asserted that
‘to the best of my knowledge and belief [she] is the patient’s nearest relative within the meaning of the Act’.
The application was accepted by the managers, it seems, on 17 December and was further scrutinised by a consultant psychiatrist, Dr Roy, on 21
December, who in effect approved it subject to requiring some amendment of Dr Muller’s recommendation pursuant to s 15(1). I should say that an
application for a 169 discharge has been made by the applicant under s 23 to the hospital managers, and that is likely to be dealt with next month, that
is in January 1993.
Mr Buchan’s major submission before me may be expressed in this way: once a tribunal has decided to discharge the patient, that decision must be
respected to the extent at least that it cannot be nullified by a decision to detain the patient under s 3 which follows the tribunal decision after a short space
of time and with no change of circumstances. He said that the s 3 decision here frustrates the tribunal decision, so that a writ of habeas corpus ought to
go.
I shall deal with this part of the case out of deference to the general importance of the relationship between the s 3 regime and the tribunal’s
functions; but I can say at once that, in my judgment, it is a point which runs on the facts of the case not to habeas corpus but to judicial review, for
reasons I shall explain. As I have said, the applicant has been refused judicial review leave; and, since that was done after a hearing, I have no power
myself to grant such leave (see RSC Ord 53, r 3) and no renewed application has been made to me. However, I shall deal with the merits and substance of
the argument.
Mr Buchan pressed me with the submission, on the facts, that Dr Lawrence, in recommending detention under s 3, was in effect set in his view
irrespective of the opinion of the tribunal (indeed, he had made it clear to the tribunal that his intention was to make a s 3 recommendation), that there
cannot have been any change of circumstances between the tribunal decision and the making of that recommendation, not least since, as Mr Buchan
submitted, it was only on 16 December that the applicant told Miss Stiller that she was pretending to take her medication and hiding it under her tongue,
and further that the recommendation of Dr Muller, the application itself made by Miss Stiller and the hospital managers’ acceding to it were all made with
the consequence that the decision of the tribunal was frustrated (though no bad faith is suggested on the part of any of those involved).
This argument was refined in a number of ways. It was first said that there was an abuse of the process of the court. I was referred to the decision of
the House of Lords in Pickering v Liverpool Daily Post and Echo Newspapers plc [1991] 1 All ER 622, [1991] 2 AC 370 to the effect that the mental
health review tribunal is a ‘court’ for the purposes of the law of contempt. It was submitted, undoubtedly correctly as a matter of fact, that the
constitution of the tribunal is such as to render it an expert or specialist body. These points were made in order to lend force to the proposition that the
tribunal’s decisions are to be treated with respect; and I was reminded that the 1983 Act created a shift in the balance of responsibility for detained mental
patients, so as to give greater power or authority to the tribunal than had previously been the case.
None of these considerations, however, in my judgment, can support a submission that an abuse of the process of the court was perpetrated either by
the approved social worker’s application or by the two doctors’ recommendations or by the managers acceding to the application. The fact is that none of
these stages in the statutory procedure involved any step whatever within court proceedings. As I understand it, the very notion of abuse of the process
involves the fact, or the allegation, that a party has invoked court procedures, in whatever capacity, and abused them; so it is if a party manipulates court
process in bad faith or for an illegitimate ulterior motive. Nothing of the kind can possibly apply here. The argument based upon abuse of the process is
misconceived.
Mr Buchan’s helpful skeleton argument contained, next, the suggestion that the s 3 process undertaken in this case was illegitimate because the issue
with 170 which it purported to deal was res judicata. That submission was rightly abandoned by Mr Buchan, and I need not deal with it further.
It was next said that some form of issue estoppel ran in order to prevent the s 3 application from being pursued, or, more strictly, to prevent the
decision to detain under s 3 from being made. In my judgment this is equally misconceived. Even if there were scope for the operation of the doctrine of
issue estoppel in public law (which I conceive there is not, given the decision of the Divisional Court in R v Secretary of State for the Environment, ex p
Hackney London BC [1983] 3 All ER 358, [1983] 1 WLR 524, save perhaps for the very limited circumstances in which that doctrine may run in relation
to planning decisions in enforcement cases), it is wide of the mark here: by definition, issue estoppel may only have application in a second set of
proceedings where an issue is said to have been conclusively decided in an earlier set of proceedings. Here there is no second set of proceedings.
In my judgment, this principal argument canvassed by Mr Buchan must in the end depend upon the proposition that on the true construction of the
Act the hospital managers have not the power to order or direct a detention under s 3 if a tribunal has recently decided that the patient be discharged
(whatever the basis of the patient’s original detention) and there has been no change of circumstances since that decision. So regarded, the question
becomes one of pure statutory construction.
Mr Gordon for the respondents submits that the statute cannot be construed so as to produce such a consequence, not least since s 13, whose relevant
parts I have read, imposes a duty on an approved social worker to make a s 3 application in the circumstances which that section specifies; the duty is not
abrogated, or qualified, in a case where there has been a recent tribunal decision directing discharge; if it were to be abrogated or qualified, s 13 would
say so. That being the case, the hospital managers must be obliged to consider on its merits an application made by the approved social worker in
pursuance of his or her duty, and the existence of a recent tribunal decision can no more fetter this obligation than it can the social worker’s own express
duty under s 13. It is true (see s 13(5)) that there may be cases in which a s 3 application is made by the discretion, not pursuant to the duty, of the social
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worker; but in such a case the social worker’s discretion cannot be any more fettered than can be the performance of his duty where that arises.
These submissions seem to me to be correct. Further, if the intention of the legislature was as Mr Buchan suggests, one would expect a clear
qualification to have been imposed within the terms of s 3, or more likely s 6, on the discretion to admit a patient to hospital pursuant to a s 3 application.
Or there might be a provision in s 13, analogous to s 13(5), to show that no application is to be made, even where otherwise it would be the approved
social worker’s duty to make it, where its being granted would conflict with an extant tribunal decision. There are no such provisions in any of these
sections. The statute is careful to specify a rigorous procedure for the protection of the individual who may be liable to compulsory admission—not least,
the requirement that there be two written medical recommendations.
I do not think that it can sensibly be suggested that, if the intention were that a patient be not exposed to s 3 where there existed a recent tribunal
decision to discharge and no change of circumstances, that would not be as clear and express on the face of the statute as are the other protections which it
affords.
I also consider that Mr Buchan’s submissions would require me to hold that the legality of a s 3 detention may depend upon criteria which are
subjective and 171 elastic. In his initial skeleton argument he submitted that some period of time must be allowed to elapse after the tribunal decision,
at least while there is no significant change in the patient’s condition and circumstances, before the full force of s 3 is permitted to have effect. His
skeleton argument asserted:
‘… the length of the period will depend upon the individual circumstances of each case. This can be left to the discretion of the individual
doctors and hospitals concerned, subject to review. There must, however, be a significant change in the condition or circumstances of the patient
before a further application can be made.’
I cannot think that this is right. Honest and responsible doctors and other experts will differ upon such questions as the significance of any apparent
change in a patient’s condition—even when there has been a change; to make the legality of a detention depend upon issues of that sort would be to
abandon any claim in this area to a reasonable degree of legal certainty and would, likely as not, put the experts involved in individual cases in an
invidious if not impossible position. More specifically, there is nothing whatever that I can find in the statute to suggest that such a state of affairs was an
intended function or aspect of the regime of interlocking controls which the Act contains.
I was referred to R v Secretary of State for the Home Dept, ex p K [1990] 1 All ER 703, [1990] 1 WLR 168 (at first instance); [1990] 3 All ER 562,
[1991] 1 QB 270 (in the Court of Appeal). That case was concerned with a restricted patient who enjoyed the benefit of an order for conditional
discharge made by the tribunal under s 73(2), which I have not read, but who was recalled by the Secretary of State exercising his powers under s 42(3). I
need not, I think, go into the detail.
In the course of his judgment at first instance McCullough J dealt with a submission for the applicant put in the form of a forensic question: could it
be lawful for the Secretary of State, a week after a patient had been released from hospital on conditional discharge by a tribunal, to exercise his power of
recall under s 42(3) in the absence of some fresh development? The judge said that the answer was ‘plainly not’ (see [1990] 1 All ER 703 at 715, [1990]
1 WLR 168 at 181). He said ([1990] 1 All ER 703 at 716, [1990] 1 WLR 168 at 182):
‘I accept it would be unlawful for the Secretary of State to recall a restricted patient to hospital when only the previous week or month he had
been conditionally discharged from hospital by direction of a tribunal unless meanwhile something had happened which justified the belief that a
different view might now be taken about one of the factors on which his release had depended.’
These observations were not repeated or approved (nor, be it said, disapproved) in the Court of Appeal, the burden of whose decision was that the
purposes of the relevant part of the statute enabled or required the Secretary of State to have regard to public safety, and his decision could not be
categorised on the facts as irrational.
I have not read s 42(3); I need only say that (read with s 73(4)) it empowers the Secretary of State to recall to hospital a patient who has been
conditionally discharged by the tribunal under s 73(2) and that s 73 confers particular functions upon the tribunal in relation to patients subject to
restriction orders under s 41. There is a plain nexus between the Secretary of State’s power under s 42(3) and the tribunal’s function under s 73(2); and it
may be—I express no conclusion on the point, which does not arise for decision in the case—that the legality of an order for recall under s 42(3) depends
upon the Secretary of State’s 172 having had regard to the basis of the earlier tribunal decision so as to avoid any frank inconsistency with it.
However that may be, in my judgment no such reasoning can apply to the relationship between the s 3 regime and the tribunal’s functions under ss
66 and 72(1). There is no cross-reference between them; and, as I have indicated, I can see no basis for construing the statute so as to produce the result
that the duty and discretion of the approved social worker to make the s 3 application, and the function of the managers in considering it, are to any extent
impliedly limited or abrogated by the existence of an earlier tribunal decision to discharge under s 72. Theoretically, this may produce an impasse: the
tribunal directs a discharge; the patient is returned to or retained in hospital under s 3; there is a further application to the tribunal, which directs a further
discharge; there follows a yet further successful application under s 3; and so on.
In reality this is highly unlikely to happen, given good faith on all hands and the procedures and safeguards which colour the s 3 process. As Mr
Gordon submitted, the social worker must always conduct a personal interview before making a s 3 application; there must always be two separate
medical recommendations; and there has to be a decision by the managers pursuant to s 6. Elementarily, the public law safeguards enshrined in the
Wednesbury and Padfield rules apply to all exercises of administrative power by the bodies I have mentioned (see Associated Provincial Picture Houses
Ltd v Wednesbury Corp [1947] 2 All ER 680, [1948] 1 KB 223 and Padfield v Minister of Agriculture Fisheries and Food [1968] 1 All ER 694, [1968]
AC 997). In any event, there is no such impasse here.
Mr Buchan also relied on R v Nottingham Justices, ex p Davies [1980] 2 All ER 775, [1981] QB 38 to support the contention that at least there must
be a change of circumstances if a s 3 detention is to override a recent tribunal direction to discharge. That case was concerned with the court’s approach
to multiple bail applications. I do not think it is of any perceptible assistance to me.
I would therefore hold that there is no sense in which those concerned in a s 3 application are at any stage bound by an earlier tribunal decision. The
doctors, social worker and managers must under the statute exercise their independent judgment whether or not there is an extant tribunal decision relating
to the patient. They will no doubt wish to have regard to any such decision, where they know of it, in order to ensure that they have the maximum
information about the facts of the case. But in my judgment it cannot confine or restrict their own exercise of the functions which the Act confers on
them.
If I am wrong, I would in any event hold that there was material here showing substantial grounds for supposing that the applicant would not abide
by her undertaking to the tribunal ‘that she would co-operate with a programme of treatment organised for her by the hospital and would take medication
as advised …’ Dr Muller was told by one of the nurses that the applicant had refused to accept medication; after the tribunal hearing, Dr Lawrence was
likewise told that the applicant was only pretending to take her medication; and Miss Stiller was told by the applicant herself, at interview on 16
December 1992, that she was not taking her medication but hiding it under her tongue.
On the date when the s 3 application was made (16 December) there was every reason to suppose that the applicant would not co-operate with any
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programme or requirement arranged for her to take the medication that was prescribed. I acknowledge, as Mr Buchan submitted, that the tribunal was
clearly told—and by the applicant herself—that she had refused much of her 173 medication in hospital, and this is borne out by the contemporary
hospital notes to which I was referred this morning. But the fact is that, after the tribunal hearing, this situation continued; and that was known certainly
to Miss Stiller, who was, unsurprisingly, exercised by it. Thus, in my judgment, even if a s 3 application would only be good in the event of a change of
circumstances, or fresh development in the face of an earlier tribunal decision to discharge, that was sufficiently established here.
For all these reasons, I reject Mr Buchan’s primary argument that the detention of the applicant under s 3 was flawed for a failure of consistency with
the tribunal’s decision to discharge.
I have said, however, that this point would in any event go to judicial review and not to habeas corpus. The reason is to be found in s 6(3) and may
be shortly put. If the application ‘appears to be duly made’ the managers may act upon it. Whatever is meant by this expression (and I deal with it further
later in this judgment) it means at least that the managers are not bound to investigate the possibility that, even though on the face of the application all
the apparent requirements of the Act are complied with, nevertheless there might be a latent defect constituted by a failure to respect a recent tribunal
decision.
The writ of habeas corpus runs only to those having charge of the detained or imprisoned person; and, ordinarily, a sufficient return to the writ is
made where it is shown that there exists ex facie a statutory authority for the detention. Where a prison governor holds a convicted defendant pursuant to
a sentence imposed by the Crown Court, the detention is lawful even though it may later be shown in the Court of Appeal that the sentence passed was
wholly outwith the jurisdiction of the judge to impose it. If, on a habeas corpus application, the merits—legal or factual—of all the underlying processes
which have led to the applicant’s detention could in principle always be gone into, at least in a case where there is in place a provision such as s 6(3), the
distinction between judicial review and habeas corpus would disappear altogether. In this case, the managers detained the applicant under an authority,
constituted by s 6, which rested on the application under s 3.
The applicant cannot, in my judgment, escape the effect of the provisions of s 6(3) by demonstrating, were it the case, that the application should not
have been made on grounds of conflict with the tribunal decision. In these circumstances, Mr Buchan’s argument as to conflict with that decision cannot
avail him on this application.
It is convenient at this stage to deal with a particular submission made by Mr Gordon, to the effect that in any event Dr Lawrence is not an
appropriate respondent to the habeas corpus application. Put shortly, that is because he is not the party who has the detained applicant in his custody. His
function was only to make a s 3 recommendation. It is true that he would himself have the power to discharge the patient given the provisions of s 23: but
that no more makes him the person who has the patient in his charge than it does the nearest relative, who has a like power under s 23. This submission
is, in my judgment, well founded. The writ of habeas corpus runs to the party having the applicant in his custody; Dr Lawrence does not have this
applicant in his custody.
Mr Buchan submitted that Dr Lawrence indeed had the applicant under his control. There are senses in which that is true, but in no sense relevant to
the writ of habeas corpus is it so. Mr Buchan’s purpose in taking this position was apparently to find a route to success through Dr Lawrence even if he
were shut out by s 6 in respect of the managers. But, if the applicant’s detention by the 174 managers is lawful, the writ cannot go: I cannot release
her vis-à-vis Dr Lawrence but not vis-à-vis the other respondent.
In the end, the real point in this application depends, in my judgment, upon the terms of ss 6 and 11(4) and the facts relating to the nearest relative’s
position, and to this I now turn. It arises thus. Section 11(4) was not complied with, it is said, for two reasons: (1) that the consultation through Mrs
Haugen with the mother is of no effect for the purposes of that subsection because she was not the nearest relative and (2) the consultation with the uncle
was of no effect either, because it was not done by Mrs Stiller personally (which it is submitted was required by the closing words of the subsection) and,
further, the uncle was not consulted in his capacity as nearest relative, so that he was not presumably made aware of his right as such to object to the s 3
application, which would have been conclusive against a s 3 direction or order being made.
All that being so, it is submitted either that the application for admission under s 3, which, as I have said, named the mother as nearest relative and
gave her address in Ireland, was not ‘duly completed in accordance with the provisions of this Part of this Act’ pursuant to s 6(1), so that it was not
authority for the applicant’s detention under s 6(2), or that the application was not one which ‘appears to be duly made’ within s 6(3), so that the
managers were not relieved of an obligation to inquire into the facts stated in the application.
It is quite clear that the mother was not the nearest relative within the meaning of the Act, and equally clear that the uncle was. I do not think that the
consultation with the mother was effective for the purposes of s 11(4): the words ‘consultation with the person (if any) appearing to be the nearest
relative’ cannot, in my judgment, embrace a situation where, on the facts known to the social worker, the person in question is legally incapable of being
the statutory nearest relative having regard to the terms of s 26. Nor do I consider that the terms of s 11(4) are in some sense directory only: Mr Gordon’s
reliance on London and Clydeside Estates Ltd v Aberdeen DC [1979] 3 All ER 876, [1980] 1 WLR 182 cannot avail him to escape (a) the clear words of s
11(4) (‘no such application shall be made … except after consultation’) or (b) the effect of s 13(5), showing that a s 3 application cannot be made without
compliance with s 11(4) even where otherwise it would be the approved social worker’s s 13 duty to make it.
It follows that the reference in Miss Stiller’s application form to her consultation with the mother as nearest relative was inaccurate; and this is so
whether or not s 11(4) permits consultation by the approved social worker through another (here Mrs Haugen).
In fact, I consider that s 11(4) does so permit, despite Mr Buchan’s determined submissions to the contrary: the duty to inform the apparent nearest
relative that the application is being made, imposed by s 11(3), may clearly, in my judgment, be fulfilled through an intermediary; equally clearly the duty
imposed by s 11(5) upon the s 3 applicant to conduct a personal interview with the patient cannot be performed through an intermediary. I accept that s
11(3) has different words from those in s 11(4) (‘take such steps as are practicable to inform’). Reading the three subsections together, however, I
consider that the statutory purposes relating to the nearest relative are perfectly properly fulfilled if the s 11(4) consultation is carried out in effect through
an agent such as Mrs Haugen.
I recognise entirely the importance of the nearest relative in the scheme of things, as Mr Buchan submitted. I have read the relevant passages of the
Department of Health Handbook. Ordinarily, it will clearly be desirable for the consultation to be carried out directly by the approved social worker. But
there 175 may be circumstances in which that will be difficult, or even wellnigh impossible. What is important is that the consultation be full and
effective, to ensure that the nearest relative has the opportunity to play his full part in the process. I do not consider that this conclusion is affected by the
standard forms prescribed by the 1983 regulations upon which Mr Buchan relied. I do not suggest that an approved social worker necessarily has a
wholly free hand to appoint, as it were, a delegate for the purposes of the consultation. It remains throughout the approved social worker’s responsibility.
I merely say that, as a matter of construction, the approved social worker is not prevented in suitable circumstances from carrying out that exercise and
duty through the medium of another.
I do not consider that s 11(4) was fulfilled by such consultation as took place with the uncle. Although he could, as I have found, have properly been
consulted through Mrs Haugen, he must nevertheless be the person appearing to be the nearest relative; and, although he was the nearest relative, he did
not appear to be so, either to Miss Stiller or to Mrs Haugen. This is not to split hairs, since it cannot be assumed in such circumstances that the
communication undertaken would have made as clear to the person in question what were the rights and functions of the nearest relative as if those
consulting believed that he was indeed the nearest relative. In fact, though I do not think it affects my decision, no damage has apparently been done,
since neither the mother nor the uncle expressed any objection at all to the s 3 order being made; indeed it is plain that the uncle clearly believed and
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believes that it was right to make it.
How do these findings bear on the legality of the applicant’s detention, given the terms of s 6? Section 6(1) and (2) confers authority to convey or
detain the patient in hospital where the application is ‘duly completed in accordance with the provisions of this Part of this Act’. In my judgment that is
an objective requirement and means that the application must not only state that the relevant provisions (which include the requirements of s 11(4)) have
been fulfilled, but also that it be the case that they have actually been fulfilled. Here they were not: s 11(4) was not complied with. It follows, in my
judgment, that the managers were not authorised to detain the applicant unless they were entitled to act upon Miss Stiller’s application by virtue of s 6(3).
The contrast between s 6(1) and s 6(3) is of course between the words ‘duly completed’ and ‘appears to be duly made’.
In my judgment, where an application on its face sets out all the facts which, if true, constitute compliance with the relevant provisions of Pt II of the
Act (again, including s 11(4)), it is an application which ‘appears to be duly made’ within s 6(3). If any of the facts thus stated are not true, then, although
the application appears to be duly made, it is not duly completed for the purposes of s 6(1) and (2). Here, Miss Stiller’s application did state all the facts
which, if true, constituted compliance with the relevant statutory provisions. Accordingly it was an application which appeared to be duly made. It
follows that, although the managers were not authorised to detain the patient by s 6(2) standing alone, they were entitled to act upon the application, and
thus to detain the patient, by virtue of s 6(3). Accordingly, the applicant’s detention is not unlawful.
I do not think this conclusion is affected by the fact that Miss Chandra, the medical records manager, seems to have appreciated that the uncle was
the nearest relative when she completed Form 14, which is the record of admission noting the patient’s detention. She signed it on behalf of the
managers, but whatever subjective knowledge she had either as to the status of the uncle or 176 the fact that he had been consulted could not disapply
s 6(3) from the case unless, no doubt, there was some element of bad faith; and none is suggested.
The application has, as appears from Miss Stiller’s latest affidavit yesterday, been amended to substitute the uncle as the s 11(4) consultee,
purportedly under s 15(1). If otherwise I had been in the applicant’s favour, this circumstance would not have led me to reject the application. Section
15(1), in my judgment, cannot cure a defect which arises because a necessary event in the procedural chain leading to the detention has simply not taken
place at all. It is essentially concerned with correction of errors on the face of the document.
For the reasons I have given, the application must be dismissed.
Application dismissed.

[1994] 1 All ER 177
Piper Double Glazing Ltd v DC Contracts (1992) Ltd

CIVIL PROCEDURE: PROFESSIONS; Lawyers

POTTER J
13 NOVEMBER, 23 DECEMBER 1992
Costs – Taxation – Representation by person not qualified as barrister or solicitor – Arbitration – Taxation of bill of costs of advocate not qualified as
barrister or solicitor acting for party in arbitration proceedings – Arbitrator awarding costs in favour of party represented by unqualified advocate –
Whether taxing master having jurisdiction to tax costs – RSC Ord 62, r 2(2).
Solicitor – Unqualified person – Costs – Arbitration – Advocate not qualified as barrister or solicitor acting for party in arbitration proceedings –
Whether person acting as barrister or solicitor – Whether unqualified advocate in arbitration proceedings entitled to payment of costs – Solicitors Act
1974, s 25.
Where a party is represented in an arbitration by a person who is not qualified as a barrister or solicitor, but who provides similar services, and an award is
made providing for payment of that party’s costs by the other party or for such costs to be taxed in the High Court if not agreed, the court has power under
RSC Ord 62, r 2(2)a to allow the costs of the unqualified person in relation to the conduct of the arbitration. The prohibition in s 25(1)b of the Solicitors
Act 1974 against the recovery of costs in respect of anything done by any unqualified person ‘acting as a solicitor’ does not apply to an unqualified
person representing a party in an arbitration since an unqualified person does not ‘act as a solicitor’ within the meaning of s 25(1) merely by doing acts of
a kind commonly done by solicitors. Acts prohibited by s 25(1) are limited to acts which are lawful only for a qualified solicitor to do and which only a
solicitor may perform, or acts purportedly done in that capacity. They do not include 177 acts commonly done by a solicitor but which do not involve
a representation that the person so acting is acting as a solicitor. A person acting as an advocate for a party in arbitration proceedings who is not qualified
as a barrister or solicitor and does not hold himself out as such is not acting as a barrister or solicitor and accordingly the party employing him is not
precluded from entitlement to payment of his costs (see p 183 j to p 184 b, p 185 d to h j and p 186 e to j, post).
________________________________________
a Rule 2(2) is set out at p 181 f g, post
b Section 25(1) is set out at p 184 a, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Notes
For taxation of costs in arbitration proceedings, see 37 Halsbury’s Laws (4th edn) paras 723, 728–729.
For the recovery of costs by an unqualified person acting as a solicitor, see 44 Halsbury’s Laws (4th edn) para 359 and, for cases on the subject, see
44 Digest (Reissue) 526, 5731–5734.
For the Solicitors Act 1974, s 25, see 41 Halsbury’s Statutes (4th edn) 35.
Preamble

Ainsworth, Re [1905] 2 KB 103.
Autothreptic Steam Boiler Co Ltd and Townsend, Hook & Co, Re (1888) 21 QBD 182.
Cope v United Dairies (London) Ltd [1963] 2 All ER 194, [1963] 2 QB 33, [1963] 2 WLR 926.
Lewis v Haverfordwest RDC [1953] 2 All ER 1599, [1953] 1 WLR 1486, CA.
Perkins (H G) Ltd v Best-Shaw [1973] 2 All ER 924, [1973] 1 WLR 975.
Tarr (William) & Co Ltd v Royal Insurance plc (8 April 1989, unreported), SC Taxing Office.
Preliminary issue on summons for review of taxation

The respondent, DC Contracts (1992) Ltd, applied to a judge in chambers for review of a taxation by Mr Peter Rogers sitting as a deputy master on 7
December 1992 of a bill of costs submitted on 3 December 1990 by the claimant, Piper Double Glazing Ltd, and dismissal of the respondent’s written
objections to the taxation on 10 February 1992, made pursuant to awards of an arbitrator, Mr F Mastrandrea, on 4 June and 2 July 1990 granting the
claimant over £118,000 in respect of its claims and costs against the respondent in an arbitration between the parties as to a dispute over two contracts for
the supply and installation of double glazing windows and other materials to the respondent’s property. The parties agreed to refer two preliminary issues
(set out at p 180 h to p 181 b, post) to the judge. The application was heard in chambers but judgment was delivered by Potter J in open court. The facts
are set out in the judgment.
Martin Bowdery (instructed by Freedmans) for the respondent.

Derrick Turriff (instructed by Alexander Tatham & Co, Manchester) for the claimant.
Cur adv vult
23 December 1992. The following judgment was delivered.
POTTER J. This is an application pursuant to RSC Ord 62, r 15 for review of a taxation carried out by Mr Peter Rogers sitting as a deputy master in
respect of the costs of Piper Double Glazing Ltd (the claimant) incurred in an arbitration against DC Contracts (the respondent) in which F Mastrandrea
Esq (the 178 arbitrator), appointed by the president of the Royal Institution of Chartered Surveyors in respect of a dispute between the parties arising
out of sub-contracts for the supply and fixing of replacement windows, doors, screens and infill panels at Kingsward House, Chicksand Estate, London,
made an award in favour of the claimant and, inter alia, ordered that the respondent should pay the claimant’s costs.
Preliminary issues in the review raise an interesting question as to the position of claims consultants employed to act for the claimant in its conduct
of the arbitration, and, in particular, the powers (if any) of taxing masters in connection with the taxation of the costs of such consultants pursuant to Ord
62. Accordingly, this judgment is given in open court.
The claims consultants in this case, James R Knowles Ltd, trading as James R Knowles (Knowles), are a company holding themselves out as offering
a complete range of professional services to, inter alia, the construction industry including claims appraisal and resolution of disputes up to and including
their resolution by arbitration. To this end they employ a multi-disciplinary staff qualified in various specialities. These include qualified surveyors,
non-practising barristers and arbitrators, some of whom have dual qualifications. Any or all of these may exercise their various roles and functions in the
course of providing arbitration services including the giving of legal advice, settling pleadings, the provision of expert testimony and advocacy services at
interlocutory and substantive hearings before arbitrators, all as part of the package provided. However, in that the services of these individuals are
rendered through, and under the umbrella of, their employer, Knowles, and in that their range of services is rendered without any express division of
function of the kind encountered by a client who separately employs solicitor, barrister and expert witness, the services provided by Knowles are not
identifiably or exclusively the services of any of those disciplines.
The brief history and background of the matter is as follows. There were two sub-contracts concerned, one for the supply and one for the fixing of
replacement windows and other fittings on a council housing estate. Both incorporated English proper law provisions and agreements for the resolution
of disputes by arbitration, applying the provisions of the Arbitration Act 1950. Disputes arose between the claimant and the respondent, the claimant
alleging that the respondent had wrongfully determined the sub-contracts. In spring 1987 the claimant consulted Knowles in connection with the dispute.
From that time, until the conclusion of the subsequent arbitration, Knowles acted on the claimant’s behalf, to the knowledge of the respondent and later of
their legal advisers.
Following the reference of the disputes to arbitration and the appointment of the arbitrator, the arbitration proceedings were finally concluded in July
1990 after hearings lasting for a total of 18 days. The claimant was successful and awards were made in its favour for sums in excess of £118,000. A
final award was made in respect of the fixing contract by consent on 2 July 1990 and a final award was made in respect of the supply contract on 4 June
1990. The claimant’s costs of the arbitration were dealt with in the final awards both of which were made by consent.
Paragraph 0.3(a) of the final award dated 4 June 1990 provided:
‘By consent … the respondents shall bear the claimants’ costs of these proceedings to be taxed, if not agreed, by a Taxing Master of the
Supreme Court, as provided for and where appropriate in Order 62 RSC.’
179
Paragraph 0.2(b) of the final award dated 2 July 1990 provided:
‘By consent … the respondents shall pay the claimants’ costs upon the standard basis to be taxed if not agreed.’
By virtue of s 18(2) of the Arbitration Act 1950, those costs fell to be taxed in the High Court.
The total of the costs sought to be recovered by the claimant on taxation was just over £98,000. On 3 December 1990 Knowles lodged with the
Supreme Court Taxing Office an itemised bill of costs on behalf of the claimant which ran to 76 pages. On 13 November 1991 two representatives of
Knowles appeared for the claimant and Mr Brown, a solicitor of Messrs Freedmans, the respondent’s solicitors, together with a costs draftsman, appeared
on the taxation before the deputy master.
On that occasion Mr Brown took the preliminary point that, as the claimant had not been represented by solicitors, the bill of costs which had been
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submitted by Knowles was not capable of being taxed by a Supreme Court master and that the bill ought to be dismissed as it stood. The deputy master
rejected the submissions made by Mr Brown on that point and proceeded with the consent of the parties to tax the claimant’s bill. In doing so, he based
himself on a fully reasoned written decision of Master Hurst made on 18 April 1989 on a taxation of costs in William Tarr & Co Ltd v Royal Insurance
plc (8 April 1989, unreported) in which a similar point was taken and rejected. That decision has been followed on a number of occasions since in
taxations of arbitration costs carried out by taxing masters.
Dissatisfied with the decision of the deputy master in a number of respects, on 2 December 1991 the respondent lodged objections in writing in
respect of six matters, which objections were answered by the claimant on 20 December 1991. At the hearing of the objections on 10 February 1992, the
costs draftsman appearing for the respondent reargued the preliminary point taken by Mr Brown, submitting that on the proper interpretation of Ord 62,
the taxing master had authority to tax only solicitors’ and counsel’s fees or the costs of a litigant in person and that there was no scope for taking bills
submitted in respect of the costs of any other category of person. Again, the deputy master rejected that submission, dismissing the first preliminary
objection of the respondents which embodied it. I need not concern myself with the other objections taken, because the preliminary issues before me are
concerned only with the substance of the first objection.
The first agreed preliminary issue is as follows:
‘1. Where in an arbitration conducted in England or Wales in accordance with English Law: (i) a party is represented by a person who is neither
a qualified solicitor nor a barrister (“the unqualified person”), but who provides services and performs functions similar to those provided or
performed by a solicitor or barrister; and (ii) an award is made by the arbitrator in favour of that party, which includes a direction that another party
should pay the first party’s costs of the arbitration; and (iii) the award provides for such costs to be taxed in the High Court, if not agreed, as
provided for in Order 62 of the Rules of the Supreme Court; and (iv) the arbitration agreement or reference to arbitration contains no provision
excluding the recovery of such costs; in proceedings for the taxation of costs pursuant to the award, does the court, on a proper construction of
Order 62 and/or Sections 20 to 25 of the Solicitors Act 1974, have power to allow any 180 amount for the costs incurred by the unqualified
person in relation to the conduct of the arbitration?’
A second preliminary issue has been stated as follows:
‘2. If the court does have power to allow amounts for the costs so incurred by the unqualified person in relation to the conduct of the arbitration,
are those costs to be allowed or to be assessed on the basis set out by Master Hurst in William Tarr & Co Ltd v Royal Insurance PLC (8 April 1989,
unreported), that being that the costs recovered cannot, by virtue of rule 28(1) of Order 62, be more than the amount recoverable had the arbitration
been conducted by solicitor and counsel and, if not, upon what basis should they be assessed or allowed?’
In relation to the second preliminary issue, that was not a matter argued before the deputy taxing master. However, the parties have informed me that it
would assist them if the issue were to be dealt with on this review. I have, therefore, heard argument upon it.
The relevant provisions of statute and the Rules of the Supreme Court appear to be as follows. So far as the powers of an arbitrator to award costs
are concerned, s 18 of the 1950 Act provides:
‘(1) Unless a contrary intention is expressed therein, every arbitration agreement shall be deemed to include a provision that the costs of the
reference and the award shall be in the discretion of the arbitrator of umpire, who may direct to and by whom and in what manner those costs or any
part thereof shall be paid, and may tax or settle the amount of costs to be so paid or any part thereof, and may award costs to be paid as between
solicitor and client.
(2) Any costs directed by an award to be paid shall, unless the award otherwise directs, be taxable in the High Court.’
As to taxation of such costs in the High Court, RSC Ord 62, r 2(2), provides:
‘This Order shall have effect, with such modifications as may be necessary, where by virtue by any Act the costs of any proceedings before an
arbitrator or umpire or before a tribunal or other body constituted by or under any Act, not being proceedings in the Supreme Court, are taxable in
the High Court.’
Order 62, r 19, provides:
‘(1) Subject to paragraphs (2) and (3), a taxing master and a registrar (other than a district registrar) shall have power to tax … (b) the costs
ordered by an award made on reference to arbitration under any Act or payable pursuant to an arbitration agreement …’
Order 62, r 29, provides as follows:
‘(1) Subject to paragraph (2), where a party is entitled to recover taxed costs or to require any costs to be taxed by a taxing officer by virtue of
… (c) an award made on an arbitration under any Act or pursuant to an arbitration agreement; or (d) an order, award or other determination of a
tribunal or other body constituted by or under any Act, he must begin proceedings for the taxation of those costs either within three months after the
judgment, direction, order, award or other determination was entered, signed or otherwise perfected …
181
(5) Proceedings for the taxation of costs shall be begun by producing the requisite document at the appropriate office.
(6) For the purpose of this rule—(a) the requisite document shall be ascertained by reference to Appendix A1 to this Order …
(7) A party who begins proceedings for taxation must at the same time lodge in the appropriate office—(a) a copy of the requisite document
produced under paragraph (5) …’
The requisite document is specified in Ord 62, App 1, para 3, which provides:
‘Where a party is entitled to require taxation by a taxing officer of the costs directed to be paid by an award made on the arbitration under any
Act or pursuant to an arbitration agreement and no order of the Court for the enforcement of the award has been made, the requisite document for
the purposes of rule 29 is the award.’
Preamble
The basis upon which the deputy master (following Master Hurst) rejected the preliminary point taken and embarked upon the taxation, and the
grounds upon which the claimant has relied before me, can be summarised as follows.
(1) Apart from any express or implied limitations or powers conferred by the agreement of the parties to an arbitration, the powers of arbitrators with
regard to costs are governed principally by the provisions of s 18 of the 1950 Act (see also s 28). In this case the powers of the arbitrator with regard to
costs have not been restricted or enlarged by the agreement of the parties.
(2) As already set out above, s 18(1) of the 1950 Act provides that ‘the costs of the reference and award shall be in the discretion of the arbitrator’.
This provision empowers the arbitrator: (a) to direct to and by whom such costs shall be paid; (b) to tax or settle the amount of costs to be so paid; (c) to
award costs to be paid as between solicitor and client (see generally Mustill and Boyd Commercial Arbitration (2nd edn, 1989) p 663).
(3) The ‘costs of the reference’ include all expenses properly and reasonably incurred in the course of the arbitration (see 2 Halsbury’s Laws (4th
edn) para 608 and Re Autothreptic Steam Boiler Co Ltd and Townsend Hook & Co (1888) 21 QBD 182).
(4) An arbitrator must exercise judicially the discretion conferred upon him by s 18(1). That means that, in the absence of special circumstances, an
arbitrator cannot properly exercise his discretion as to the award of costs so as to deprive a successful party of its costs of the reference (see Lewis v
Haverfordwest RDC [1953] 2 All ER 1599, [1953] 1 WLR 1486). Logically, the same principle must apply equally to the other powers conferred upon an
arbitrator by s 18(1), including the power he enjoys himself to tax or settle the costs to be paid.
(5) There are no statutory or other restrictions upon the right of a party to be represented in an arbitration by the advocate of his choice, or, indeed, to
employ a lay, qualified or unqualified person to represent him in the arbitration and to progress it generally.
(6) The unqualified terms of s 18(1) of the 1950 Act are wide enough to cover an award of costs in respect of sums which a party is liable to pay for
any professional services rendered in the conduct of the arbitration, whether by practising barristers, solicitors, surveyors or other experts, or by
unqualified persons who, for reward, perform services of the kind commonly rendered by those persons.
(7) In this case no restriction was imposed upon the arbitrator by the relevant arbitration agreements or any other agreement between the parties in
respect of 182 any of the above matters, nor was any limitation on the nature or amount of the costs to be recoverable imposed by the terms of the
consent order made by the arbitrator.
(8) Section 18(2) of the 1950 Act provides that, unless the award otherwise directs, any costs directed by an award to be paid, are taxable in the High
Court. Thus the combined effect of s 18(1) and (2) is as follows: (a) an arbitrator is given power himself to tax or settle the amount of any costs directed
to be paid; (b) in the event of an arbitrator declining himself to tax or settle the amount of such costs and giving no direction that such costs should be
taxed otherwise than in the High Court, the costs are taxable in the High Court.
(9) In this case the costs were so taxable, in the case of the final award dated 4 June 1990, by virtue of the order to that effect and, in the case of the
final award dated 2 July 1990, by virtue of the statutory provision in s 18(2).
(10) In carrying out a taxation of costs awarded by an arbitrator in cases of this kind, the taxing master acts as the delegate of the arbitrator (see H G
Perkins Ltd v Best-Shaw [1973] 2 All ER 924 at 930, [1973] 1 WLR 975 at 982 and authorities there cited). As such, the taxing master has no power to
refuse to carry out an order for taxation, or to ‘go behind’ the order or award because he considers it to be wrong or ‘ultra vires’ (see Cope v United
Dairies (London) Ltd [1963] 2 All ER 194 at 195–196, [1963] 2 QB 33 at 38 per Megaw J).
(11) That being so, save in so far as constrained by statute or the terms of Ord 62, it follows that, on taxation, a taxing master has the same powers to
tax and award costs incurred in respect of the services of third parties in the progress of the arbitration as the arbitrator would have if he personally
exercised his powers to tax.
(12) Whereas the detailed provisions of Ord 62 reflect the fact that the primary function of that order is to regulate the award and assessment of the
costs of proceedings in the High Court, and that the right to conduct proceedings in the High Court is confined to litigants in person and persons acting by
a solicitor (see RSC Ord 5, r 6(1)), the powers of a taxing master are not confined to the costs of such persons when exercising his powers as the delegate
of an arbitrator pursuant to s 18 of the 1950 Act. That is because of the express provision made in Ord 62, r 2(2), that the order—
‘shall have effect, with such modifications as may be necessary, where by virtue of any Act the costs of any proceedings before an arbitrator …
are taxable in the High Court.’
Thus, whereas the taxing master might otherwise be constrained by the terms of various rules and the provisions of the appendices in relation to
particular aspects of taxation, he is not prevented from adapting or extending the concept and application of ‘standard costs’ or ‘indemnity costs’ (if
awarded) to cover costs incurred in respect of the conduct of the case by claims consultants, such as Knowles.
(13) By acting as claims consultants in the arbitration, Knowles neither acted as a solicitor nor purported to act as a solicitor within the letter or spirit
of s 20(1) or s 25(1) of the Solicitors Act 1974. An unqualified person does not ‘act as a solicitor’ within the meaning of s 25(1) merely by doing acts of a
kind commonly done by solicitors. To fall within that phrase, the act in question must be an act which it is lawful only for a qualified solicitor to do
and/or any other act in relation to which the unqualified person purports to act as a solicitor (cf Re Ainsworth [1905] 2 KB 103). Equally, where s 25(1)
provides that—
183
‘No costs in respect of anything done by any unqualified person acting as a solicitor shall be recoverable by him, or by any other person, in any
action, suit or matter’,
that sanction applies only to acts which may only be done by a solicitor or acts purportedly done in that capacity. There is no suggestion in this case that,
in acting in the arbitration, Knowles were doing an act which only a solicitor might do, nor that they purported so to act. Accordingly, the taxing master
was not precluded by any provision of the 1974 Act from taxing and awarding Knowles their costs upon the standard basis, as ordered by the arbitrator.
On behalf of the respondent, Mr Bowdery does not take substantial issue with any of the propositions above enumerated from (1) to (10) inclusive.
However, in relation to proposition (11), he does not accept that the taxing master has the same powers to tax and award costs as the arbitrator would have
if he exercised his powers personally. He submits that the terms of Ord 62, which is intended to be a complete code as to costs in relation to High Court
proceedings, anticipate that the taxing master will engage only in the award and assessment of solicitors’ costs and disbursements (including experts’ fees
and the fees of counsel) and ‘litigant in person’ costs and disbursements, and that his powers of taxation do not extend to costs incurred by non-solicitor
representatives acting as if they were solicitors. He further submits that the intention and proper construction of the words of Ord 62, r 2(2), that ‘This
Order shall have effect, with such modifications as may be necessary’ are not such as to import the major change in the basis or methods of taxation
which he submits would be required to accommodate the assessment and award of such costs. He says that those words are included in the text of the rule
simply to enable the machinery set out in Ord 62 to be applied to the taxation of costs in respect of proceedings before an arbitrator or other tribunal with
the minimum necessary changes mutatis mutandis in the subsequent wording of the order, rather than to make any changes of substance in the method of
Preamble
taxation. By way of example he argues that a modification is obviously required to the words of Ord 62, r 12 (in which the ‘standard’ basis and the
‘indemnity’ basis of taxation are provided for) in relation to the provision at para (3) that:
‘Where the Court makes an order for costs without indicating the basis of taxation … the costs shall be taxed on the standard basis.’
There, says Mr Bowdery, the word ‘court’ should be read as ‘arbitrator’ or ‘umpire’. He submits that, in the absence of express language, the court
should be reluctant to adopt any construction of Ord 62, r 2(2), the result of which would be to alter the customary methods of taxation, in the sense that
the taxing master would be obliged to engage in the unaccustomed exercise of reviewing the reasonableness of charges incurred by non-lawyers acting as
lawyers and persons exercising multi-disciplinary functions. He makes the point that the authority of H G Perkins Ltd v Best-Shaw [1973] 2 All ER 924,
while making clear that the taxing master acts as the delegate of the arbitrator, also held that an order by an arbitrator directing taxation in the High Court
meant that the taxing master must carry out the taxation pursuant to Ord 62 and did not have any discretion to tax in any other way. I pause to observe
that, that being so, it is an authority which begs the question posed in this preliminary issue, rather than answering it.
Mr Bowdery does not resile from his acceptance that a claimant in an arbitration who employs a non-qualified representative is entitled to be
awarded the costs thereby incurred, but he submits that, where such award is sought, the proper mode of obtaining it is to seek an order for taxation by the
arbitrator himself, 184 or by some other competent delegate whose jurisdiction or powers are not circumscribed by the terms of Ord 62. However, he
argues, if the arbitrator orders a High Court taxation, or makes no special provision, then an award of such costs is outside the purview of Ord 62.
In sum, Mr Bowdery submits that in a taxation pursuant to Ord 62, r 19(1)(b), the proper interpretation of Ord 62, r 2(2) does not allow for the
creation of a third category of recoverable costs, namely the costs of a non-solicitor representative and submits that such fees are only recoverable to the
extent that they may be properly awarded as the disbursements of a litigant in person as provided for in Ord 62, r 18(1) and (2).
Finally, Mr Bowdery submits that to hold otherwise, and to interpret the powers of the taxing master as extending to an award and taxation of costs
on the standard basis in respect of the costs of a claims consultant, would be to adopt an interpretation which is in breach of the Solicitors Act 1974 and,
in particular, in breach of s 25(1), which provides that no costs in respect of anything done by any unqualified person acting as a solicitor shall be
recoverable by him or any other person in any action, suit or matter.
I do not consider that Mr Bowdery’s submissions are correct. So far as Ord 62, r 2(2), is concerned, I see no reason to place the narrow construction
for which he contends on the words ‘with such modifications as may be necessary’. In my opinion, to adopt such a construction would be to negate in an
important respect and in an unjust manner the intention of s 18(2) of the 1950 Act that any costs directed to be paid by the award of an arbitrator should
be taxable in the High Court. Given the freedom of any party to an arbitration to employ a lay or non-qualified representative to conduct his case, given
the power of the arbitrator to make an order in respect of the costs of such a representative and given that the taxing master, in effecting the taxation, is
the delegate of the arbitrator in that task, it seems to me that there are no compelling reasons for adopting the construction contended for by Mr Bowdery.
Indeed, quite the reverse.
Further, in so far as Mr Bowdery’s submission depends upon an assumption that taxing masters are on unfamiliar ground when considering the
charges of persons other than solicitors, as I understand the position that is not so. Taxing masters frequently consider the charges of all kinds of
professional and non-professional people as well as those of lawyers in other jurisdictions, and they are becoming increasingly experienced in that kind of
exercise.
I would add that, if the court were driven to adopt Mr Bowdery’s approach, it would effect a considerable injustice in this case. It is quite apparent
that the respondent was aware throughout this case of costs being incurred by the claimant in employing Knowles as its representative and it is also clear
that, at the time the final awards were drawn up by consent, including the provisions as to costs, no reservation was made as to the point later taken. One
cannot but conclude that to adopt Mr Bowdery’s arguments would be to achieve an effect quite contrary to the arbitrator’s intention and understanding in
making his award as well as that of the claimant. However, whether or not that is so, I have no hesitation in upholding the decision of the deputy master
on this aspect on the basis of principle and construction.
Whereas the code contained in Ord 62 is primarily a code for the taxation of costs in the High Court, Ord 62, r 2 plainly comprehends the process of
taxation applying to quite other proceedings, whether before an arbitrator, a tribunal or other body constituted by or under any Act in relation to which the
rights of audience and rules of procedure may be substantially different from High Court proceedings. In providing for such modifications ‘as may be
necessary’, the 185 necessity referred to, in my view, anticipates such modification to the rules as may be necessary to give full and proper effect to
any costs order made by the arbitrator or other tribunal and to the presumed intention of such order to make a real and effective award of costs to the party
in whose favour such order has been made. After all, in principle it is the purpose of a costs order to effect reimbursement to the successful party of all
costs properly and reasonably incurred in the proceedings.
Order 62, r 12, which sets out two bases of taxation (the standard basis and the indemnity basis) by which such purpose is to be achieved, does so,
not by reference to the identity or profession of the person in respect of whose services the costs have been incurred, but simply by reference (in the case
of an order for costs on the standard basis) to ‘a reasonable amount in respect of all costs reasonably incurred’. Later references in the rules and
appendices to solicitors and counsel are no more than the product of the de facto position as to rights of audience and the right to appear on the record in
the High Court. They should not, in my view, be regarded as limiting the scope of the words in Ord 62, r 2(2), which provide for such modifications as
are necessary. Where, in proceedings in other forums, reasonable costs may reasonably have been incurred, there seems to me no reason in policy or
logic why the power of the taxing master should be limited in the way contended for by Mr Bowdery.
I also reject the submission that so to hold would be, in effect, to adopt an interpretation which is in breach of the 1974 Act. While I do not doubt
that costs incurred in an arbitration are indeed costs incurred ‘in any action, suit or matter’, and while it also appears to be the position that acts done by
representatives of Knowles in this context were acts by ‘unqualified persons’ so far as the Solicitors Act is concerned, it does not appear to me that they
were ‘anything done by [such persons] acting as a solicitor’.
So far as I am aware, Knowles have not at any stage held themselves out as solicitors, but have at all times acted specifically as ‘claims consultants’
in relation to their representation of the claimant. Section 25 of the 1974 Act is linked and, in my view, falls to be construed with the sections which
precede it. Those sections are penal in nature and relate to unqualified persons acting as solicitors (s 20), pretending to be solicitors (s 21), drawing or
preparing instruments of transfer of charge etc, the drawing of which is limited to solicitors and certain other exempted professions (s 22), and preparing
papers for probate etc (s 23). By s 24 those penal provisions are applied to bodies corporate. In these circumstances, it seems clear to me that the words
‘acting as a solicitor’ are limited to the doing of acts which only a solicitor may perform and/or the doing of acts by a person pretending or holding
himself out to be a solicitor. Such acts are not to be confused with the doing of acts of a kind commonly done by solicitors, but which involve no
representation that the actor is acting as such. On that basis, it seems plain to me that Knowles did not ‘act as a solicitor’ in conducting the arbitration on
behalf of the claimant.
Accordingly, on the basis of the facts existing in this case, I answer the first preliminary issue in the affirmative.
So far as the second preliminary issue is concerned, after careful thought, I consider that the first part is stated in a matter too general to be
susceptible of a ‘Yes’ or ‘No’ answer and that the second part is, similarly, too generally phrased to be susceptible of a clear cut answer, divorced from
the context of particular items claimed and/or challenged in the bill of costs.
Preamble
The taxation of a bill is not dealt with, or indeed reviewed, on a global basis. The sum eventually certified is the build-up of a number of items
conventionally 186 set out in the bill on the lines provided for in Ord 62, App 2, para 1(3), Pt 2. Whether the taxation is conducted on the standard
basis or the indemnity basis, each item is discretionary and assessed as a reasonable amount to be allowed for the item of work done or the disbursement
made, assessed on the basis of a competent solicitor (whether partner or assistant), counsel or expert, acting within the scope of his own expertise and
taking into account the generally accepted level of charges appropriate for the services rendered at the relevant time.
In so far as the taxing master may, in the case of a claims consultant, be considering a new and/or unconventional breed of litigator, it may be that
the taxing master will consider that some difference of approach will be called for, not least to accommodate the extent to which, in relation to various
items of work, it might be the case that the fee earner concerned has acted in a multi-disciplinary capacity. It might be, at least in theory, that in
performing a particular task, the fee earner has in effect done two jobs at the same time and saved money for the client. On that basis, it might be, again
at least in theory, that the taxing master would consider it appropriate to allow a charging rate for the single fee earner higher than the rate which might
have been allowed in respect of two individual fee earners jointly rendering the same service. On the other hand, it may well be that a lower charging rate
or fee will be considered appropriate in the case of an employee of a claims consultant who the master considers lacks the expertise of a conventional
qualified fee earner or otherwise provides a less valuable service. If the employment of claims consultants becomes widespread in the arbitration field, it
may be that the taxation of their bills will become a developing science, in relation to which taxing masters will consider that particular scales or methods
of charge, different from those developed in relation to solicitors, are appropriate.
Whether or not that is so, I have no doubt that taxing masters will and should be reluctant to develop or apply scales of charges, or indeed any
approach to the taxation of the costs of claims consultants, which might lead to any overall increase in the costs of arbitration.
Plainly, Ord 62, r 18(1) envisages that a litigant in person cannot recover more than it would have cost if the services of a solicitor had been
employed; para (2), which limits the amount allowed in respect of any item (save for any disbursement) to two thirds of a solicitor’s proper charge, is a
rule-of-thumb measure aimed at deducting the profit element in the solicitor’s bill. By analogy, it may be thought inappropriate that the fees of a claims
consultant, whether charged on a fixed fee basis, or by the hour, or as a basic fee plus a percentage, should be taxed so as to produce a result which
removes the de facto protection hitherto afforded to a paying party by the unspoken assumption in Ord 62 that a solicitor’s reasonable charges (subject to
taxation) represent the maximum amount of costs recoverable. Equally, it would appear anomalous to sanction as reasonable a bill which in total exceeds
the reasonable charges allowable to a solicitor for his services, not least because those services are provided subject to valuable regulatory controls and
professional obligations of a kind which are unlikely to be applicable to an incorporated company of claims consultants.
Having said that, it does not seem to me that it is appropriate for the court to come to any decision, or to give any direction in general terms, about
the ‘ceiling’ of the sums to be assessed on such taxations, beyond reiterating that the definition of the scales of standard and indemnity costs contained in
Ord 62, r 12(1) and (2), should continue to be applied by taxing masters in relation to the taxation of costs under Ord 62, r 2, notwithstanding that the
costs may be wholly or principally the costs of employing claims consultants such as Knowles. For 187 the reasons I have indicated, I do not doubt
that, on any such taxation, a critical approach will be properly adopted in any case where a taxing master is faced with an itemised bill which appears to
him to have been drawn on a basis more costly than the reasonable cost of conducting an arbitration through a solicitor. More than that it does not seem
to me appropriate to say, outside the confines of a review relating to specific items claimed or challenged on taxation.
Accordingly, beyond the guidance to be derived from the observations above, the court declines to answer the question posed in the second
preliminary issue.
Order accordingly.

[1994] 1 All ER 188
Lonrho plc and others v Fayed and others (No 5)

TORTS; Other Torts

DILLON, STUART-SMITH AND EVANS LJJ
15–17, 30 JUNE, 1, 22 JULY 1993
Tort – Conspiracy – Ingredients of tort – Damages – Actual pecuniary loss – Whether damages for injury to reputation or business reputation
recoverable when defamation not alleged – Whether damages for injury to business reputation recoverable as a form of injury to property – Whether
damages for injury to feelings recoverable when defamation not alleged.
The plaintiffs became involved in an acrimonious and highly publicised dispute with the first and second defendants as the result of the circumstances in
which in 1985 the first and second defendants succeeded in gaining control of the third defendant, a well-known public company, which the plaintiffs had
also wished to take over. The plaintiffs brought an action against the defendants claiming damages for conspiracy to injure, alleging that the defendants
had, with the purpose of injuring the plaintiffs, clandestinely sponsored and encouraged a persistent campaign of vilification against the plaintiffs by a
third party, R, who claimed that she had been cheated out of a £40m inheritance by the second plaintiff. In the course of her campaign R published
scurrilous pamphlets and sent scurrilous letters to a large number of people, including shareholders in the plaintiff company and people in responsible
positions in the United Kingdom, Africa and the Middle East where the first plaintiff did business or hoped to do business. Much that was said in the
pamphlets and letters was, unless true, plainly defamatory of the plaintiffs but no proceedings in defamation were brought. The defendants were also
alleged to have financed an action brought against the plaintiffs by another third party. The defendants applied to have the plaintiffs’ statement of claim
struck out on the ground that it disclosed no reasonable cause of action or was frivolous, vexatious and an abuse of the process of the court. The judge
held that the plaintiffs’ object in bringing the action was to continue the parties’ vendetta in the artificial form of an action at law so that at the trial the
plaintiffs could ventilate their allegations against the defendants and vilify them with maximum publicity and he struck out the claim as an abuse of the
Preamble
process. The plaintiffs appealed. In the course of the hearing 188 of the appeal the plaintiffs applied for leave to amend para 29 of the statement of
claim to particularise their claim for damages to include claims for injury to feelings, injury to reputation or business reputation and injury to the plaintiff
company’s right of property in the goodwill of its business.
Held – The essential ingredients of the tort of conspiracy to injure by lawful means were an agreement by two or more persons to do acts, which were
lawful in themselves, for the sole or predominant purpose of causing injury to the plaintiff and which in fact caused injury to the plaintiff. Therefore in
order to succeed in a claim for conspiracy the plaintiff had to establish such an agreement to do acts, lawful in themselves, for the sole or predominant
purpose of causing injury to him and that those acts caused him actual pecuniary loss. Damages for injury to reputation or business reputation or injury to
feelings could only be recovered in an action for defamation, in which justification could be pleaded by way of an absolute defence, and not in an action
for conspiracy and the difficulty of meeting a defence of justification could not be side-stepped by bringing an action for conspiracy to injure by lawful
means. Furthermore, injury to reputation and to feelings was, with very limited exceptions, a field of its own, and the established principles in that field
also could not be sidestepped by alleging a different cause of action. Nor could such damages be recovered parasitically in addition to damage for
pecuniary loss. Since the tort of conspiracy to injure was not complete without pecuniary loss, any damages at large had to be referrable to the act
causing the pecuniary loss which consituted the tort. Furthermore, there was no difference between general reputation and commercial or business
reputation, and proof of loss of orders would involve injury to the goodwill of a business. The appeal by the personal plaintiffs would be dismissed and
their claims would be struck out. The company’s appeal would be allowed to the extent that it would be granted limited leave to amend para 29 of its
statement of claim (see p 193 j, p 195 j to p 196 c f g, p 198 b, p 200 e to h, p 201 b c h j, p 202 f g, p 204 g j, p 208 b c j, p 209 g, p 210 b to f h to p 211 e
and p 212 h, post).
Notes
For the essential ingredients of conspiracy, see 45 Halsbury’s Laws (4th edn) paras 1526–1527, and for cases on the subject, see 46 Digest (Reissue)
589–593, 6396–6427.

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British Motor Trade Association v Salvadori [1949] 1 All ER 208, [1949] Ch 556.
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189
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Walter v Alltools Ltd (1944) 171 LT 371, CA.

AB Manus v R J Fullwood & Bland Ltd (1954) 71 RPC 243.
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Preamble
Hadmor Productions Ltd v Hamilton [1982] 1 All ER 1042, [1983] 1 AC 191, HL.
Hathaway v Barrow (1807) 1 Camp 151, 170 ER 909, NP.
Hawkins v Powells Tillery Steam Coal Co Ltd [1911] 1 KB 988, CA.
Lane v Holloway [1967] 3 All ER 129, [1968] 1 QB 379, CA.
Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1989] 3 All ER 14, [1990] 1 QB 391, CA.
Murphy v Culhane [1976] 3 All ER 533, [1977] QB 94, CA.
Neville v London ‘Express’ Newspaper Ltd [1919] AC 368, [1918–19] All ER Rep 61, HL.
Parton v Hill (1864) 4 New Rep 103.
President of India v La Pintada Cia Navegacion SA [1984] 2 All ER 773, [1985] AC 104, HL.
Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] 1 All ER 354, [1982] Ch 204, CA.
Said v Butt [1920] 3 KB 497, [1920] All ER Rep 232.
190
Tripp v Thomas (1824) 3 B & C 427, 107 ER 792.
Wadsworth v Lydall [1981] 2 All ER 401, [1981] 1 WLR 598, CA.
Ware & De Freville Ltd v Motor Trade Association [1921] 3 KB 40, [1920] All ER Rep 387, CA.
Application for leave to appeal and interlocutory appeal

The plaintiffs, Lonrho plc, R W Rowland and the Rt Hon Sir Edward du Cann, applied for leave to appeal against the order of Macpherson J on 24 July
1992 whereby he struck out the plaintiffs’ reamended statement of claim in their action claiming damages against the defendants, Mohamed Fayed, Ali
Fayed, House of Fraser Holdings plc, Richard New, David Royston Webb and Michael Cole, for conspiracy to injure and dismissed the action. During
the course of the argument the court granted the plaintiffs leave to appeal and the hearing of the appeal followed. The facts are set out in the judgment of
Dillon LJ.
John Beveridge QC, Harvey McGregor QC and David Mildon (instructed by Denton Hall Burgin & Warrens) for the plaintiffs.
James Munby QC and Alastair Walton (instructed by Herbert Smith) for the first, second, third, fifth and sixth defendants.
Edward Faulks (instructed by Titmuss Sainer & Webb) for the fourth defendant.
Cur adv vult
DILLON LJ. This matter came before this court, under directions given by Neill LJ, as an application by the plaintiffs, Lonrho plc, Mr Rowland and Sir
Edward du Cann, for leave to appeal against an order of Macpherson J of 24 July 1992 and on the basis that if leave was granted the hearing of the appeal
would immediately follow. In the course of the argument we granted leave to appeal, and I now give my judgment on the appeal.
The order of Macpherson J was that the action be struck out against the first six of the remaining defendants. I shall refer to these six as ‘the
defendants’; there were at one stage various other defendants, who have since ceased to be parties to the action, but it seems that there is still one further
defendant, a company, with which we are not concerned since it was not a party to the applications before the judge and is not a party to this appeal.
It is well known that since 1985 there has been acrimony between Lonrho and Mr Rowland and the first two defendants (the Fayeds) as a result of
the circumstances in which in 1985 the Fayeds succeeded in gaining control of a company called House of Fraser plc. One result of this has been a
substantial amount of hard-fought litigation and the principal action—after an interlocutory excursion to the House of Lords, which is reported as Lonrho
plc v Fayed [1991] 3 All ER 303, [1992] 1 AC 448—awaits trial next year.
A second action, Lonrho plc v Fayed (No 2) [1991] 4 All ER 961, [1992] 1 WLR 1, arising out of the same circumstances as the principal action was
started by Lonrho in September 1990. This asserted that a sale by Lonrho to in effect the Fayeds in November 1984 of a 29·9% holding in House of
Fraser was induced by fraudulent misrepresentations by the Fayeds and it sought consequential relief by way of a constructive trust. Lonrho plc v Fayed
(No 2) was struck out by Millett J on 12 April 1991 on the ground that Lonrho’s claim in that action ‘has no foundation in fact and is not made in good
faith and with a genuine belief in its merits, but has been manufactured to provide a vehicle for a further public denunciation of the 191 Fayeds’ (see
[1991] 4 All ER 961 at 967, [1992] 1 WLR 1 at 7). There has been no appeal against that order of Millett J. But the grounds, on which he concluded that
the claim in Lonrho plc v Fayed (No 2) had no foundation in fact, have no relevant to the present action.
There is no doubt that there has been extensive public denunciation of the Fayeds by Lonrho, not least in the circulation of a document entitled ‘A
Hero from Zero’ and of a special issue of the Observer newspaper.
The matters in issue in the present action are said by the Fayeds to represent a counter-attack, in self-defence, by the Fayeds against Lonrho in order
to induce Lonrho to abandon its persistent campaign of vilification against the Fayeds. There was beyond any question a campaign of vilification against
Lonrho and Mr Rowland carried on ostensibly by a Miss Francesca Pollard in her own name and for her own reasons. In the course of this campaign
scurrilous letters were sent by Miss Pollard to a large number of people, including shareholders in Lonrho, people in responsible positions in this country,
and people in responsible positions in the public services of countries in Africa and the Middle East where Lonrho did business or was hoping to do
business. Also scurrilous pamphlets were published by Miss Pollard and other actions were taken, which I need not mention now. It is said by the
plaintiffs, and accepted the defendants, that this campaign of Miss Pollard’s was clandestinely sponsored and encouraged by the defendants. It is said
further, but disputed, that the campaign was thus sponsored and encouraged with the purpose of injuring the plaintiffs. It is also said by the plaintiffs, and
for present purposes accepted by the defendants that the Fayeds and the third defendant financed, and caused a Mr Esterhuysen to bring an action in the
Chancery Division (the Esterhuysen action) in the name of Jacobus Philipus Esterhuysen against Lonrho and Mr Rowland and others, which is still
pending.
There is no doubt at all that much that was said in the documents circulated by Lonrho was, unless true, plainly defamatory of the Fayeds, and much
that was said in Miss Pollard’s letters and pamphlets was, unless true, plainly defamatory of Lonrho and Mr Rowland. But no proceedings in defamation
have been brought by either side.
The present action, which was started on 11 July 1991 claims damages and injunctive relief against the defendants in respect of Miss Pollard’s
campaign and its alleged consequences and the Esterhuysen action; the cause of action relied on is that form of the tort of conspiracy which has been
referred to—not altogether conveniently—as a ‘lawful means’ conspiracy. That is the form of action in conspiracy, recognised by the House of Lords in
Lonrho plc v Fayed and Lonrho Ltd v Shell Petroleum Co Ltd [1981] 2 All ER 456, [1982] AC 173 and other decisions there discussed, where actions
which, if done by one person on his own, would be lawful and cannot be actionable can be actionable as a tortious conspiracy if done by several persons
Preamble
in combination and if the predominant purpose of those persons was to injure the plaintiff, and not to protect or forward their own interests: see also the
speech of Viscount Simon LC in Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942] 1 All ER 142 at 147–148, [1942] AC 435 at 442–443. So far
as this court is concerned, there is no doubt that we have to recognise the validity of such a cause of action. From the plaintiffs’ point of view, the virtue
of it is that the truth or otherwise of the allegations against Lonrho and Mr Rowland in Miss Pollard’s letters and pamphlets would not be an issue in the
action; it would be no defence to the defendants to justify the allegations and submit that they cannot be actionable because they are true.
This leads to the serious dilemma to which I shall refer below as to whether it is possible by this form of action to circumvent the requirements of a
defamation 192 action, and recover damages for injury to reputation without the defendants being able to plead justification or assert that the high
reputation was not deserved; can a plaintiff by this form of action recover damages for injury to reputation if the defendants have combined to publish the
truth about him?
In fact the judge, while very sceptical about the plaintiffs’ prospects of obtaining damages or an injunction if the action were to go to trial, struck it
out as an abuse of the process of the court on the ground that the plaintiffs were misusing the court’s processes in seeking to pursue this action at all. The
plaintiffs’ object was, in the judge’s view, simply to continue the plaintiffs’ half of the parties’ vendetta in the artificial form of an action at law so that at
the trial the plaintiffs could ventilate their allegations against the Fayeds and vilify the Fayeds with maximum publicity.
The temptation is great to say, ‘A plague on both your houses and let not the court’s time be wasted with any further litigation between them’ beyond
the principal action already fixed for trial next year. But the issue as to what the plaintiffs’ purpose is in bringing this action is an issue of fact which is
disputed and it cannot, in my judgment, be decided at an interlocutory stage on the tendentious affidavits of the solicitors on each side. It can only be
decided at the trial: cf Speed Seal Products Ltd v Paddington [1986] 1 All ER 91, [1985] 1 WLR 1327.
The defendants seek to support the judge’s conclusion also on grounds on which the judge himself did not base the decision. The defendants say in
particular that this action must fail because the plaintiffs could not possibly demonstrate, as they must, that the predominant purpose of the defendants, in
their clandestine backing of Miss Pollard’s campaign, or the Esterhuysen action was to injure the plaintiffs. But what the defendants’ predominant
purpose was is again a question of fact which cannot be decided on the affidavits and must be left for the trial.
Two other matters I can also dispose of shortly.
In the first place, the defendants say that, in view, apart from anything else, of the striking out of Lonrho plc v Fayed (No 2) as an abuse of the
process of the court, the plaintiffs do not come to court with clean hands and therefore are for ever precluded from obtaining any injunction or other
equitable relief against the Fayeds. As I see it, however, there is no absolute bar. The granting of an injunction is a matter for the discretion of the trial
judge, if he holds that the purpose of the plaintiffs in bringing the action is not improper and the action is not in itself an abuse of the process of the court.
In the second place, the position of the fourth defendant, Mr New, who is separately represented, does not differ from that of the other defendants.
He participated willingly in what was done by and for the Fayeds, and there is no basis for striking out the action against him if it is not struck out against
the other defendants.
I come now to the question of damages, which has bulked very large in the argument of this appeal.
A plaintiff in a civil action for conspiracy must prove actual pecuniary loss, thought if he proves actual pecuniary loss the damages are at large, in
the sense that they are not limited to a precise calculation of the amount of the actual pecuniary loss actually proved: see Quinn v Leathem [1901] AC
495, [1900–3] All ER Rep 1 especially the charge of the trial judge to the jury (see [1901] AC 495 at 498), which was approved by the Earl of Halsbury
LC (see [1901] AC 495 at 508, [1900–3] All ER Rep 1 at 8) and by other members of their Lordships’ house. As Lord Diplock said in Lonrho Ltd v Shell
Petroleum Co Ltd [1981] 2 All ER 456 at 463, [1982] AC 173 at 188: ‘The gist of the cause of action is damage to the plaintiff …’
193
But, relying on the proposition that damages are at large, the plaintiffs had, until the opening of the hearing in this court, merely included in their
statement of claim in its original form and as amended, the broad conventional allegation, without any particulars as against the defendants, in para 29
that: ‘By reason of the matters set out above the Plaintiffs have suffered loss damage and injury.’
I have no doubt at all that was a grossly inadequate pleading.
As Bowen LJ said in Ratcliffe v Evans [1892] 2 QB 524 at 532–533, [1891–4] All ER Rep 699 at 704 in giving the judgment of this court:
‘In all actions accordingly on the case where the damage actually done is the gist of the action, the character of the acts themselves which
produce the damage, and the circumstances under which these acts are done, must regulate the degree of certainty and particularity with which the
damage done ought to be stated and proved. As much certainty and particularity must be insisted on, both in pleading and proof of damage, as is
reasonable, having regard to the circumstances and to the nature of the acts themselves by which the damage is done. To insist upon less would be
to relax old and intelligible principles. To insist upon more would be the vainest pedantry.’
This was applied by Peter Gibson J in his judgment in Sybron Corp v Rochem Ltd (22 November 1982, unreported).
More recently Sir Donald Nicholls V-C said in Joyce v Sengupta [1993] 1 All ER 897 at 906, [1993] 1 WLR 337 at 346 that the plaintiff would need
to give particulars of the financial loss claimed sufficient to ensure that the defendants would not be taken by surprise by any evidence adduced on the
amount of this loss.
The court having indicated its disapproval of the pleading of damage in the statement of claim up to the date of the hearing in this court, and the
hearing having been adjourned for reasons of listing, Mr Beveridge QC presented to the court in advance of the resumed hearing particulars of damage
which he sought leave to insert by amendment in the existing para 29. The new particulars, including schedules, run to some 40 pages, and without them
the defendants would not have had notice of the nature of the plaintiffs’ case on damage.
The principal issue is whether the plaintiffs can recover in this form of action damages for injury to reputation, or, as it is alternatively put, business
reputation. A further issue is whether, in the case of Lonrho plc, injury to business reputation can be recovered as a form of injury to property, sc
goodwill; that involves considering what is meant by goodwill and—on the way the case has been argued by Mr Beveridge—whether fluctuations in the
share price of a company reflect its goodwill and reputation. In the case of the individual plaintiffs there is an issue whether they can recover in this form
of action damages for injury to feelings in addition or as an alternative to damages for loss of business reputation.
Part of the difficulty is that in Joyce v Sengupta [1993] 1 All ER 897 at 907, [1993] 1 WLR 337 at 348 Sir Donald Nicholls V-C stated that damages
for injury to reputation could not be recovered in an action for malicious falsehood; the only remedy for such loss in an action for defamation, in which
damages for injury to feelings can also be included in a general award of damages. His observations seem to have been founded on the judgment of Lord
Denning MR in Fielding v Variety Inc [1967] 2 All ER 497, [1967] 2 QB 841.
Sir Michael Kerr, after citing from McGregor on Damages (15th edn, 1988), referred in Joyce v Sengupta [1993] 1 All ER 897 at 910, [1993] 1
WLR 337 at 351 to cases which supported the conclusion that, in claims other than for defamation, damages for distress and injury to feelings were not
recoverable as a separate head of damages, but only in appropriate cases as an ingredient of aggravated damages.
194
There is also the recent case in this court, Spring v Guardian Assurance plc [1993] 2 All ER 273, which was followed by another division of this
Preamble
court in Martine v South East Kent Health Authority (1993) Times, 8 March. Those cases applied the law as stated by Cooke P in the New Zealand case
of Bell-Booth Group Ltd v A-G [1989] 3 NZLR 148. He had stressed that the law as to injury to reputation and freedom of speech was a field of its own.
He had also pointed out that the common law rules, and their statutory modifications, regarding defamation and injurious falsehoods represented
compromises gradually worked out by the courts over the years, with some legislative adjustments, between competing values. Therefore—apart from
the fact that in defamation truth was an absolute defence—the established rules in defamation as to privilege and fair comment could not be side-stepped
by pleading the case in negligence and asserting a duty of care to speak the truth when making a statement.
Conversely Mr Beveridge referred us to the decision of this court in Walter v Alltools Ltd (1944) 171 LT 371 and the decision of Slade J in Hook v
Cunard Steamship Co Ltd [1953] 1 All ER 1021, [1953] 1 WLR 682 as showing that in an action for damages for the tort of false imprisonment the court
can award aggravated damages for the injury to the plaintiff’s reputation caused by the circumstances of his wrongful imprisonment. That does not, in my
judgment, help in the present case.
Mr Beveridge also referred us to a decision of Walton J in Thurston v Charles (1905) 21 TLR 659 where damages for injury to the plaintiff’s
reputation were awarded to the plaintiff as damages for conversion of a letter written to her and which was therefore her property, although damages for
defamation in respect of the publication of the contents of the letter could not have been obtained because the occasion of the publication, which was also
the conversion of the letter, was privileged. In my judgment that decision is inconsistent with Joyce v Sengupta and Spring v Guardian Assurance plc and
cannot stand. It is also contrary to the firm views of this court in Dixon v Calcraft [1892] 1 QB 458 that damages for injury to reputation cannot be
awarded in an action for wrongful detention of a chattel or trespass to goods: see per Lord Esher MR and Lopes LJ (at 464, 466).
On the other side, Mr Faulks referred us to a passage in the judgment of Hallett J in Foaminol Laboratories Ltd v British Artid Plastics Ltd [1941] 2
All ER 393 at 399 where he said:
‘… a claim for mere loss of reputation is the proper subject of an action for defamation, and cannot ordinarily be sustained by means of any
other form of action …’
But that was said in the context of reference to Addis v Gramophone Co Ltd [1909] AC 488, [1908–10] All ER Rep 1 and other authorities on the law of
contract.
In my judgment, if the plaintiffs want to claim damages for injury to reputation or injury to feelings, they must do so in an action for
defamation—not in this very different form of action. Injury to reputation and to feelings is, with very limited exceptions, a field of its own and the
established principles in that field are not to be side-stepped by alleging a different cause of action. Justification—truth—is an absolute defence to an
action for defamation, and it would, in my judgment, be lamentable if a plaintiff could recover damages against defendants who had combined to tell the
truth about the plaintiff and so had destroyed his unwarranted reputation. But that would be the consequence if damages for injury to reputation and
injury to feelings could be claimed in a ‘lawful means’ conspiracy action. To tell the truth would be wrongful.
195
I see no difference in this regard between general reputation and commercial or business reputation. To prove loss of orders and loss of trade is
another matter; that is recognisable pecuniary damage. The claim in respect of the joint venture with Iranian interests referred to in part II of schedule 2
to the particulars of damage could come in under this heading if a link between the loss of the venture and Miss Pollard’s campaign is sufficiently proved.
Such loss of orders, for example, would involve injury to the goodwill of a business which may be one of the most important assets of the business. But
goodwill in that sense must have the meaning put on that word in Trego v Hunt [1896] AC 7 esp at 17–18, 24, [1895–9] All ER Rep 804 esp at 809–810,
813 per Lord Herschell and Lord Macnaghten. It cannot mean some airy-fairy general reputation in the business or commercial community which is
unrelated to the buying and selling or dealing with customers which is the essence of the business of any trading company.
Again the well-established right to damages in passing off where deceptive goods have been put on the market and passed off as the plaintiff’s goods
has a practical relationship to the plaintiff’s business, which is a long way from the allegations of injury to the business goodwill of Lonrho in the
particulars: see Draper v Trist [1939] 3 All ER 513 at 519 per Greene MR and A G Spalding & Bros v A W Gamage Ltd (1918) 35 RPC 101 at 116, where
Swinfen Eady LJ cited from the speech of Lord Sumner on the hearing of an earlier stage in that case in the House of Lords; those were straightforward
deceptive goods cases which bear no resemblance at all to the elaborate allegation of injury to business goodwill or business reputation in the particulars
in the present case.
Beyond that, Lonrho’s share price is not an aspect of Lonrho’s goodwill in the sense referred to above. The share price of Lonrho is not an asset of
Lonrho at all. That the share price may be affected by the perceptions of stock market analysts, financial commentators and business journalists does not
mean that the assets of Lonrho are affected by such perceptions or that Lonrho suffers pecuniary damage if its share price falls as a result of the
publication of such perceptions.
So far as the individual plaintiffs are concerned, damages for injury to the reputation of each can only be recovered in a defamation action. It would
be unreal to say of, for example Mr Rowland that he has a double reputation, a general reputation which can only be the subject of a defamation action
and a business reputation which can be the subject of any other cause of action.
Accordingly I would refuse to allow amendment to introduce the proposed sub-head (a) in the proposed particulars of the claim by Lonrho, and the
whole of schedule 3 there referred to, and also the repetition of schedule 3 in para 1 of part 1 of schedule 4.
I turn then to the remaining sub-heads of the particulars of the claim by Lonrho.
I would allow as a matter of pleading sub-heads (b) and (c) in so far as they relate to the Iranian venture. Lonrho may or may not succeed at the trial
in establishing that it was because of Miss Pollard’s letter to the Iranian ambassador that the apparently promising Iranian venture did not proceed. But, at
least for pleading purposes, the nature of the claim is sufficiently indicated; it is not necessary to plead all the evidence which may be available at the
trial.
But I would not allow the claims under these sub-heads in relation to Malawi, Nigeria, Ghana or Zimbabwe. In relation to each of these countries,
which were countries in which Lonrho did business, it is shown that Miss Pollard wrote a letter to a senior official of the country concerned and that letter
was received by the official. It is alleged, and for present purposes it is to be assumed, that these letters were written with the intent, on the part of Miss
Pollard’s sponsors, the defendants, of injuring Lonrho. But the pleading requires the court to infer that 196 each letter caused the government
concerned to take some action, hostile to Lonrho, which Lonrho cannot specify because Lonrho does not know what it was, and further requires the court
to infer that action caused some damage to Lonrho which Lonrho cannot specify because Lonrho does not know that it has suffered any such damage.
That is not an adequately pleaded claim for pecuniary damage.
Sub-head (d) claims the cost of managerial and staff time spent in investigating, or mitigating the consequences of, the conspiracy. There is also a
claim for out of pocket expenses in respect of extra security guards, small in amount, but obviously related to aspects of the conspiracy. I would allow the
sub-head to be pleaded. British Motor Trade Association v Salvadori [1949] 1 All ER 208, [1949] Ch 556 indicates that time spent in detecting and
countering a conspiracy can be included in a claim for damages, at any rate if, as in that case there is also other pecuniary loss; in a simple case where
there is other pecuniary loss that seems elementary justice. Mr Munby QC submits that, since, with a ‘lawful means’ conspiracy, damage is the gist of the
Preamble
cause of action, it would be self-serving to allow the mere cost of staff time or payment to third parties to investigate and uncover the conspiracy to count
as damage and warrant the bringing of the action if the acts done by the conspirators have caused no other damage to the victim. But that, in my view, is
a matter better gone into at the trial when fuller facts are available to show what actually was done by Lonrho staff that is claimed under this heading.
Sub-head (e) is also concerned with management resources and staff time, but in relation to investigating the matters raised in the Esterhuysen
action. This is in addition to the claim in sub-head (f) for the costs, or alternatively the irrecoverable costs, of defending the Esterhuysen action.
Therefore whatever is claimed in sub-head (e) would seem to be something so remote that it could not properly be included in a bill of costs of Lonrho as
a defendant in the Esterhuysen action.
The claim by Lonrho for the costs of the Esterhuysen action cannot be sustained unless Lonrho wins the Esterhuysen action, and that has not yet
happened. But it appears from the decision at first instance in Singh v Observer Ltd [1989] 2 All ER 751 that if Lonrho succeeds in the Esterhuysen
action, the trial judge in that action would be entitled to order the Fayeds to pay Lonrho’s costs of that action. It is established that a party to a civil action
cannot, in a separate action, recover against the other party to the first action costs of the first action which he was not awarded at the trial of that action:
see Quartz Hill Consolidated Gold Mining Co v Eyre (1883) 11 QBD 674, which, in Berry v British Transport Commission [1961] 3 All ER 65, [1962] 1
QB 306, was held to be authority binding on this court so far as civil proceedings are concerned.
It is therefore submitted that the same principle should be applied to the recovery by Lonrho from third parties, the Fayeds, of its costs of the
Esterhuysen action. But, before the abolition in 1967 of the tort of maintenance, Lonrho would, notwithstanding the principle in Quartz Hill Consolidated
Gold Mining Co v Eyre, have been entitled to sue the Fayeds for its costs of the Esterhuysen action in a separate action for the tort of maintenance. That
tort has now been abolished and maintenance is not tortious or illegal, but I do not see that prevents Lonrho bringing a separate action under another
recognised head of tort—‘lawful means’ conspiracy—if the requisite ingredients of that tort can in all other respects be made out. Accordingly, for my
part, I would allow sub-head (f) to be pleaded. I would also allow sub-head (e) to be pleaded, because if sub-head (f) is allowed and succeeds it must be
arguable that there is expenditure within sub-head (e), which, 197 subject to examination of the facts at the trial, ought to be allowed on the British
Motor Trade Association v Salvadori principle.
That leaves sub-head (g), a residual claim to damages at large. It adds nothing, by way of particularity, and I would exclude it as unnecessary.
It follows that I would for my part allow the appeal of Lonrho, set aside the order of the judge so far as Lonrho is concerned and give Lonrho limited
leave to re-re-amend para 29 of its statement of claim.
So far as the individual plaintiffs are concerned, I would refuse to allow the introduction by amendment of either of the heads of damages suggested.
Accordingly so far as the individual plaintiffs are concerned the action must remain struck out.
STUART-SMITH LJ.
The plaintiffs’ cause of action

The plaintiffs’ cause of action is conspiracy to injure. The essential ingredients of this tort are an agreement by two or more persons to do acts,
lawful in themselves, for the sole or predominant purpose of causing injury to the plaintiff and which causes pecuniary loss to the plaintiff: see Lonrho
Ltd v Shell Petroleum Co Ltd [1981] 2 All ER 456, [1982] AC 173 and Lonrho plc v Fayed [1991] 3 All ER 303, [1992] 1 AC 448. It is not an action for
defamation or malicious falsehood; nor is it a conspiracy to injure by unlawful means. The case is in the main based upon statements made, ostensibly by
Miss Pollard, but in reality it is alleged by the defendants. There is no plea in the statement of claim that these statements are false and Mr Beveridge
accepted, albeit reluctantly, that the case had to proceed on the basis that the statements were true. Nevertheless he contends that the defendants commit a
tort if two or more agree to tell the truth about the plaintiffs, with the sole or predominant purpose of injuring them and in fact causing them pecuniary
loss. Mr Munby QC accepts that in this court that is the law. He reserved the right to argue in the House of Lords that this type of conspiracy should be
confined to acts rather than words. Lord Diplock in Lonrho Ltd v Shell Petroleum Co Ltd [1981] 2 All ER 456 at 464, [1982] AC 173 at 189 described
the action as anomalous. This case shows just how anomalous it is.
The application to strike out the statement of claim

This being an application to strike out on the basis that the statement of claim discloses no cause of action and/or is an abuse of the process of the
court, it is trite law that it should only be struck out if there is no arguable case disclosed on the pleadings and that situation cannot be cured by
amendment or if the action is clearly an abuse of process. The allegations of fact have to be assumed to be true. Furthermore, novel and difficult points
of law in an expanding field of law should not be determined against a plaintiff: see Lonrho plc v Fayed [1991] 3 All ER 303, [1992] 1 AC 448.
Proceedings before the judge

Before Macpherson J the defendants made four principal submissions. (1) The plaintiffs could not arguably prove that the sole or predominant
purpose of the conspiracy alleged was to injure the plaintiffs as opposed to serving their own legitimate interests. (2) The plaintiffs could not arguably
prove damage of the type necessary to found the cause of action. It is not altogether clear whether they also took the point that such damage was not even
pleaded and therefore the statement of claim disclosed no cause of action. (3) The plaintiffs could not obtain relief by way of injunction because they do
not come to court with clean 198 hands. (4) The action was an abuse of process because it was not brought for the legitimate purpose of obtaining
damages or other relief, for example by way of injunction, but for a collateral or ulterior purpose. This purpose was said to be to use the court simply as a
platform from which to broadcast their vilification of the defendants, and so carry on the campaign and vendetta which had been waged between the
parties for many years.
The judge rejected the first submission. He also rejected the second submission. But he was not in the least impressed by the plaintiffs’ claims for
damages. He rejected the submission by Mr Beveridge QC that the damages were palpable and at large and could be awarded for loss of reputation as in
a defamation action. He said that actual financial loss had to be proved; he pointed to the paucity of the pleadings; he plainly thought little of the claim
for loss caused by waste of ‘managerial time’ and loss of profits due to disruption of ‘commercial relations’ which had been pleaded in further and better
particulars sought by a defendant against whom the action has now been struck out. Finally, he was shown the memorandum of understanding dated 23
January 1989 between Lonrho, Mr Al-Tajir and the Bank of Industry and Mine of Iran and told that the plaintiffs would claim that lucrative projects
envisaged by this understanding were aborted as a result of Miss Pollard’s letter of the same date addressed to the Iranian ambassador in London, with
copies to Ayatollah Khomeini, the speaker of the Iranian parliament and his ministers. Although the judge did not strike out the claim on this basis, he
expressed himself as being most sceptical of the plaintiffs’ claim to damages.
As to relief by way of injunction he said that the plaintiffs did not come to court with clean hands. He said:
‘I cannot conceive that this court would entertain an application for an injunction against the Fayeds or those around them in the present state of
this affair, particularly upon the application of the author of “A Hero from Zero” and the other hyperbolic publications issued by the plaintiffs.’
Preamble
Millett J in Lonrho plc v Fayed (No 2) [1991] 4 All ER 961 at 967, [1992] 1 WLR 1 at 7 had described ‘A Hero from Zero’ as a comprehensive character
assassination of the Fayeds. He had struck out the action in that case on the basis that the plaintiff’s claim had—
‘no foundation in fact and is not made in good faith and with a genuine belief in its merits, but has been manufactured to provide a vehicle for a
further public denunciation of the Fayeds.’
The judge acceded to the defendants’ fourth submission. His conclusion is to be found on the following passage of his judgment:
‘The more I have listened to this case and considered the documents and the arguments, the more I have become convinced that the plaintiffs
are misusing the court’s processes in seeking to pursue this action at all … Not only do I believe that any remedy which might conceivably be
available to the plaintiffs would be minimal, but also I firmly believe that the court should not be used for what is in truth simply a continuation of
their half of this vendetta by the plaintiffs in the artificial form of an action at law … Master Topley referred in his judgment in this case to the fact
that “Neither party has shrunk from blackguarding the other in public, and each has used the courts as a rooftop to crow vilifications against their
adversaries”. So far as is properly in my power, I do not propose to allow that to happen again. I am convinced that exactly that is the objective of
the plaintiffs, and would be the aim of the 199 defendants if they were to have to defend and counterclaim against the present pleading. There
is no need to say more. In different circumstances and for different reasons, but with as much emphasis as Millett J, I too find that upon a
consideration of the history of this campaign these proceedings have no proper basis and these claims are not made in good faith and with a genuine
belief in their merits. This is another attempt, in my judgment, to manufacture a vehicle for further denunciation of the Fayeds, and an attempt to
bring into this court, which has much other business to conclude, including Lonrho’s own live claim to which I have already referred, yet another
round in the disreputable vendetta between these parties.’
Appeal and cross-appeal

Pursuant to leave granted by this court the plaintiffs’ appeal the judge’s order striking out the action and in particular his conclusion that no
injunction could be granted and that the action was an abuse of process. By his skeleton argument Mr Munby indicated that if leave to appeal were
granted he wished to cross-appeal the judge’s conclusions on his first two submissions. It is convenient to consider these four points in the order which I
have already set out.
(1) The predominant purpose of the conspiracy

In this type of conspiracy the plaintiff must prove that the sole or predominant purpose of the conspiracy is to injure the plaintiff. If the predominant
purpose of the defendants is to protect or advance their own self interest, even though damage to the plaintiff is an intended consequence it is not
actionable: see Lonrho Ltd v Shell Petroleum Co Ltd [1981] 2 All ER 456, [1982] AC 173, Mogul Steamship Co Ltd v McGregor Gow & Co [1892] AC
25, [1891–4] All ER Rep 263 and British Airways Board v Laker Airways Ltd [1984] 3 All ER 39, [1985] AC 58.
Mr Munby submits that the matters complained of, if they are proved to have been done by the Fayeds, which is denied, were plainly done for their
own self-interest. He says that they were counter-attacks for the purpose of putting pressure on the plaintiffs to desist from their campaign and to devalue
those attacks. In my judgment it is quite impossible to say that this is so plain that the contrary is unarguable. The very fact that the defendants’
activities, if proved, as they must be taken to be for present purposes, were covert, makes it difficult to assert that the purpose was to put pressure on
Lonrho to desist from its campaign. The action cannot be struck out on the basis that the plaintiff had no arguable case on this point.
(2) Damages
Damage to the plaintiff is the gist of the action (see per Lord Diplock in Lonrho Ltd v Shell Petroleum Co Ltd [1981] 2 All ER 456 at 463, [1982] AC
173 at 188). Moreover the plaintiff must prove actual pecuniary or financial loss. In Quinn v Leathem [1901] AC 495 at 498, [1900–3] All ER Rep 1 the
trial judge said:
‘I told the jury that pecuniary loss directly caused by the conduct of the defendants, must be proved in order to establish a cause of action, and I
advised them to require to be satisfied that such loss to a substantial amount had been proved by the plaintiff. I declined to tell them that if actual
and substantial pecuniary loss was proved to have been directly caused to the plaintiff by the wrongful acts of the defendants, they were bound to
limit the amount of damages to the precise sum so proved. I told them that if the plaintiff gave the proof of actual and substantial loss necessary to
maintain the action, they were at liberty in assessing damages to take all the 200 circumstances of the case, including the conduct of the
defendants, reasonably into account.’
This direction was approved by the Earl of Halsbury LC, Lord Brampton and Lord Lindley (see [1901] AC 495 at 508, 521, 540, [1900–3] All ER Rep 1
at 8, 18); see also Pratt v British Medical Association [1919] 1 KB 244 at 281–282, [1918–19] All ER Rep 104. Actual pecuniary loss is not the same as
injury or damage, which can be measured or compensated by a monetary award. The latter would include damages for personal injury or injury to
reputation, though of course actual pecuniary loss may result as a consequence of personal injury or defamation. Nor is it sufficient in my judgment to
constitute the tort that the defendants’ actions were merely calculated to cause pecuniary loss unless they actually did so. In the torts of slander of title,
slander of goods, or other malicious falsehood at common law actual pecuniary loss had to be proved. This was changed by s 3 of the Defamation Act
1952, which provides that in relation to these torts it shall not be necessary to allege or prove special damage (which in this context means actual
pecuniary loss) if the words are calculated to cause pecuniary damage and are published in writing or other permanent form or are calculated to cause
pecuniary damage to the plaintiff in respect of any office, profession, calling, trade or business held or carried on by him.
On the other hand I do not think that precise calculation of the pecuniary loss is necessary, particularly where such loss may be continuing. Loss of
employment, loss of profit because of cancellation of a potentially profitable contract or general loss of custom would suffice, though if losses had already
been incurred from such cause for my part I would expect some calculation to be pleaded.
In Ratcliffe v Evans [1892] 2 QB 524 at 532–533, [1891–4] All ER Rep 699 at 704 Bowen LJ giving the judgment of the court, which included Lord
Esher MR and Fry LJ, indicated what had to be pleaded:
‘In all actions accordingly on the case where the damage actually done is the gist of the action, the character of the acts themselves which
produce the damage, and the circumstances under which these acts are done, must regulate the degree of certainty and particularity with which the
damage done ought to be stated and proved. As much certainty and particularity must be insisted on, both in pleading and proof of damage, as is
reasonable, having regard to the circumstances and to the nature of the acts themselves by which the damage is done. To insist upon less would be
Preamble
to relax old and intelligible principles. To insist upon more would be the vainest pedantry.’
The reamended statement of claim as it came before the judge and this court was in my judgment totally defective in relation to the plea of damages.
All that was said was that the plaintiff claimed damages. I have no doubt that it did not disclose a cause of action, since an essential ingredient, namely
actual pecuniary loss was not alleged. Unless the pleading can be cured by amendment, in my opinion the action should be struck out. In his reply to Mr
Munby’s submissions, Mr Beveridge sought for the first time leave to amend. I consider hereafter and to what extent leave should be granted.
(3) Relief by way of injunction

The court has a discretion to refuse equitable relief by way of injunction if the plaintiff has been guilty of unconscionable behaviour and does not
come with clean hands. But in my judgment this is a matter for the discretion of the trial judge. It seems to me to be arguable that the plaintiff’s
behaviour in conducting 201 its vendetta against the Fayeds, however intemperate and immoderate it may have been, is not a sufficient ground for
barring them from all relief, provided the other ingredients of the tort, including actual pecuniary loss, are made out. Nor do I think the fact that the
plaintiff did not act bona fide in bringing the action struck out by Millett J, unarguably debars them from pursuing the action. I differ from the judge on
this point.
(4) Abuse of process

If an action is not brought bona fide for the purpose of obtaining relief but for some ulterior or collateral purpose, it may be struck out as an abuse of
the process of the court. The time of the court should not be wasted on such matters and other litigants should not have to wait till they are disposed of. It
may be that the trial judge will conclude that this is the case here; in which case he can dismiss the action then. But for the court to strike it out on this
basis at this stage it must be clear that this is the case. I cannot agree with the judge that the point is so plain as to be unarguable.
The application for leave to re-re-amend the statement of claim

The proposed amendment, which runs to some 40 pages, puts forward seven heads of claim by Lonrho and two by Mr Rowland and Sir Edward du
Cann. Leave should be granted provided it involves no injustice to the defendants which cannot be compensated for in costs. And a pleading should not
be struck out if it can be cured by amendment. The defendants however contend that each of the heads of claim are unsustainable or misconceived.
Before turning to the specific claims it is necessary to deal with certain points of principle.
Can the plaintiff recover damages for injury to reputation?

An individual can sue for injury to reputation and a trading company can sue for injury to its business reputation, but in my judgment to do so it must
sue in defamation. I think this follows as a matter of principle and also on authority. The reason in principle is that no one has a right to a reputation
which is unmerited. Accordingly one can only suffer an injury to reputation if what is said is false. In defamation the falsity of the libel or slander is
presumed; but justification is a complete defence. In malicious falsehood, the plaintiff has to prove that the statement is false.
In Bell-Booth Group Ltd v A-G [1989] 3 NZLR 148 the plaintiff claimed in defamation and alternatively in negligence. The trial judge rejected the
claim in defamation on the grounds of justification, but found for the plaintiff in negligence. The New Zealand Court of Appeal allowed the defendant’s
appeal. Cooke P, giving the judgment of the court, said (at 156–157):
‘The common law rules, and their statutory modifications, regarding defamation and injurious falsehood represent compromises gradually
worked out by the Courts over the years, with some legislative adjustments, between competing values. Personal reputation and freedom to trade
on the one hand have to be balanced against freedom to speak or criticise on the other. In the result the present rules are in broad terms well-known
and reasonably clear. To an action for defamation truth is an absolute defence. Privilege, where applicable, is in a few areas an absolute but in
most a qualified defence. Fair comment is a qualified defence subject to rather different rules. In injurious falsehood, on the other hand, the
plaintiff has the burden of proving both falsity and malice. These evolved compromises may 202 not draw the lines in places that will always
be found generally acceptable in the community. Some argue, for instance, for greater media freedom or licence; statutory changes have been
recommended but not enacted. It is a controversial area. The important point for present purposes is that the law as to injury to reputation and
freedom of speech is a field of its own. To impose the law of negligence upon it by accepting that there may be common law duties of care not to
publish the truth would be to introduce a distorting element. It was argued for the appellant, inter alia, that neither defamation nor slander of goods
requires a background duty or breach; and if injury does or may involve those separate elements, there is no ground for depriving the plaintiff of a
separate cause of action. That is really no more than a semantic point. The duty in defamation may be described as a duty not to defame without
justification or privilege or otherwise than by way of fair comment. The duty in injurious falsehood may be defined as a duty not to disparage
goods untruthfully and maliciously. In substance the appellant would add to these duties a duty in such a case as this to take care not to injure the
plaintiff’s reputation by true statements. All the arguments for the appellant, though put skilfully in various ways by counsel, reduce to that
proposition. In our opinion, to accept it would be to introduce negligence law into a field for which it was not designed and is not appropriate...
For these reasons in our opinion justice does not require or warrant an importation of negligence law into this class of case. Where remedies are
needed they are already available in the form of actions for defamation, injurious falsehood, breach of contract or breach of confidence.
Accordingly the cross-appeal must be allowed, and the findings of duty of care and breach and the award of damages for negligence set aside.’
In Spring v Guardian Assurance plc [1993] 2 All ER 273 at 294 Glidewell LJ giving the judgment of the Court of Appeal said that this passage
represented the law of England. The decision has been followed in two further decisions of this court, Petch v Customs and Excise Comrs (1993) Times,
4 March and Martine v South East Kent Health Authority (1993) Times, 8 March. In Joyce v Sengupta [1993] 1 All ER 897, [1993] 1 WLR 337 the
defendants published a defamatory statement of the plaintiff in a national newspaper. The plaintiff sued for malicious falsehood and not defamation
because she could not get legal aid for the latter claim. It was held she was entitled to sue provided she could prove that the statement was false, it was
published maliciously and she had suffered financial loss. But she could not recover damages for injury to reputation at large. Sir Donald Nicholls V-C
said ([1993] 1 All ER 897 at 907–908, [1993] 1 WLR 337 at 348):
‘It would be going too far to hold that all non-pecuniary loss suffered by a plaintiff is recoverable in a malicious falsehood action, because that
would include injury to reputation at large. The history of malicious falsehood as a cause of action shows it was not designed to provide a remedy
for such injury: the remedy for such loss is an action for defamation in which, incidentally, damages for injury to feelings may be included in a
general award of damages (see Fielding v Variety Inc [1967] 2 All ER 497 at 500, 502, [1967] 2 QB 841 at 851, 855 per Lord Denning MR and
Salmon LJ).’
Preamble
The other two members of the court agreed with this.

Nor in my judgment can such a claim be tacked on as parasitic damages to some head of pecuniary loss in this case. In cases of malicious
prosecution it is possible to get damages for injury to reputation: see Savile v Roberts (1699) 1 Ld Raym 374, 91 ER 1147 and Berry v British Transport
Commission [1961] 3 All ER 65, [1962] 1 QB 203 306. So also in cases of false imprisonment: see Walter v Alltools Ltd (1944) 171 LT 371 at 372
and Hook v Cunard Steamship Co Ltd [1953] 1 All ER 1021, [1953] 1 WLR 682. But these are cases where the wrongful act of the defendant casts an
imputation on the reputation of the plaintiff which ex hypothesi is not justified. Moreover, they are also cases in which the plaintiff probably cannot sue
for defamation, since statements in court are absolutely privileged and in false imprisonment there may be no statement at all. These cases do not assist
the plaintiffs. In Thurston v Charles (1905) 21 TLR 659 the defendant wrongfully communicated to another person a letter written by a third person to
the plaintiff which had come into the defendant’s possession. The plaintiff brought an action to recover damages for the detention and conversion of the
letter and also for libel. The claim in defamation failed because the publication was privileged, but the claim in conversion succeeded. The judge
awarded substantial damages for what appears to be loss of reputation. In my judgment this decision is inconsistent with the recent cases in this court
which I have cited.
Damages at large
If the plaintiff established pecuniary loss it is common ground that damages are at large. But the parties have a different view of what is meant by
this. In Rookes v Barnard [1964] 1 All ER 367 at 407, [1964] AC 1129 at 1221 Lord Devlin said:
‘It must be remembered that in many cases of tort damages are at large, that is to say, the award is not limited to the pecuniary loss that can be
specifically proved. In the present case, for example, and leaving aside any question of exemplary or aggravated damages, the appellant’s damages
would not necessarily be confined to those which he would obtain in an action for wrongful dismissal. He can invite the jury to look at all the
circumstances, the inconvenience caused to him by the change of job and the unhappiness maybe by a change of livelihood. In such a case as this,
it is quite proper without any departure from the compensatory principle to award a round sum based on the pecuniary loss proved.’
For reasons I have already given in this case the plaintiffs cannot recover damages for injury to reputation. Nor can they recover damages for injured
feelings. In the case of Lonrho it has no feelings. In the case of the personal plaintiffs, they allege no pecuniary loss, so in my judgment they have no
cause of action and injured feelings would simply be an adjunct of injury to reputation.
But the plaintiffs also contend that if they can prove some pecuniary loss, for example in relation to the Iranian contracts, they can also maintain
some general, unspecified and unquantified plea of damage to goodwill arising from all the other overt acts relied upon, which are wholly unconnected
with any loss resulting from the Iranian contracts. I cannot accept this submission. In my judgment the matters alleged in paras 11 to 28 of the statement
of claim are acts relied upon as showing the agreement between the defendants and that their predominant purpose was to injure the plaintiff. But in so
far as such acts cause damage to the plaintiffs it must in my view be pecuniary damage and it must be pleaded with sufficient particularity. In other words
there must be a sufficient nexus between the act causing pecuniary loss and the other damage for which compensation is claimed. Since the tort of
conspiracy to injure is not complete without pecuniary loss, any damages at large must be referable to the act causing the pecuniary loss which constitutes
the tort.
I turn to the specific heads of damage in the proposed re-re-amendment.
204
(a) ‘Damages for injury to Lonrho’s right of property in the goodwill of its business the value of which was diminished by each and/or all of the
conspiratorial acts identified in part I of Schedule 2 hereto.’
With the exception of the allegations in the Esterhuysen proceedings and the demonstration outside Lonrho’s annual general meeting by Miss
Pollard, these are all statements made by Miss Pollard. The manner in which goodwill is said to have been damaged is set out in schedule 3. In my
opinion this schedule is nothing more than a complaint of injury to reputation with some wholly unspecified and unquantified injury to goodwill, which
ranges from damage to the confidence of customers, the ability to attract employees and backers, the perception of stock market analysts, financial
commentators and journalists and the impact on Lonrho’s share price. I would refuse leave to amend to include this paragraph. I reach this conclusion
without regret because I consider the claim in para (a) even if it were or could be properly quantifiable as virtually untriable. The number of witnesses on
both sides would be likely to be legion and how a judge could determine that it was Miss Pollard’s letters and other effusions, assumed for this purpose to
be true, rather than other extraneous factors such as poor service, overborrowing, weak managerial control or the caprice of African ministers that cause a
loss of business, if any, or adverse opinions of analysts, journalists, staff and others, I do not know.
(b) The claim is for ‘damages for injury to its business relations with third parties by each and/or all of the conspiratorial acts identified in part 1 of
schedule 2. The manner in which Lonrho’s business relations with third parties were damaged by conspiratorial acts complained of appears in schedule
4.’
The third parties referred to in schedule 4 can be divided in two groups, namely African countries where Lonrho had trading subsidiaries and Iran.
For my part I find it difficult to see how the acts alleged in part 1 of schedule 2, especially such incidents as that with the lavatory seat, and letters sent to
innumerable people in England can have any bearing on the matter. But in schedule 4 the plaintiffs rely on specific letters and other documents
complained of sent to persons in power.
So far as the African countries are concerned I set out what is pleaded in relation to Malawi, since this is the country where Lonrho had a large
number of subsidiaries and the allegation is typical of those made in relation to Nigeria, Ghana and Zimbabwe:
‘(a) Malawi. In or about January 1990, the defendants purportedly in the name of Miss Pollard, corresponded with the Inspector General of the
Malawi Police Force. Pending discovery and/or interrogatories herein the plaintiffs are unable to identify exhaustively what material was sent by
the defendants to the Inspector General but the same included “Therefore I accuse”, “Fair Cop Fuhrhop”, “Trelford Epitaph” and the “EIR article”.
Lonrho is the largest commercial operator in Malawi. Both Lonrho itself and its subsidiaries (which are identified in Part II below and well known
by all to be Lonrho subsidiaries) are well known within the government administration at all levels. The Inspector General occupies a post of great
importance in Malawi and is inter alia responsible for the gathering and imparting of information of a confidential nature to various Malawian
government departments. It is to be inferred from the Inspector General’s written response dated 23rd March 1990 to Miss Pollard (in which the
Inspector General referred to the material provided in her name as being “vital information”) that the Inspector General took at least part of that
material seriously and that therefore he would have passed on part of that information to various government departments responsible for the
205 management of business in Malawi, for example the granting and withholding of licences, permits, planning permission and the like
including permission to repatriate funds and the application of labour regulations. The Malawian authorities collectively regulate every significant
aspect of business in Malawi. Lonrho will ask the court to infer that some action in relation to Lonrho’s business interest in Malawi was taken in
Preamble
consequence of the recept by the Inspector General of Miss Pollard’s material.’
If it is a claim for financial loss it is wholly unquantified and in my opinion on this pleading unquantifiable. There is no indication what action the
Malawi authorities took, or even that it was adverse to Lonrho. If there really had been an adverse effect to any measurable extent I would have expected
the relevant subsidiaries to have been complaining that for some unaccountable reason they suddenly found that planning permission and licences were
being refused where they were expected to be given or the labour laws suddenly enforced rigorously to their disadvantage. Then when Lonrho discovered
Miss Pollard’s letter to the Inspector General, if the timing was coincidental, the hitherto inexplicable cause of the adverse actions would become clear.
Mr Beveridge says that such evidence may materialise by trial and the plaintiffs have not had time to assemble their case. I fully accept that they have
been unable to find such evidence, if it exists, in the 14-day adjournment of the hearing. But in my opinion the plaintiffs have had ample time to marshal
this evidence, if it exists, since they discovered that they had a cause of action. The truth is the plaintiffs’ advisers do not seem to have turned their minds
to the need to prove actual financial loss until the hearing in this court or perhaps before the judge. That consideration may lend some support to the view
that the action is an abuse of process.
The case in respect of Zimbabwe is slightly different in that the damage is said to relate to the repatriation of funds. The plaintiffs accept that they
cannot say how many applications were affected; they merely invite the court to infer that some were because Mr Hatendi of the exchange control
department of the Reserve Bank expressed interest in the material sent by Miss Pollard. But again no attempt is made to point to a pattern consistent with
the adverse effect that it is said this material had or to quantify in any way how the plaintiffs sustained loss. This inadequacy is underlined by para 2(f) of
schedule 4, which reads as follows:
‘With the exception of the Iranian contract, Lonrho does not have in relation to any of the aforesaid matters specific evidence of any action
taken against it because of the distribution of the Pollard material. However, Lonrho will contend that it is in the nature of things that Lonrho
would not be informed of action taken against it on the basis of such material.’
In my judgment leave should not be given in relation to paras 2(a) to (d) of schedule 4.
The position in relation to Iran is different. The coincidence of the timing of Miss Pollard’s letters to the Iranian authorities with their sudden lack of
interest is striking. I agree with Mr Munby that if that is the only evidence at trial it may not be sufficient to get the plaintiffs home. There may be other
equally or more likely explanations. But it is certainly a possible inference. Moreover the plaintiffs do not have to plead evidence, they have to plead
facts. And the facts they plead are that the joint venture was aborted as result of the letter. If this is true, then the plaintiffs may be able to adduce further
evidence at trial to this effect. Moreover if this fact is established, it would give rise to quantifiable financial loss. Some 206 attempt has already
been made to do this, although far more is needed. I do not think this plea can be disallowed at this stage as being unarguable.
(c) This claim seems to be substantially the same as that relating to the Iranian venture.
(d) The claim is for waste of managerial and staff time including time spent in investigating and/or mitigating the consequences of the conspiracy
together with associated expenses as were fully described in schedule 5. This schedule has two headings. The first is time spent by various persons in
Lonrho in reading Miss Pollard’s letters and correspondence with third parties about them, preparing memoranda for the board, and consulting solicitors,
private investigators and public relations consultants. For my part I am doubtful whether this is a proper head of financial loss sufficient to sustain this
type of conspiracy. It is self-serving damage or as was described in argument a ‘bootstraps’ argument in the sense that the plaintiffs are only making
something actionable which would otherwise not be by their actions in investigating Miss Pollard’s activities. British Motor Trade Association v
Salvadori [1949] 1 All ER 208, [1949] Ch 556 is distinguishable since that case was an unlawful means conspiracy. However, I do not think the point is
so clear that it can be regarded as unarguable.
The second head, namely hire of extra security guards for the 1989, 1990 and 1991 annual general meetings of Lonrho to protect arriving and
departing shareholders from Miss Pollard’s activities, is I think arguable, though the claim is very modest. Accordingly I would permit this amendment.
(e) The claim is for management resources and staff time spent in investigating the events in 1960 and 1970 which are the subject of the Esterhuysen
proceeding. It is said that 200 hours of Mr Dunlop’s time and 41 hours of Mr Etheridge’s time was so spent. The claim is very modest. I cannot see how
it is sustainable unless Lonrho win the Esterhuysen action. And I consider it is open to the same objections as those which I have set out in relation to the
first part of (d). But again, I do not think I can go so far as to say that this claim is unarguable. I would allow this amendment.
(f) This claim is for the costs of defending the Esterhuysen proceedings or alternatively the irrecoverable costs. In my judgment this claim is
unsustainable. Mr Beveridge accepts that he can have no claim unless Lonrho wins the Esterhuysen litigation. He also accepts that if it is proved in that
litigation that the Fayeds have maintained the action, the judge in those proceedings has jurisdiction and discretion to order the Fayeds to pay the costs:
see Singh v Observer Ltd [1989] 2 All ER 751; on appeal [1989] 3 All ER 777. For the purposes of the present proceedings it must be assumed that the
allegation that the Fayeds are maintaining the Esterhuysen action is true. So far as the question of costs in that action is concerned therefore the Fayeds
are in the same position as if they were plaintiffs. It is well established that a party cannot recover in a separate action costs which he could have been,
but was not awarded at the trial of a civil action or the difference between the costs he recovers from other party and those he has to pay his own solicitor:
see Clerk and Lindsell on Torts (16th edn, 1989) pp 290–292, para 5.35 and Quartz Hill Consolidated Gold Mining Co v Eyre (1883) 11 QBD 674. In
Berry v British Transport Commission [1961] 3 All ER 65, [1962] 1 QB 306 the Court of Appeal refused to extend this principle to the difference
between costs awarded to a successful defendant in a criminal trial and her actual costs where the claim is for malicious prosecution. But apart from
expressing concern at the unreality of the position in civil cases, since party and party costs were assessed on the basis of necessary and not reasonable
costs incurred, the court did not disapprove the principle stated in the Quartz Hill case. That problem has now been mitigated 207 since standard
costs are taxed on the basis of a reasonable amount in respect of all costs reasonably incurred: see RSC Ord 62, r 12. In my judgment it is vexatious and
an abuse of process for the plaintiff to sue for these costs in this action, when they can be recovered in the Esterhuysen action. The defendants should not
have to face a claim for the same matter in two sets of proceedings.
Paragraph (g) of the proposed amended claim, as Mr Beveridge frankly accepts, adds nothing. I would not allow it.
The claim in respect of Mr Rowland and Sir Edward du Cann is for damages for loss of business reputation and injury to feelings. The word
‘business’ adds nothing to damages for reputation. That claim for reasons already given is unsustainable. The claim for injury to feelings is dependent on
the claim for loss of reputation and therefore cannot be sustained. Neither claims are for actual pecuniary loss and they fall on that basis also.
EVANS LJ. It is common knowledge that Mr Rowland and Lonrho plc, which it is tempting to call his company, fell out with the Fayed brothers over
the acquisition of the House of Fraser in 1985, and that there has been a bitter, highly-publicised dispute between them ever since. For his part, Mr
Rowland has extended his allegations to ministers, advisers and many others. His campaign has been described as ill-tempered, immoderate and
obsessive, and the accuracy of this description is not denied, at least for the purposes of this appeal. For their part, the Fayeds have responded in kind.
They commissioned an accountants’ report into the financial status of Lonrho, which was critical, and they sought to use this to the company’s detriment,
at the annual general meeting and elsewhere.
Mr Rowland has had a controversial business career. This is confirmed by a recently published biography, even if as Mr Rowland asserts only part
Preamble
of its contents is true. But it has also been an highly successful career, in terms of financial rewards for himself and for others. Undoubtedly, he has
made many enemies. These include a Miss Francesca Pollard. She claims that she was cheated out of her inheritance, some £40m, by Mr Rowland and
others. She pursued a relentless campaign against him from before 1986 until 1991. Although possibly on a somewhat smaller scale than his against the
Fayeds, her campaign has matched his for obsession and ill-tempered abuse.
It is alleged in the present proceedings that from 1986 she and her campaign were sponsored by the Fayeds. It is said that they supported,
encouraged and above all financed her in her efforts to denigrate and cause damage to Mr Rowland and Lonrho. The latter became aware of this in 1989,
and one question which arises is whether they should have taken action at that time. But in 1991 there was a dramatic turn of events. Miss Pollard turned
her coat. Now, Mr Rowland is said to have supported her financially, and she has become a potential witness in these proceedings, who will support his
allegation that she and the Fayeds conspired to cause damage to him and to Lonrho.
It is unlawful to combine with others with the sole or predominant object of causing injury to another person, even if the means used for that purpose
are not themselves unlawful. The scope of ‘lawful means’ conspiracy was considered by the House of Lords in other proceedings between these parties,
in Lonrho plc v Fayed [1991] 3 All ER 303 esp at 309, [1992] 1 AC 448 esp at 465 in the speech of Lord Bridge . Even so, as the present case
demonstrates, the limits of the tort are far from clear. The essential facts are, first, a combination between the defendant and others; second, with the sole
or predominant object of causing injury to another person; and third, damage in fact so caused. There is, however, a recognised defence of self-interest,
which in essence is the converse of the requirement that 208 the plaintiff must prove that the predominant if not the sole object was to cause injury,
rather than to serve the defendant’s own lawful interest.
It may well be said as a preliminary observation that any proceedings which raise these issues is quintessentially a case for trial. The nature of the
allegations in the present case is such that a long and expensive trial is inevitable, but that is the result of the way in which the tort is defined.
The defendants deny all the allegations, including the allegation of primary fact that there was a combination between Miss Pollard and the Fayed
brothers and others, as Miss Pollard apparently will assert. But they also rely upon a variant of the self-interest defence, contending that the virulence of
the Rowland/Lonrho campaign against them was such, that a counter-attack by means of supporting Miss Pollard was justified as a form of self-defence.
This leaves open the question why, if their intention was to bring pressure to bear on Mr Rowland and Lonrho to desist from waging war against them, the
defendants supported Miss Pollard secretly, if they did so at all, thereby running the risk that their association with her would not be realised, as it was not
until, apparently, 1989. Their support of the proceedings brought by Mr Esterhuysen, which is acknowledged, is justified on similar grounds.
A notable feature of the mass of material before us—only a small portion of which has been read or referred to during the appeal—is that the
statement of claim makes only one reference to the House of Fraser dispute, and that is to provide historical support for the allegation that the defendants
combined in order to cause damage to the plaintiff. It is the defendants who in their voluminous affidavit evidence and exhibits go over the detailed
history of the affair and its many consequences, including the report of inspectors appointed by the Department of Trade and Industry, in order to provide
grounds for their self-interest defence.
This does not mean that the defendants are not entitled to apply to have the proceedings struck out. But it would be strange if the scope and nature of
an intended defence should lead to the conclusion that a claim not itself objectionable should be struck out at this preliminary stage. The sole current
issue, in my judgment, is whether the claim is objectionable, or not.
Dillon and Stuart-Smith LJJ are in agreement on all issues save one item of the heads of damage claimed in the draft reamended points of claim and
further particulars which were produced during the hearing. I respectfully agree with their judgments on all these issues and I would add only the
following further comments.
First, the modern definition of ‘cause of action’ is found in the judgments of Lord Denning MR and Diplock LJ in Letang v Cooper [1964] 2 All ER
929, [1965] 1 QB 232. Diplock LJ said ([1964] 2 All ER 929 at 934, [1965] 1 QB 232 at 242–243):
‘A cause of action is simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another
person.’
The old ‘forms of action’ which ruled all common law civil proceedings were rules of pleading, and these have long since been abolished. Despite
Maitland’s famous dictum ‘the forms of action we have buried, but they still rule us from their graves’ (Forms of Action (1909) p 296) they can now be
disregarded (cf Lord Atkin’s equally famous remark in United Australia Ltd v Barclays Bank Ltd [1940] 4 All ER 20 at 37, [1941] AC 1 at 29, both
quoted in Lord Denning MR’s judgment ([1964] 2 All ER 929 at 932, [1965] 1 QB 232 at 239). They no longer form a guide to substantive rights (ibid).
Those depend upon the factual situation described by Diplock LJ in the passage quoted above.
209
In Joyce v Sengupta [1993] 1 All ER 897, [1993] 1 WLR 337, therefore, the question was not one of form, or the correct method of pleading. It was
whether the facts relied upon by the plaintiff—the factual situation described in her claim—established one or more than one causes of action. If more
than one, then there was no justification for depriving her of the remedies which the facts relevant to each cause of action entitled her to obtain.
Essentially the same problem arises in the present case. ‘Damage’ is an essential ingredient of the cause of action which the plaintiffs assert. It is
the ‘gist of the cause of action’ (per Lord Diplock in Lonrho Ltd v Shell Petroleum Co Ltd [1981] 2 All ER 456 at 463, [1982] AC 173 at 188). The
original statement of claim contained no allegation of damage other than a formal and wholly unparticularised averment in general terms (para 29).
Unless the plaintiffs allege and prove the kind of damage which forms part of the factual situation giving rise as a matter of law to the cause of action
upon which they rely, then their claim will fail; and unless they allege such damage, their claim in my judgment can be struck out at this preliminary
stage.
Second, and following on from the first, is the question, what kind of damage must the plaintiffs prove in order to succeed, and allege in order to
avoid their claim being struck out? It is common ground that this must include pecuniary loss, which I take to mean loss that is capable of being
measured in money terms, and not merely capable of being assessed as financial compensation for some other kind of injury, as general damages for
personal injury or for loss of reputation in defamation actions are. Where the plaintiffs allege facts which, if proved, will establish damage of this kind, as
with the alleged loss of immensely valuable contracts (or contacts) in Iran, then the claim cannot be struck out unless the proceedings are brought for
some improper or collateral motive. Where, however, the pleading itself asserts that the plaintiffs are presently unable to identify any such loss, or to
allege that any measurable loss has occurred, then the claim is defective because it fails to describe a factual situation which gives rise to the cause of
action upon which the plaintiffs rely. In such cases, the claim is not necessarily struck out at once. A proper opportunity to amend, or to add to
particulars, may well be given, as it has been given here. The failure to allege damage of an appropriate kind may be explained and it may be apparent
that existing defects are not only understandable but will be remedied before the trial, eg if further time for investigations is required or if documents have
first to be disclosed by the defendants or obtained from other persons. But no such factors operate here. The plaintiffs, despite their huge resources,
cannot even say that any identifiable loss has occurred which is pecuniary in the sense described above. In my judgment, these other claims should
properly be struck out on these grounds.
Third, the question whether damages for loss of reputation, or loss of business reputation, can be recovered in these proceedings, where defamation is
Preamble
not alleged, seems to me to involve two issues, one a question of law and the other largely a matter of semantics. The question of law is whether damage
of that kind is sufficient to establish the cause of action in conspiracy upon which the plaintiffs rely. In my judgment, it is not. Such damages are not
pecuniary loss, in the sense which I have described, and it follows that they form no part of the factual situation which entitles the plaintiffs to the remedy
they seek. Nor can such damages be recovered parasitically, in my judgment, in addition to damage for pecuniary loss, for the reasons given by Dillon
and Stuart-Smith LJJ. Conversely, the factual situation which gives a remedy in respect of loss of reputation is the cause of action in defamation which
the plaintiffs conspicuously fail to assert. 210 Spring v Guardian Assurance plc [1993] 2 All ER 273 is Court of Appeal authority for this proposition,
following Bell-Booth Group Ltd v A-G [1989] 3 NZLR 148 at 156 where Cooke P used a graphic phrase, ‘The important point for present purposes is that
the law as to injury to reputation and freedom of speech is a field of its own.’ More prosaically, damage of that kind is part of the factual situation which
establishes a cause of action in defamation, but not in other torts, including negligence (Bell-Booth Group Ltd) and lawful means conspiracy (here).
The same conclusion is justified on wider grounds. If damages for loss of reputation could be recovered by alleging and proving a lawful means
conspiracy, then it would be unlawful to combine with another person in order to tell the truth about the plaintiff with the object of depriving him of a
reputation which he enjoys but does not deserve. The implications are far-reaching, and this result could only be prevented by introducing, for example, a
defence of justification and other safeguards which have evolved as part of the law of defamation. In other words, ‘lawful means’ conspiracy should not
exist as a separate tort for damage of this kind.
The matter of semantics is the need to distinguish between loss of reputation in the defamation sense, and a loss of reputation which is synonymous
with a loss of customer goodwill, resulting in a loss of business which can therefore be measured in money terms. The authorities which have been
referred to by Dillon and Stuart-Smith LJJ illustrate the proposition that the plaintiff is not limited to damages which can be precisely measured and
specifically proved, but is entitled more generally to damages representing the court’s best assessment of financial loss in fact suffered and proved.
Finally, the defendants appeal to the court’s power to regulate all proceedings before it and they contend that in the present case the court should
refuse altogether to entertain the plaintiffs’ claim. Like Macpherson J, I find it unappetising that the parties or either of them should use the proceedings
as a platform to air their grievances or as a roof-top from which to crow. I have already pointed out that it is the defendants, not the plaintiffs, who seek
to introduce the full history of the House of Fraser affair. The plaintiffs’ allegation is that the defendants carried the warfare into different territory, that is
Miss Pollard and the Esterhuysen allegations, and they did so covertly, in order that those allegations should appear distinct. The plaintiffs cannot be said
to be bringing the proceedings with a collateral or improper motive, in my judgment, in so far as they allege facts which entitle them to damages for
conspiracy, and there are no grounds for depriving the plaintiffs of that remedy if they are entitled to it. But the court can and will keep the proceedings
within proper limits, which at this stage means restricting the plaintiffs to the cause of action upon which they rely. The need for control and discipline
will continue throughout the proceedings and it will affect both parties equally; the defendants no less than the plaintiffs will be required to keep their
factual allegations, and the related pleadings and discovery, within bounds. The mass of unread documents produced for the purposes of this application
and appeal shows just how much scope for discipline there is.
Damage—particulars (f)
The defendants accept that they are supporting the plaintiff in the Esterhuysen proceedings and that, if those proceedings fail, then the trial judge will
have power to award costs against them as well as against the plaintiff: see Singh v Observer Ltd [1989] 2 All ER 751.
Mr Beveridge QC for the present plaintiffs accepts that no claim will lie under this head if the Esterhuysen proceedings against Lonrho succeed. Nor
does he 211 dispute that no claim lies, as between the parties to a civil action, for the recovery of any balance of the costs actually incurred in
defending the action which are not awarded to the successful defendant by the costs order made in the action.
The principle was affirmed by the Court of Appeal in Berry v British Transport Commission [1961] 3 All ER 65, [1962] 1 QB 306. Devlin LJ said
that the rule against recovery in a separate action was based on ‘the fiction that taxed costs are the same as costs reasonably incurred’ (see [1961] 3 All
ER 65 at 72, [1962] 1 QB 306 at 323). That fiction has now largely disappeared. The amount recoverable on taxation under RSC Ord 62, r 12 is ‘a
reasonable amount in respect of all costs reasonably incurred’ (the standard basis r 12(1)) or ‘all costs … except insofar as they are of an unreasonable
amount or have been unreasonably incurred’ (the indemnity basis, r 12(2)), and the essential difference between the two bases lies in the burden of proof.
It is no longer necessary, therefore, to regret the common law rule, and in addition there are other reasons of policy which continue to support it, not least
the desirability of bringing litigation to a close.
There is authority, however, that no such bar exists to a claim for unrecovered costs against a third party, that is, against a person who was not a
party to the original action. Such claims are commonplace as damages for breach of contract, and they have been admitted also in tort: see per Devlin LJ
in Berry’s case [1961] 3 All ER 65 at 71, [1962] 1 QB 306 at p 321, citing The Solway Prince (1914) 31 TLR 56. The measure of such damages under
the old costs rules was the difference between the plaintiff’s costs of the action taxed as between solicitor and client and as between party and party:
McGregor on Damages (15th edn, 1988) para 713. Now that the fiction has become largely fact—although the difference between costs actually charged
and those recoverable on taxation, even on an indemnity basis, may still remain large in certain types of litigation—it is questionable whether the right to
recover so-called extra costs is still justified, even when the claim is made against a third party to the original action.
But, in my judgment, the present case is not in the third party category. By aligning themselves with the plaintiff in the Esterhuysen proceedings, the
defendants have admittedly rendered themselves liable to whatever costs order the trial judge considers appropriate in those proceedings. No point has
been taken as to what the position will be if the defendants withdraw their support at some time in the future. In these circumstances it seems to me that
the common law rule applies and, in agreement with Stuart-Smith LJ, that the claim under sub-head (f) should be disallowed.
The general claim under sub-head (g) can add nothing which is permissible in law to the claim made under sub-heads (b) and (c), which in my view
could conveniently be amalgamated, and I agree that sub-head (g) should be disallowed. I also agree that the claims by the personal plaintiffs should be
struck out.
To the extent indicated above, the appeal by Lonrho in my judgment should be allowed, with limited leave to rereamend the statement of claim.
Appeal of plaintiff company allowed. Appeal of individual plaintiffs dismissed.

212
[1994] 1 All ER 213
Siu Yin Kwan and another v Eastern Insurance Co Ltd

INSURANCE
PRIVY COUNCIL
LORD TEMPLEMAN, LORD MUSTILL, LORD WOOLF, LORD LLOYD OF BERWICK AND SIR THOMAS EICHELBAUM
22, 26 OCTOBER, 9 DECEMBER 1993
Insurance – Employers’ liability insurance – Third party’s rights against insurers – Undisclosed principal – Shipping agents – Shipowners instructing
agents to obtain employers’ liability insurance – Insurers issuing employers’ liability policy to agents – Crew members drowned when ship capsized –
Personal representatives awarded damages against shipowners in respect of deaths – Shipowners wound up before judgment satisfied – Personal
representatives claiming payment from insurers in respect of award – Whether insurers liable to shipowners as undisclosed principal – Third Parties
(Rights Against Insurers) Ordinance (Hong Kong), s 2.
Insurance – Indemnity insurance – Personal contract of insurance – Employers’ liability insurance – Whether indemnity insurance a personal contract –
Whether indemnity insurance an exception to general rule that undisclosed principal can sue on contract made by agent – Whether rights of undisclosed
principal excluded.
Insurance – Life insurance – Indemnity insurance – Persons interested or for whose benefit policy made – Whether indemnity insurance void because
policy not stating persons interested or for whose benefit policy made – Whether statutory requirement that persons interested or for whose benefit policy
made be named in policy applying to indemnity insurance – Life Assurance Act 1774, s 2.
On 9 September 1983 two crewmen of a vessel moored in a Hong Kong bay were drowned when the vessel was hit by a typhoon and capsized. The
plaintiffs, the personal representatives of the two deceased, brought proceedings against A Ltd, the owners of the vessel, claiming compensation under the
Hong Kong Employees’ Compensation Ordinance and were awarded $HK242,000. On 27 May 1986 they brought further proceedings against A Ltd
claiming damages for negligence and were awarded $HK589,081 and $HK443,000 respectively. However, A Ltd had by then gone into liquidation and
been wound up by order of the court and the judgments in favour of the plaintiffs were never satisfied. A Ltd had appointed RI Ltd, shipping agents, to
be A Ltd’s general agents worldwide and to effect insurances for the vessel. RI Ltd had accordingly effected workmen’s compensation insurance with the
defendant insurers to cover the vessel’s crew. RI Ltd was the proposer under the policy and no mention was made of the fact that the employer was in
fact A Ltd, not RI Ltd, although the defendants were aware from previous dealings in regard to the vessel that RI Ltd were shipping agents and were not
the owners of the vessel. On 19 January 1988 the plaintiffs commenced proceedings against the defendants claiming payment of the unsatisfied
judgments under s 2a of the Hong Kong Third Parties (Rights Against Insurers) Ordinance, which provided that where a company which was insured
under a contract of insurance against liabilities to third parties was wound up while owing a liability to a third party covered by the insurance, the
company’s 213 right to be indemnified by the insurer in respect of that liability was transferred to and vested in the third party. The plaintiffs
accordingly claimed that A Ltd’s right as the employer to be indemnified by the defendant insurers under the workmen’s compensation insurance policy
had been transferred to and vested in the estates of the two deceased crewmen. The defendants contended that the policy did not in fact effect a valid
contract of indemnity against the employer’s liability to the crew because the insured, RI Ltd, was not the employer and the actual employer, A Ltd, was
not the insured. The defendants further contended that even if A Ltd had been entitled to claim under the policy as undisclosed principals, the fact that the
policy was alleged to have been made for the benefit of A Ltd in the event of injury to members of the crew and the failure to name A Ltd in the policy
meant that it was void by virtue of s 2b of the Life Assurance Act 1774, which provided that it was unlawful to effect insurance on the life of any person
or other event or events without inserting in the policy the name of the person interested therein or for whose use or benefit or on whose account the
policy was made. The judge dismissed the plaintiffs’ claim on the grounds that A Ltd had no right to claim under the policy and therefore the plaintiffs
could not derive any rights under the Third Parties (Rights Against Insurers) Ordinance. On appeal, the Hong Kong Court of Appeal held that A Ltd had
no right to sue under the policy and that in any event the policy was void under s 2 of the 1774 Act because the Act applied to indemnity insurance and A
Ltd was not named in the policy. The plaintiffs appealed to the Privy Council, contending that A Ltd was entitled to enforce the policy as undisclosed
principals. The defendants contended that a contract of insurance was a personal contract which by its nature was incapable of assignment and
inconsistent with intervention by an undisclosed principal.
________________________________________
a Section 2 of the Ordinance, so far as material, is set out at p 216 j to p 217 a, post
b Section 2 of the Act , so far as material, is set out at p 217 c, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – The appeal would be allowed for the following reasons—

(1) An undisclosed principal was entitled sue and be sued on a contract made by an agent on his behalf, acting within the scope of his actual
authority, if the agent entered into the contract intending to act on the principal’s behalf. However, the terms of the contract could, expressly or by
implication, exclude the principal’s right to sue and his liability to be sued and the contract itself, or the circumstances surrounding the contract, might
show that the agent was the true and only principal. Furthermore, any defence which the third party had against the agent was available against his
principal. RI Ltd had clearly had actual authority on behalf of A Ltd to obtain insurance against claims by members of the crew and, since the workmen’s
compensation insurance was an ordinary commercial contract, A Ltd would have been entitled to sue as undisclosed principal unless RI Ltd should have
realised that the defendants were unwilling to contract with anyone other than RI Ltd. In fact, the language of the proposal form was not such as to
exclude the right of A Ltd to sue as undisclosed principal since it did not state or imply that RI Ltd might not propose insurance on behalf of others and
did not ask who was the employer. Nor were the defendants entitled to assume that RI Ltd were the employers. However, even if RI Ltd had been named
as the employer, expressly or by implication, that would not necessarily have prevented A Ltd intervening to show that they were the true principals.
Accordingly, there was nothing in the terms of the proposal form, or the policy, which expressly or by implication excluded A Ltd’s right to sue as
undisclosed principal (see p 218 a, p 220 g h, p 221 d j, p 222 b e and p 224 j, post); Fred Drughorn Ltd v Rederiakt Transatlantic 214 [1918–19] All
ER Rep 1122 and dictum of Diplock LJ in Teheran-Europe Co Ltd v S T Belton (Tractors) Ltd [1968] 2 All ER 886 at 890 applied.
(2) The policy was not was a ‘personal’ contract of the kind that excluded the rights of an undisclosed principal since the actual identity of the
employer was a matter of indifference to the defendant insurers and was not material to the risk. In any event, although there was a class of personal
Preamble
contract, such as a contract to paint a portrait, where the burden could not be performed vicariously, a contract of indemnity insurance was not a personal
contract in that sense and there was no rule of law that a contract of insurance was an exception to the general rule that an undisclosed principal could sue
on a contract made by an agent within his actual authority (see p 223 a to f, post); Browning v Provincial Insurance Co of Canada (1873) LR 5 PC 263
applied; Peters v General Accident Fire and Life Assurance Corp Ltd [1938] 2 All ER 267 distinguished.
(3) The 1774 Act, which according to its preamble was directed to ‘a mischievous kind of gaming’, was not intended to apply to indemnity
insurance. Furthermore, the words ‘event or events’ in s 2 of that Act, while apt to describe the loss of the vessel, were hardly apt to describe A Ltd’s
liability arising under the Employees Compensation Ordinance or at common law, as a consequence of the loss of the vessel. Accordingly, the plaintiffs
were entitled to recover from the defendants under the Third Parties (Rights Against Insurers) Ordinance (see p 224 e to g, post); Mark Rowlands Ltd v
Berni Inns Ltd [1985] 3 All ER 473 applied; dictum of Lord Denning MR in Re King,, Robinson v Gray [1963] 1 All ER 781 at 790 doubted.
Notes
For liability insurance generally, see 25 Halsbury’s Laws (4th edn) para 686, for employers’ liability insurance in particular, see 25 Halsbury’s Laws (4th
edn) para 712, and for cases on the subject, see 29 Digest (Reissue) 574–578, 584, 5102–5114, 5145.
For insurances subject to the Life Assurance Act 1774, see 25 Halsbury’s Laws (4th edn) para 559, and for cases on the subject, see 29 Digest
(Reissue) 403–404, 3335–3345.
For the statutory right of subrogation of an insolvent company’s rights under a contract of insurance, see 25 Halsbury’s Laws (4th edn) para 706, and
for cases on the subject, see 29 Digest (Reissue) 586–590, 5767–5784.
For contracts made on behalf of an undisclosed agent, see 1(2) Halsbury’s Laws (4th edn reissue) para 137, and for cases on the subject, see 1(2)
For the Life Insurance Act 1774, s 2, see 22 Halsbury’s Statutes (4th edn) (1991 reissue) 8.
Section 2 of the Hong Kong Third Parties (Rights against Insurers) Ordinance corresponds to s 1 of the Third Parties (Rights against Insurers) Act
1930. For s 1 of the 1930 Act, see 4 Halsbury’s Statutes (4th edn) (1987 reissue) 688.

Browning v Provincial Insurance Co of Canada (1873) LR 5 PC 263.
Collins v Associated Greyhound Racecourses Ltd [1930] 1 Ch 1.
Drughorn (Fred) Ltd v Rederiaktiebolaget Trans-Atlantic [1919] AC 203, [1918–19] All ER Rep 1122, HL.
Formby Bros v Formby (1910) 102 LT 116, CA.
Humble v Hunter (1848) 12 QB 310, [1843–60] All ER Rep 468, 116 ER 885.
215
King, Re, Robinson v Gray [1963] 1 All ER 781, [1963] Ch 459, [1963] 2 WLR 629, CA.
Peters v General Accident Fire and Life Assurance Corp Ltd [1938] 2 All ER 267, CA; affg [1937] 4 All ER 628.
Rowlands (Mark) Ltd v Berni Inns Ltd [1985] 3 All ER 473, [1986] QB 211, [1985] 3 WLR 964, CA.
Teheran-Europe Co Ltd v S T Belton (Tractors) Ltd [1968] 2 All ER 886, [1968] 2 QB 545, [1968] 3 WLR 205, CA.
Appeal
Siu Yin Kwan (suing as the administratrix of the estate of Chan Ying-lung deceased) and Wang Chang Seu-ying (suing as the administratrix of the estate
of Sae Heng Hai, alias Wang Poa Tsing, deceased) appealed with leave of the Court of Appeal of Hong Kong from the decision of the Court of Appeal
(Cons V-P and Kempster JA (Litton JA dissenting)) delivered on 21 October 1992 dismissing the appellants’ appeal from the decision of Keith J delivered
on 17 February 1992 dismissing their action against the respondents, Eastern Insurance Co Ltd, claiming payment under the Third Parties (Rights Against
Insurers) Ordinance in respect of damages awarded to them against Axelson Co Ltd, a company which had been wound up by order of the Hong Kong
Supreme Court. The facts are set out in the judgment of the Board.
Christopher Clarke QC (instructed by Edwin Coe) for the appellants.

Neville Thomas QC and Mohan Bharwarney (of the Hong Kong Bar) (instructed by Macfarlanes) for the respondents.
9 December 1993. The following judgment of the Board was delivered.
LORD LLOYD OF BERWICK. On 8 September 1983 the barquentine Osprey was moored in Repulse Bay, Hong Kong, when she was hit by the
typhoon ‘Ellen’. As a result, she became detached from her moorings, and capsized the following day. Several members of the crew lost their lives,
including Chan Ying Lung, the cook, and Sae Heng Hai, an able seaman. They were employed by Axelson Co Ltd, the owners of the Osprey. In
September 1984 their personal representatives brought proceedings in the District Court of Hong Kong claiming compensation under the Employees’
Compensation Ordinance. They were awarded $HK242,000. On 27 May 1986 they brought further proceedings against Axelson claiming damages for
negligence. On 20 November 1986 they were awarded $HK589,081 and $HK443,000 respectively. Meanwhile Axelson had been wound up by order of
the Supreme Court of Hong Kong. The judgments in favour of the plaintiffs were never satisfied.
Accordingly on 19 January 1988 the plaintiffs commenced the current proceedings against the respondents, Eastern Insurance Co Ltd, claiming
payment under the Third Parties (Rights Against Insurers) Ordinance. Section 2(1) provides:
‘Where under any contract of insurance a person (hereinafter referred to as the insured) is insured against liabilities to third parties which he
may incur, then ... in the case of the insured being a company, in the event of a winding-up order being made ... if ... any such liability ... is incurred
by the insured, his rights against the insurer under the contract in respect of the 216 liability shall ... be transferred to and vest in the third party
to whom the liability was so incurred.’
By their defence, the respondents say that the persons named as insured were Richstone Industries Ltd, and not Axelson. There was nothing in the
proposal to indicate that Richstone were acting as agents for Axelson. Even if Axelson had been entitled to claim under the policy as undisclosed
principals, the policy was unlawful by virtue of the Life Assurance Act 1774. Section 2 of the Act provides:
‘And ... it shall not be lawful to make any policy or policies on the life or lives of any person or persons, or other event or events, without
inserting in such policy or policies the person or persons’ name or names interested therein, or for whose use, benefit, or on whose accounts such
policy is so made or underwrote.’
Preamble
The case came before Keith J on 17 February 1992. He made a number of findings of fact which are favourable to the plaintiffs, and in particular
that Richstone had actual authority to effect the insurance on behalf of Axelson. Nevertheless he held that Axelson had no right to claim under the policy.
Accordingly the plaintiffs could derive no rights under the Third Parties (Rights Against Insurers) Ordinance. Had he been in favour of the plaintiffs on
that point, he would not have regarded the Life Assurance Act 1774 as standing in their way. In his view, the Act is not applicable to indemnity
insurance.
The plaintiffs appealed to the Court of Appeal. On 21 October 1992 the appeal was dismissed. The majority judgment was given by Kempster JA.
He agreed with Keith J that the terms of the proposal were inconsistent with Axelson having the right to sue. He would also have decided against the
plaintiffs on the Life Assurance Act point. In his view the Act applies to indemnity insurance as well as life insurance and, since Axelson was nowhere
named in the policy, the insurance was unlawful and void. Cons V-P agreed with Kempster JA. Litton JA dissented on both points.
The plaintiffs now appeal to Her Majesty in Council by leave of the Court of Appeal. It is regrettable that a case which is comparatively simple,
both factually and legally, should have taken over ten years to be resolved.
Richstone Industries Ltd were formed in Hong Kong in the early part of 1980 to carry on business as shipping agents. The managing director was
Pak Chung King (Mr Pak). The managing director of the respondents was Tung Kie Wei (Mr Tung). Mr Tung and Mr Pak had known each other for
many years. In November 1980 Axelson appointed Richstone as their agent to look after the Osprey in Hong Kong. Towards the end of 1981 Axelson
instructed Richstone to obtain hull insurance on the Osprey. Mr Pak consulted the respondents. The respondents were unable to issue a policy for reasons
which do not matter. But as a result of the approach the respondents knew that Richstone were acting as agents for the owners. By an agreement dated
23 March 1982 Axelson appointed Richstone to act as their general agents worldwide. By cl 2(d) of the agreement Richstone were authorised—
‘To insure the said vessels their apparel fittings freight earnings and disbursements against the usual risks either with Lloyd’s or with insurance
associations and to enter the said vessels in protection or indemnity or kindred associations and to make such claims as become necessary
thereunder.’
217
So there can be no doubt that Richstone had actual authority on behalf of Axelson to obtain insurance against claims by members of the crew, since
this is one of the standard heads of cover under P & I insurance.
On 1 January 1984 Pt IV of the Employees Compensation (Amendment) Ordinance 1982 came into force, under which employers were obliged to
insure themselves against claims from their employees. Axelson instructed Mr Pak to obtain the appropriate cover. Mr Pak approached the respondents.
They sent him their standard form of ‘Proposal For Workmen’s Compensation Insurance’. Since the first main issue turns on the language of the proposal
form, and the answers given by Richstone, it is necessary to set out the relevant terms in full:
‘WORKMEN’S COMPENSATION INSURANCE

PROPOSAL FORM
Proposer’s Name in Full RICHSTONE INDUSTRIES CO. LTD.
Proposer’s Business Address ROOM 1503 WING ON CENTRAL BLDG
26 DES VOEUX RD
“C”, HONG KONG
Proposer’s Trade or Occupation SHIPPING
Particulars of Work and Place of Employment S/V BARQUENTINE OSPREY
Policy to Date From 26th June, 1983 Until 25th June, 1984 (Both dates
inclusive)
1. Does Schedule A within include
(a) All persons within the scope of the Workmen’s Compensation Ordinance (a) [Yes] …
2. Do your premises come within the meaning of any Law or Regulation NIL
governing the conduct and maintenance of such premises?
3. (a) Have you any circular saws or other machinery driven by steam, gas, (a) ONE 320 BHP DIESEL ENGINE TWO 40
water, electricity or other mechanical power? If so, give full particulars. BHP DIESEL GENERATOR …
4. What Boilers have you? NIL
5. State what acids, gases, chemicals or explosive will be used and to what DIESEL FUEL FOR ENGINE
extent
6. Are you at present insured or have you ever proposed for an insurance in
respect of your liability to your employees? If so, please give the name of
the Company or Companies.
7. (a) Has any proposal for an insurance in respect of your liability to your
employees, or renewal thereof, ever been declined or withdrawn or
cancelled?
218
(b) Has any increase in premium been required? If so, in what years and
how much?
8. State the total wages paid to and particulars of accidents to your
employees incidental to their occupation during the last three years.
YEAR TOTAL WAGES CLAIMS

Settled Outstanding
1st 12 months, ended 31 12 $150,000 NIL NIL NIL NIL
1980
Preamble
2nd 12 months, ended 31 12 $180,000 NIL NIL NIL NIL

1981
3rd 12 months, ended 31 12 $200,000 NIL NIL NIL NIL
1982
SCHEDULE A ALL EMPLOYEES within the scope of the Workmen’s Compensation Ordinance must be included.
DESCRIPTION OF EMPLOYEES Estimated number of employees Estimated Annual Wages [etc]

SHIP’S CREW 10
The total amount of wages [etc] $200,000
Do you wish to insure your liability under the Workmen’s Compensation Ordinance to the employees of sub-contractors? …
I/We the undersigned, this 21st day of JUNE 1983 desire to effect an Insurance in terms of the Policy to be issued by Eastern Insurance Co.,
Ltd., against my/our Statutory and Common Law Liability and under Schedule “B” and “C” of this proposal as within. I/We agree to keep a proper
record of wages salaries and other earnings and to render, at the end of each period of Insurance, a statement in the form required by Eastern
Insurance Co., Ltd., of all wages salaries or other earnings actually paid and to pay premium on any wages salaries or other earning paid in excess
of the amounts estimated herein. I/We hereby declare that all statements and particulars herein, where I/we have read over and checked are true,
and that I/we have not suppressed, misrepresented or mis-stated any material fact, that I/we have fairly estimated my/our total wages salaries or
other earnings and that I/we agree that this declaration shall be the basis of the contract between me/us and Eastern Insurance Co., Ltd.’
The proposal was signed by ‘Richstone Industries Company Limited’. The signature is not qualified by the words ‘as agents’ or by any other similar
qualification.
On 27 June 1983 the respondents issued a policy in their standard form. The name of the proposer is given as ‘Messrs. Richstone Industries Co Ltd’
and their business as ‘Shipping’. The schedule to the policy gives the estimated number of employers as ten, their annual earnings as $HK200,000, and
their occupation as ‘Ship’s crew’. The policy was signed by Mr Tung himself on behalf of the respondents.
219
As already mentioned, the judge found as a fact that Richstone had actual authority to effect the insurance on Axelson’s behalf. He also made
certain other findings as to the respondents’ state of knowledge, and in particular that they knew (i) that Richstone were shipping agents, not shipowners,
(ii) that Richstone were not the owners of Osprey, and (iii) that Richstone had acted as agents of the owners of the Osprey in relation to the hull policy in
1981.
In the light of these findings, it could well have been argued that this was not a case of undisclosed principal at all, but rather a case in which
Richstone was acting, and was known to be acting, on behalf of a disclosed but unnamed principal. For there was no finding that the respondents knew
the name of the owners.
However the judge made a further important finding in this connection. He said that he was not satisfied that the respondents knew that Richstone
were not the employers of the crew. In the normal way, of course, it is the owners who employ the crew, not their agents. It is commonplace for the
agents to engage the crew on behalf of the owners. Thus in the present case the master was engaged by Richstone and the crew were engaged by the
master. But it is very rare for the agents to employ the crew. In declining to infer knowledge on the part of the respondents that the owners of the Osprey
were the employers of the crew, the judge may have been overgenerous to the respondents, especially as the respondents called no evidence. But in the
light of that negative finding, their Lordships are obliged to approach the case on the same basis as the courts below, namely that the appellants can only
succeed if they can show that Axelson were entitled to enforce the policy as undisclosed (as distinct from unnamed) principals.
The main features of the law relating to an undisclosed principal have been settled since at least at the end of the eighteenth century. A hundred
years later, in 1872, Blackburn J said that it had often been doubted whether it was originally right to hold that an undisclosed principal was liable to be
sued on the contract made by an agent on his behalf, but added that ‘doubts of this kind come now too late’.
For present purposes the law can be summarised shortly as follows. (1) An undisclosed principal may sue and be sued on a contract made by an
agent on his behalf, acting within the scope of his actual authority. (2) In entering into the contract, the agent must intend to act on the principal’s behalf.
(3) The agent of an undisclosed principal may also sue and be sued on the contract. (4) Any defence which the third party may have against the agent is
available against his principal. (5) The terms of the contract may, expressly or by implication, exclude the principal’s right to sue, and his liability to be
sued. The contract itself, or the circumstances surrounding the contract, may show that the agent is the true and only principal.
The origin of, and theoretical justification for, the doctrine of the undisclosed principal has been the subject of much discussion by academic writers.
Their Lordships would especially mention the influential article by Goodhart and Hamson ‘Undisclosed principles in contracts’ (1932) 4 CLJ 320,
commenting on the then recent case of Collins v Associated Greyhound Racecourses Ltd [1930] 1 Ch 1. It seems to be generally accepted that, while the
development of this branch of the law may have been anomalous, since it runs counter to fundamental principles of privity of contract, it is justified on
grounds of commercial convenience.
220
The present case is concerned with the fifth of the features noted above. The law in that connection was stated by Diplock LJ in Teheran-Europe Co
Ltd v S T Belton (Tractors) Ltd [1968] 2 All ER 886 at 890, [1968] 2 QB 545 at 555, as follows:
‘Where an agent has ... actual authority and enters into a contract with another party intending to do so on behalf of his principal, it matters not
whether he discloses to the other party the identity of his principal, or even that he is contracting on behalf of a principal at all, if the other party is
willing or leads the agent to believe that he is willing to treat as a party to the contract anyone on whose behalf the agent may have been authorised
to contract. In the case of an ordinary commercial contract such willingness of the other party may be assumed by the agent unless either the other
party manifests his unwillingness or there are other circumstances which should lead the agent to realise that the other party was not so willing.’
Since the contract in the present case is an ordinary commercial contract, Axelson were entitled to sue as undisclosed principal unless Richstone
should have realised that the respondents were unwilling to contract with anyone other than themselves.
In the courts below, Keith J, at first instance, and the majority of the Court of Appeal held that the language of the proposal form and of the policy
was inconsistent with the insured being anyone other than Richstone. Keith J held that the proposal form ‘assumed’ that the proposer was the employer,
since the form is addressed to the proposer, and questions 6, 7 and 8, for example, refer to ‘your employees’. In completing the proposal form Mr Pak did
nothing to correct this assumption. Accordingly the proposal form must be read as if it named Richstone as the employer, and therefore as the only party
Preamble
entitled to sue on the policy.
The majority of the Court of Appeal adopted the trial judge’s reasoning. Litton JA dissented. He held that the language of the proposal form was not
such as to exclude the right of Axelson to sue as undisclosed principal. He drew attention to question 3(a), in which the respondents asked: ‘Have you
any circular saws or other machinery driven by steam, gas, water, electricity or other mechanical power?’ The answer was: ‘One 320 BHP Diesel Engine,
Two 40 BHP Diesel Generators’. This answer could only refer to the Osprey. It could not possibly refer to Richstone, since Richstone were not
shipowners. It follows that ‘you’ in question 3(a) could not refer to Richstone personally. It must refer to the owners of the Osprey. The same applies to
questions 3(b) and 4. If that be so, then ‘your employees’ in questions 6, 7 and 8 could equally well refer to the owners of the Osprey, as the employers
of the crew, whoever the owners might be.
On this point their Lordships find themselves in full agreement with the dissenting judgment of Litton JA. True, the proposal form is directed to
Richstone as proposer. But nowhere does it state, or imply, that Richstone might not propose insurance on behalf of others. Nowhere in the proposal
form is the question asked ‘Who is the employer?’. Nor, having regard to Richstone’s answers, were the respondents entitled to assume, as Keith J held,
that Richstone were the employers.
But their Lordships go further. Even if Richstone had been named as employer, expressly or by implication, it would not necessarily have prevented
Axelson intervening to show that they were the true principals. This was the 221 point decided in Fred Drughorn Ltd v Redriaktiebolaget
Transatlantic [1919] AC 203, [1918–19] All ER Rep 1122. In that case a charterparty was signed on behalf of an individual who was named as the
charterer. It was held by the House of Lords that this was not inconsistent with the named charterer having entered into the charterparty as agent for his
employer. Accordingly, the employer was entitled to intervene as undisclosed principal, and enforce the charterparty against the owners. The same
reasoning would have applied in the present case if Richstone had been named as employer. If courts are too ready to construe written contracts as
contradicting the right of an undisclosed principal to intervene, it would go far to destroy the beneficial assumption in commercial cases, to which Diplock
J referred in Teheran-Europe Co Ltd v S T Belton (Tractors) Ltd. It is unnecessary for their Lordships to decide to what extent, if at all, Humble v Hunter
(1848) 12 QB 310, [1843–60] All ER Rep 468 and Formby Bros v Formby (1910) 102 LT 116 should still be regarded as good law.
Finally, under this head, the respondents relied on the concluding para in the proposal form, whereby Richstone declared that all statements in the
proposal form were true, and further agreed that such declaration should form the basis of the contract. But if, on its true construction, ‘you’ and ‘your’ in
the proposal form should be read as meaning, or at any rate including, the owners of the Osprey, then the declaration adds nothing.
Their Lordships would therefore hold that there is nothing in the terms of the proposal form, or the policy, which expressly or by implication
excludes Axelson’s right to sue as undisclosed principal.
But Mr Neville Thomas QC, on behalf of the respondents, has a further argument. He submits that a contract of insurance is a contract of a special
kind. It is a personal contract, which of its nature is inconsistent with intervention by an undisclosed principal. This argument is described as a subsidiary
argument in the respondents’ case. It was not mentioned in any of the judgments below. But it was given prominence by Mr Thomas in his submissions
before the Board. If it is correct, it would have very far reaching consequences.
The starting point of the argument is the article by Goodhart and Hamson (1932) 4 CLJ 320 at 323, where it is suggested that the doctrine of
undisclosed principal bears some resemblance to the assignment of contractual rights. This analogy has been developed by subsequent writers: see
Bowstead on Agency (15th edn, 1985) p 321, Chitty on Contracts (26th edn, 1989) vol 2, para 2552 and Powell on the Law of Agency (2nd edn, 1961) p
165. Mr Thomas contends that, if the contract is one that cannot be assigned, because it is ‘personal’ by nature, neither should it be capable of being
enforced by an undisclosed principal. Contracts of insurance are of this kind. Thus according to MacGillivray and Parkington on Insurance Law (8th
edn, 1988) para 1616: ‘A contract of insurance is a personal contract and does not run with the property which is the subject matter of the insurance.’
Mr Thomas relied on Peters v General Accident Fire and Life Assurance Corp Ltd [1937] 4 All ER 628. That was a case of motor insurance.
Goddard J held that the policy was a contract of personal indemnity, and could not be assigned to a purchaser. His decision was upheld by the Court of
Appeal ([1938] 2 All ER 267). By the same token, so it was argued, an employer’s liability policy is a contract of personal indemnity. It cannot be
assigned. It follows that it cannot be made on behalf of an undisclosed principal. The insurer is always entitled to know of the existence and identity of
the assured. Richstone should have realised, in the words of Diplock LJ, that the respondents would not have been willing to treat 222 anyone other
than Richstone as a party to the contract. Mr Thomas accepted that in marine insurance the rule is different. But this was not, he said, a case of marine
insurance.
The short answer to Mr Thomas’s argument lies in a finding by the judge that the actual identity of the employer was a matter of indifference. It was
not material to the risk. ‘Eastern would have been content’, he said, ‘to insure the employer of the crew of the “Osprey”, whoever it was, provided that it
was satisfied with the answers given in boxes 6 and 7 of the proposal form’. In the light of that finding it is impossible for the respondents to contend that
this was a ‘personal’ contract of the kind that excludes the rights of an undisclosed principal. In passing it may be noticed that the respondents seem to
have been content to insure the employers, even though they received no answer to questions 6 and 7.
Although this short answer is sufficient to dispose of Mr Thomas’s argument, it would not be right to leave the matter there. Their Lordships accept
that there is a class of personal contract where the burden cannot be performed vicariously. The example often given is a contract to paint a portrait.
Such a contract cannot be enforced by an undisclosed principal since, as Goodhart and Hamson point out, his intervention in such a case would be a
breach of the very contract in which he seeks to intervene. But their Lordships are unwilling to accept that a contract of indemnity insurance is a personal
contract in that sense. No case was cited to their Lordships which decides, or even suggests, that a contract of insurance is an exception to the general
rule that an undisclosed principal may sue on a contract made by an agent within his actual authority. Nor is there any suggestion that marine insurance is
an exception to the supposed exception, which depends upon the words of the preamble to the form of policy now scheduled to the Marine Insurance Act
1906. On the contrary, in Browning v Provincial Insurance Co of Canada (1873) LR 5 PC 263 it was held that an undisclosed principal could sue, even
though those words were absent from the certificate of insurance issued by the agent of the insurers in that case. There was no sufficient ground to
distinguish between contracts of marine insurance and mercantile contracts generally.
The argument based on assignment illustrates the dangers of proceeding by analogy. There are indeed certain similarities between these two
branches of the law. But there are also many differences. These are listed in Powell pp 165–166. In particular a contract, which provides that it shall not
be assignable, cannot be assigned. But such a provision does not preclude intervention by an undisclosed principal: see Browning v Provincial Insurance
Co of Canada LR 5 PC 263 at 273.
Peters v General Accident Fire and Life Assurance Corp Ltd is nihil ad rem. Obviously a contract of insurance which is based on one driver’s record
cannot bind the insurers when he sells his car to another driver. For the other driver might have a much worse record. But there is nothing in the Peters’
case which decides that a vendor cannot take out insurance on behalf of a purchaser, should he so wish, provided always, of course, that the information
given to the insurers relates to the purchaser, and not the vendor. For the above reasons, their Lordships would reject Mr Thomas’s alternative argument.
They now turn to consider the second main defence, based on s 2 of the Life Assurance Act 1774. It can be dealt with quite shortly. Mr Thomas
submits, and the majority of the Court of Appeal have held, that the policy is payable on the happening of an event, within the meaning of s 2 of the Act,
that event being the insured’s liability to pay compensation in respect of injury to his employees.
223
Preamble
Since the name of the person interested, that is to say Axelson, was not inserted in the policy, the insurance is unlawful and void.
The meaning of s 2 of the Act was considered recently by the Court of Appeal in Mark Rowlands Ltd v Berni Inns Ltd [1985] 3 All ER 473, [1986]
QB 211, a case of fire insurance. The plaintiff was the freeholder of premises. The defendant was tenant of the basement. The question was whether the
policy taken out by the plaintiff enured for the benefit of the defendant, although his name did not appear in the policy. It was held that the policy did not
infringe s 2 of the Act, since the Act was not intended to apply to indemnity insurance.
On the other hand in Re King, Robinson v Gray [1963] 1 All ER 781 at 790, [1963] Ch 459 at 485 Lord Denning MR said :
‘When a policy of fire insurance of a building (as distinct from goods) is taken out, the names of all the persons interested therein, or for whose
use or benefit it is made must be inserted in the policy. No person can recover thereon unless he is named therein and then only to the extent of his
interest. This is clear from the Life Assurance Act, 1774, s. 2, s. 3 and s. 4, which by their very terms apply to policies on “any other event” as well
as life. If, therefore, the tenant insures in his own name alone, the policy is good only to the extent of his interest.’
Faced with this conflict of authority their Lordships prefer the decision of the Court of Appeal in the former case. In Re King the point was not
argued. The observation of Lord Denning MR was obiter and is not reflected in the judgments of the other two members of the court. Some doubt as to
the correctness of Mark Rowlands Ltd v Berni Inns Ltd is expressed in MacGillivray and Parkington para 154. But their Lordships do not share these
doubts.
There are two reasons why their Lordships prefer the decision in Mark Rowlands Ltd v Berni Inns Ltd. In the first place the words ‘event or events’
in s 2, while apt to describe the loss of the vessel, are hardly apt to describe Axelson’s liability arising under the Employees Compensation Ordinance, or
at common law, as a consequence of the loss of the vessel. Secondly, s 2 must take colour from the short title and preamble to s 1. By no stretch of the
imagination could indemnity insurance be described as ‘a mischievous kind of gaming’. Their Lordships are entitled to give s 2 a meaning which
corresponds with the obvious legislative intent.
Various other defences were pleaded in the amended points of defence. But these have all been dismissed, or fallen by the wayside. Their Lordships
are glad to have reached the conclusion that the plaintiffs are entitled to succeed, because the defence of the respondents, knowing what they did, was
wholly without merit.
Their Lordships will accordingly humbly advise Her Majesty that the appeal ought to be allowed and the judgments of the Court of Appeal and of
the trial judge set aside; that the appellants are entitled to an order in their favour pursuant to the Third Parties (Rights Against Insurers) Ordinance; that
the case ought to be remitted to the trial judge for assessment of the amount due; and that the respondents ought to pay the appellants’ costs of these
proceedings in the courts below. The respondents must also pay the appellants’ costs before their Lordships’ Board.
Appeal allowed.

224
[1994] 1 All ER 225
Jones v Chief Adjudication Officer

Sharples v Chief Adjudication Officer
SOCIAL SECURITY

DILLON, STUART-SMITH AND EVANS LJJ
14 JUNE, 1 JULY 1993
Social security – Benefit – Overpayment – Recovery – Claimant failing to declare receipt of unemployment benefit when claiming income support –
Claimant signing declaration that he had correctly reported any facts which could affect amount of payment – Whether misrepresentation of material fact
– Social Security Act 1986, s 53.
Social security – Benefit – Overpayment – Recovery – Claimant stating that neither he nor partner had any life insurances or endowment policies –
Claimant unaware that partner had inherited policies from her father – Whether misrepresentation of material fact – Social Security Act 1986, s 53.
In two separate appeals the Department of Social Security sought to recover, under s 53a of the Social Security Act 1986, overpayments of social security
benefit paid to the two appellants, S and J. Section 53 provided, inter alia, that if a person fraudulently or otherwise misrepresented or failed to disclose
any material fact which resulted in an overpayment of benefit to the claimant the Secretary of State was entitled to recover the amount of the
overpayment. J had received income support while also receiving unemployment benefit. He had disclosed that he had made a claim for unemployment
benefit, but each time he received an income support payment he signed a declaration that he had correctly reported any facts which could affect the
amount of his payment. The notes accompanying his payment book stated that an applicant had to notify the social security office on receipt of a new
benefit since that would affect his entitlement to income support. The adjudication officer and, on appeal, the social security commissioner held that J
made a misrepresentation for the purposes of s 53 each time he signed the declaration because he had failed to declare receipt of unemployment benefit,
resulting in an overpayment of income support which was therefore recoverable from him. S had signed a declaration when claiming social security
benefit stating that neither he nor his partner had any life insurances or endowment policies and, where his signature appeared, that as far as he knew that
information was true and complete. However, unknown to him his partner had inherited insurance policies from her father. The adjudication officer and,
on appeal, the social security commissioner held that he had misrepresented a fact which was material in establishing his eligibility for benefits and
Preamble
therefore there had been an overpayment which was recoverable from him. J and S appealed to the Court of Appeal.
________________________________________
a Section 53, so far as material, is set out at p 227 h j, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – (1) (Evans LJ dissenting) In the first appeal, each time J signed the declaration in the payment book he made a representation that there were no
facts known to him at the time he signed which could affect the amount of his 225 payment but which he had not reported. The representation was
limited to the disclosure or reporting of all material facts in fact known to the applicant but (per Dillon LJ) was not further limited to what a reasonable
person would think would affect the amount payable or to such disclosure as could reasonably have been expected of the applicant. Accordingly, since
the facts referred to in the applicant’s declaration which were known to him and which could affect the amount of his payment included the fact that he
was in receipt of unemployment benefit, he had misrepresented a material fact. J’s appeal would therefore be dismissed (see p 235 e to j, p 236 d to f h j
and p 237 a, post).
(2) In the second appeal, although S had answered the question on the claim form whether he or his partner had any life insurance policies with a
categorical ‘No’ that was not a misrepresentation because he was not required to qualify his answer by the words ‘as far as I know’ since there was a
general qualification to that effect where his signature appeared. Since S had not been aware of his partner’s life insurance policies his declaration had
been true and his appeal would therefore be allowed (see p 234 a b d e and p 236 a, post).
Notes
For recovery of overpaid benefits, see 33 Halsbury’s Laws (4th edn) para 834, and for cases on the subject, see 35 Digest (Reissue) 733–734, 6982–6985.
As from 1 July 1992 s 53 of the Social Security Act 1986 was replaced by s 71 of the Social Security Administration Act 1992. For s 71 of the 1992
Act, see 40 Halsbury’s Statutes (4th edn) 870.

Andre & Cie SA v Ets Michel Blanc & Fils [1979] 2 Lloyd’s Rep 427, CA.
Container Transport International Inc and Reliance Group Inc v Oceanis Mutual Underwriting Association (Bermuda) Ltd [1984] 1 Lloyd’s Rep 476,
CA.
Joel v Law Union and Crown Insurance Co [1908] 2 KB 863, CA.
Page v Chief Adjudication Officer (1991) Independent, 8 July, CA.
Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd (1993) Times, 8 March, CA.
R v Medical Appeal Tribunal (North Midland Region), ex p Hubble [1958] 2 All ER 374, [1958] 2 QB 228, [1958] 3 WLR 24, DC; affd [1959] 3 All ER
40, [1959] 2 QB 408, [1959] 3 WLR 456, CA.
Saker v Secretary of State for Social Services (1988) Times, 16 January, CA.
Social Security Decision CSB/790/88, Tribunal of Comrs.
Social Security Decision R(SB) 21/82, Tribunal of Comrs.

Cooper v Phibbs (1867) LR 2 HL 149.
Social Security Decision CS 156/90, Tribunal of Comrs.
Appeals
Jones v Chief Adjudication Officer

The appellant, Morris Jones, appealed with the leave of Lloyd LJ given on 19 May 1992 against the decision of the Social Security Commissioner, Mr D
G 226 Rice, made on 2 January 1992 dismissing the appellant’s appeal from a decision of the Barnsley Social Security Appeal Tribunal dated 27
February 1990 holding that an amount of £2,244·57, an overpayment of income support, was recoverable from the appellant. The respondent to the
appeal was the Chief Adjudication Officer. The facts are set out in the judgment of Evans LJ.
Sharples v Chief Adjudication Officer

The appellant, Mark Wayne Sharples, appealed with the leave of Lloyd LJ given on 22 March 1992 against the decision of the Social Security
Commissioner, Mrs R F M Heggs, given on 25 July 1991 dismissing the appellant’s appeal from a decision of the Exeter Social Security Appeal Tribunal
given on 23 February 1989 holding that an amount of £3,486·20, an overpayment of supplementary benefit, was recoverable from the appellant. The
respondent to the appeal was the Chief Adjudication Officer. The facts are set out in the judgment of Evans LJ.
Mark Rowland (instructed by Raleys, Barnsley) appeared for Mr Jones.

Richard Drabble (instructed by Cartridges, Exeter) appeared for Mr Sharples.
J R McManus (instructed by the Solicitor to the Department of Social Security) for the Chief Adjudication Officer.
Cur adv vult
EVANS LJ (giving the first judgment at the invitation of Dillon LJ). In these two cases the Department of Social Security (the DSS) seeks to recover
certain amounts of social security benefit paid to the appellants in excess of their legal entitlement. It is not disputed that there was an overpayment in
each case. Mr Jones received income support from 20 December 1988 until 2 October 1989 without deducting the amount of unemployment benefit
Preamble
which he also received from the Department of Employment during that period, totalling £2,224·57. Mr Sharples received supplementary benefit totalling
£3,486·20 in respect of the period from 29 August 1987 until 12 February 1988, which, as it now appears, by reason of certain insurance policies which
his girlfriend and partner had inherited from her late father, he was not entitled to receive.
The Secretary of State’s right to recover the amount of any overpayment is governed for present purposes by s 53 of the Social Security Act 1986:
‘(1) Where it is determined that, whether fraudulently or otherwise, any person has misrepresented, or failed to disclose, any material fact and in
consequence of the misrepresentation or failure—(a) a payment has been made in respect of a benefit to which this section applies … the Secretary
of State shall be entitled to recover the amount of any payment which he would not have made … but for the misrepresentation or failure to
disclose.
(2) An amount recoverable under subsection (1) above is in all cases recoverable from the person who misrepresented the fact or failed to
disclose it …
(4) Except where regulations otherwise provide, an amount shall not be recoverable under subsection (1) above … unless the determination in
pursuance of which it was paid has been reversed or varied on an appeal or revised on a review.’
227
(Subsections (5), (7) and (10) apply these provisions to supplementary benefit and to income support, respectively.)
The claims for repayment were allowed by the adjudication officers and their decisions were upheld on appeal by the Social Security Appeal
Tribunal (SSAT). The appellants then appealed to a social security commissioner and in each case the appeal was supported by the adjudication officer.
Nevertheless, both appeals were dismissed. They now appeal to this court with leave from Lloyd LJ.
Mr Sharples’s appeal depends upon a short question of construction of the application form, form B1, which he completed first on 26 August 1987
and on two later dates, each time in, so far as is relevant, identical terms. Mr Jones’s case, however, is more complicated. It is not suggested that he
either made any misrepresentations or failed to disclose any material fact when he completed his application form, the same form B1, on 5 December
1988. The department relies upon the declaration which he made when receiving weekly payments of benefit from the post office on the standard form of
‘pension or allowance order book’, in the following terms:
‘I DECLARE that I have read and understand all the instructions in this order book, that I have correctly reported ANY facts which could affect
the amount of my payment and that I am entitled to the above sum.
I acknowledge receipt of the above sum.
Signature’
Mr Mark Rowland, who appeared on behalf of Mr Jones, has presented his appeal on the basis that it raises issues of principle regarding the
application of s 53. The claim against Mr Sharples is founded on the same section. The two appeals were argued together. For these reasons, the scope
and operation of s 53 can conveniently be considered first and in general terms, before turning to the detailed facts of the two cases.
Section 53
Mr Rowland is correct, in my judgment, to draw attention to the fact that the Secretary of State’s right to recover payments (or overpayments) of
benefit is limited to cases where there has been a misrepresentation of or failure to disclose a material fact and where the payment was made ‘in
consequence of’ the misrepresentation or failure. This makes it clear that there is no statutory right of recovery in other cases and that accordingly the
mere receipt of benefit to which the recipient was not entitled does not give rise to any statutory obligation to repay.
It is established law, and not disputed in the present case, that the words ‘whether fraudulently or otherwise’ mean that the section covers cases of
innocent as well as fraudulent misrepresentation, and of non-disclosure also. Mr Comr Edwards-Jones QC ruled to this effect in the cases reported as
Social Security Decision R(SB) 21/82. Mr McManus, for the defendant, referred also to the Court of Appeal’s decision in Page v Chief Adjudication
Officer (1991) Independent, 8 July. We were told that the 1982 ruling has been generally followed and applied since that date.
This means that, when a person has misrepresented a material fact, his knowledge of that fact is irrelevant so far as s 53 is concerned. It is sufficient
that there was the misrepresentation, whether the fact was known to him or not. Section 55, on the other hand, makes it a criminal offence knowingly to
make a false statement for the purpose of obtaining benefit, and the person’s 228 knowledge of the true facts would therefore become relevant if such
a charge was brought.
But knowledge is not irrelevant in the case of non-disclosure, even though s 53 covers innocent as well as fraudulent non-disclosure. This is because
of the equally well-established rule that a person cannot be held liable for failing to disclose what he does not know. This rule, which has long been
recognised in insurance law, was applied in a similar context to the present by the Queen’s Bench Divisional Court in R v Medical Appeal Tribunal
(North Midland Region), ex p Hubble [1958] 2 All ER 374 at 382, [1958] 2 QB 228 at 242, where Diplock J giving the judgment of the court said:
‘“Non disclosure’’ in the context of [s 40(1) of the National Insurance (Industrial Injuries) Act 1946] where it is coupled with misrepresentation,
means a failure to disclose a fact known to the person who does not disclose it. The term “non-disclosure” is a familiar term in insurance law. It
may be either innocent if the person failing to disclose the fact does not appreciate its materiality, or fraudulent if he does; but there can be no
non-disclosure of a fact which is not known.’
It follows from this that the Secretary of State’s right to recover payments under s 53 is easier for him to establish when he alleges a
misrepresentation rather than a failure to disclose a material fact. This was recognised by Mr Comr Edwards-Jones in Decision R(SB) 21/82, as follows
(at 14):
‘24. I should for completeness mention that whilst the Department have not in their terms of reference in this particular case incorporated any
charge of misrepresentation, alleging only “failure to disclose”, it is settled law that knowledge is not a material ingredient in “innocent
misrepresentation”. Thus if knowledge is a material ingredient in “failure to disclose” the alternative charge may in other cases be an easier ground
to establish.’
Observations to the same effect were made by Mr Comr Mitchell in Social Security Decision R(SB) 9/85 and by Mrs Comr Heggs in the present (Mr
Sharples’s) case.
A further question which arises is whether ‘failure to disclose’ is established for the purposes of s 53 when a person knew the fact in question but
could not reasonably be expected to disclose it in the circumstances of the particular case. Mr Comr Edwards-Jones in Decision R(SB) 21/82 at para 4(2)
Preamble
dealt with this as follows:
‘… whilst the concept of making or not making a misrepresentation needs no explanation or refinement, I consider that a “failure” to disclose
necessarily imports the concept of some breach of obligation, moral or legal—i.e. the non-disclosure must have occurred in circumstances in which,
at lowest, disclosure by the person in question was reasonably to be expected …’
As will appear below, the present appeals are concerned solely with allegations of misrepresentation, and in Mr Jones’s case Mr Rowland seeks an
order remitting the matter to the tribunal so that the department’s claim can be reconsidered on the basis of failure to disclose, rather than
misrepresentation. In these circumstances, it is unnecessary to express a concluded view on this question, and I would add only the following comments.
229
(1) The restriction suggested by Mr Comr Edwards-Jones may well correspond with, or include, the limits placed upon the insured’s duty of
disclosure in insurance law, as regards facts which are known or presumed to be known to the insurer: see s 18(3)(b) of the Marine Insurance Act 1906,
which also states—
‘The insurer is presumed to know matters of common notoriety or knowledge, and matters which an insurer in the ordinary course of his
business, as such, ought to know.’
If so, this could be relevant in Mr Jones’s case, where the department acknowledges that there was some breakdown in the normal processes of
communication between itself and the Department of Employment; and (2) there is no issue as to the definition of ‘material’ facts in the present case,
although reference was made to the judgments in Saker v Secretary of State for Social Services (1988) Times, 16 January. There, Lloyd LJ relied upon
the Court of Appeal decision in Container Transport International Inc and Reliance Group Inc v Oceanis Mutual Underwriting Association (Bermuda)
Ltd [1984] 1 Lloyd’s Rep 476, and I should record that that judgment has recently been commented upon and perhaps modified by the judgment in Pan
Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd (1993) Times, 8 March. I should also express a personal hope that the application of s 53 will not
become subject to the kind of refined analysis which has been permitted to enter the law of marine insurance. The printed heading to Form B1 refers to
information ‘which the Department needs to work out your benefit’. That may be a sufficient and convenient definition of ‘material facts’ for all practical
purposes when applying s 53.
Against this background, I turn to the circumstances of the two cases before us. In both, the department alleges a misrepresentation, rather than a
failure to disclose material facts, but apart from this the issues are wholly distinct.
Mr Jones
Mr Jones worked for the National Coal Board for 15 years. He became unemployed. After a period of unemployment he commenced a part-time
job with the community programme, but this ceased on 2 December 1988. He was in receipt of supplementary benefit which was renamed income
support in April 1988.
On 5 December 1988 he went to the unemployment benefit office of the Department of Employment in Shambles St, Barnsley, and made a further
claim for unemployment benefit. He was given form B1 with which to reclaim income support. This was necessary because he had become unemployed,
and because he had changed his address with a consequent increase in the amount of his mortgage repayments. He stated in the form that he had claimed
unemployment benefit, which he had done, but that he had not received any, which he had not. (This was done, apparently, by ticking the box for
‘claimed’ rather than ‘received’.) He took the form to the DSS office nearby on the same day.
He received his first giro cheque for unemployment benefit from the Department of Employment office on 13 December 1988. On 21 December he
received a new order book in respect of income support from the DSS. Thereafter, he received unemployment benefit weekly by giro cheque from the
Department of Employment and he claimed income support weekly from the post office acting as paying agents for the DSS. This continued until
October 1989 when, as a result of a further visit which he made to the DSS in connection 230 with another matter, it was discovered that the amount
of income support had been wrongly calculated. It should have been reduced to take account of the unemployment benefit which he had received on and
after the 13 December 1988. The mistake would not have occurred, or would have been spotted, if the DSS had communicated with the Department of
Employment in the normal way. This is because weekly giro cheques from the Department of Employment include both payments, and the amount of
income support is notified by the DSS to the Department of Employment for this purpose. In Mr Jones’s case, the DSS failed to take account of the fact
that the claim was made on form B1 by Mr Jones as an unemployed person and that he had claimed unemployment benefit as he revealed in the form.
It is not suggested that Mr Jones knowingly either misrepresented or failed to disclose the fact that he was receiving weekly payments of
unemployment benefit, at any stage. He stated, correctly, that he had claimed it on 5 December in form B1. He failed to disclose the fact that he received
it weekly thereafter, although this was obviously a fact which was known to him and which was material. The contrary is not argued. On any sensible
and straightforward analysis, this was a case of non-disclosure and the question which arises is whether the defendant can establish a claim under s 53 on
that basis in the circumstances of this case. It may be said that Mr Jones could assume that the fact in question was already known to the department, or
that he was under no legal or moral duty to disclose it, if that is indeed the effect of s 53.
But the claim is put on the basis of misrepresentation, no doubt so that the department can assert that innocent misrepresentation is enough and that
all questions of knowledge, belief etc are irrelevant. The weekly declaration made when each page of the order book was signed contained, it is said, a
misrepresentation of a material fact or facts. The declaration, which I have quoted above, has to be read in the light of the notes, which include the
following:
‘D Changes that you must tell us about. You must read these pages carefully. Every time you sign an order you are declaring that you have
read and understood them.
Remember
The amount of money that you are entitled to is based on what you told us when you claimed.
If things change and you do not tell us, you might get the wrong amount of money and you could be breaking the law.
[Note 12 requires disclosure of changes, either by letter or by means of form A9 or by visiting the Social Security office.]
16 Any new benefits.
You must send us a letter or form A9 if you … start to get new benefit.’
Against this background, Mr McManus for the department submits that there was a misrepresentation of material facts each time this declaration was
made. With respect to his argument, I am not entirely clear what the misrepresentations are alleged to have been. One was ‘I am entitled to the above
sum’. Another is a representation that all material facts have been correctly reported. This includes, he submits, a fresh representation of those
Preamble
underlying material facts themselves together with a representation that no material facts have not been disclosed. But he does not contend that the
declaration refers back to the original claim (‘my original claim was correct’, or ‘the representations which I made remain true’).
231
Mr Rowland’s main submission is that the declaration contains no representation as to any material fact. ‘Material’, he submits, means relevant to
the calculation of benefit and therefore is limited to factors which affect the amount of benefit which the claimant is entitled to receive. This meaning,
which in my judgment is correct having regard to s 53 alone, is supported by reference to ss 53(4) and 104(1) and (1A) of the Social Security Act 1975,
which it is unnecessary for me to quote. Whether or not he had reported, or correctly reported, the material facts, was not itself ‘material’ in this sense.
Nor was any representation that he made to the effect that he was entitled to receive the amount awarded to him a representation of a material fact, even if
it was a fact rather than law.
In my judgment, Mr Rowland’s analysis is correct. The declaration is an express representation that the applicant has correctly reported all material
facts, with or without the qualification ‘so far as they are known to me’. It does not purport to make any statement or representation as to the material
facts themselves, as distinct from the fact of their disclosure.
The declaration may also be said to carry with it, either expressly or by implication, a further representation that the applicant has disclosed all
material facts, subject again to the same qualification as regards knowledge. The material fact in the present case is that he was receiving unemployment
benefit at the material times.
These representations were untrue, because he had failed to disclose that material fact. But the fact of non-disclosure was not itself a material fact.
The calculation of benefit was not affected by the fact of non-disclosure. He could not be penalised for the failure to disclose, except by means of a claim
for repayment under s 53 which is governed, according to Mr Comr Edwards-Jones’s decision, by the question of duty as well as knowledge to which he
referred.
The need to make this hair-splitting distinction between the fact of non-disclosure and the material fact which was not disclosed arises solely because
the department claims repayment on the basis of misrepresentation rather than non-disclosure, doubtless in order to avoid the potential difficulties for
them which were foreshadowed by Mr Comr Edwards-Jones and the commissioners who have adopted his view. In my judgment, Mr Jones should
succeed on this narrow ground, but I would also put the matter more broadly. This was essentially a case of non-disclosure, not one where Mr Jones
misrepresented a material fact, and in my view the claim under s 53 should be dealt with as such.
If contrary to this view the declaration did contain a representation of material fact, then it would become necessary to consider whether it is
permissible for the department to convert every case of failure to disclose into a case of misrepresentation by means of the declaration which must be
made weekly before any payment is received, and therefore before any overpayment can be made. For the reasons given, this question, in my judgment,
does not arise.
The second misrepresentation relied upon, ‘I am entitled to the above sum’, raises the question whether the department really means to contend that
it relies upon claimants, not merely to disclose all material facts, but to represent to its officers what amount of benefit is due. Without exploring that
question further, the representation relied upon, in my judgment, is one of law, not of fact, although it may include, as Mr Rowland submits, a
representation of the limited facts, such as that ‘I, the person claiming, am the person to whom the 232 award was made, or to whom the order book
was sent’. The need to distinguish between representations of fact and law arises from the wording of s 53(1) itself and I do not regard the observations of
Lord Denning MR in Andre & Cie SA v Ets Michael Blanc & Fils [1979] 2 Lloyd’s Rep 427, to which we were referred, as being relevant in this case.
Mr Rowland’s further submission was that the declaration represents only that the claimant has correctly reported any fact which he understood had
to be reported. This was supported by the decision of Mr Comr Skinner in Social Security Decision CSB/790/88 but was rejected by the commissioner in
the present case. If there was no misrepresentation of material facts, this question does not arise except possibly in relation to failure to disclose, and in
the circumstances I say no more about it in this judgment.
The commissioner held that on each occasion when Mr Jones made the weekly declaration ‘he was guilty of a misrepresentation, and this resulted in
an overpayment. It follows that [he] is caught by s 53 …’ (para 9). In my judgment, for the reasons given, there was no misrepresentation of material
fact, and Mr Rowland is correct in his submission that the case essentially is one of failure to disclose, rather than misrepresentation. I would therefore
allow this appeal, and if the defendant seeks to pursue the claim further, would remit the matter for further consideration, as Mr Rowland submits.
Mr Sharples
Mr Sharples’s appeal turns on a straightforward question of construction. Section 5 of form B1, headed ‘Money and Savings’, includes the
following: ‘Do you or your partner or dependent children have any life insurances or endowment policies?’, which Mr Sharples answered ‘No’ by ticking
the appropriate box. Section 12 of the form reads as follows:
‘YOUR SIGNATURE
Remember that if you deliberately give false information you may be prosecuted.
As far as I know, the information on this form is true and complete. I claim Supplementary Benefit.
Your Signature Date ’
It is common ground that the answer to question 5 was incorrect, but that Mr Sharples was not aware of the policies which his partner had inherited
from her father. Therefore, his declaration ‘As far as I know’ in section 12 was true. If section 5 stands alone, there was a misrepresentation of material
fact; if it is read with section 12, there was not. This is the sole issue between the parties.
Mrs Comr Heggs held that there was a misrepresentation each time the form was completed:
‘He gave a specific answer to a specific question. The claimant did not qualify his answer in any way so as to put the department on notice that
he was unaware of the precise position … I accept that the misrepresentation was innocent, but if he did not know he should have said so.’
This passage acknowledges, apparently, that if section 5 had been qualified by words such as ‘As far as I know’, then there would have been no
misrepresentation. Mr McManus refers to the heading to the form, which includes the instruction ‘If you cannot answer a question on the form write “I
don’t know” and carry on’ and points to other questions to which Mr Sharples responded in this way. But the commissioner, with respect, does not deal
with 233 the question whether the effect of section 12 is to introduce the qualification which, if it had been stated expressly in section 5, would have
meant that no misrepresentation was made.
Mr Drabble submits shortly that the claimant could hardly be expected to write ‘as far as I know’ in each answer where that might be appropriate,
rather than rely upon the general qualification in section 12 where his signature appears.
Mr McManus’s underlying submission is that the declaration in section 12 is directed, not towards the truthfulness or otherwise of the individual
answers given in sections 1 to 11, but to the possibility of criminal liability under s 55 of the Act. That is the risk of prosecution, in the case of knowing
Preamble
misstatement, to which express reference is made. But this does not provide the answer, in my judgment, to the question of construction which arises in
relation to sections 5 and 12. Is section 5 ‘freestanding’, as he submits, or should it be read in the light of the signature and the qualified form of words
found in section 12?
In my judgment, Mr Drabble’s submission is correct. Section 12 provides space for the signature without which the form is incomplete, and if that
signature is qualified, as it is, then it is qualified as regards section 5 as well as the rest of the form. The issue does not permit of further elaboration. In
my judgment, this appeal also should be allowed.
STUART-SMITH LJ. I have had the advantage of reading the judgment of Evans LJ in draft and I gratefully adopt his summary of the statutory
provisions and relevant facts.
The Sharples case

I entirely agree with the judgment of Evans LJ and have nothing to add.
The Jones case

Although the point in this case is a short one, I have not found it easy. There is no dispute that Mr Jones was overpaid by the amount of
unemployment benefit totalling £2,244·57. The question is whether, when he signed the declaration contained in the order book Mr Jones misrepresented
a material fact. If he did, then the case fell within s 53(1) of the Social Security Act 1986 (now s 71 of the Social Security Administration Act 1992), with
the result that the Secretary of State is entitled to recover the overpayment. The declaration is in these terms:
‘I DECLARE that I have read and understand all the instructions in this order book and that I have correctly reported ANY facts which could
affect the amount of my payment and that I am entitled to the above sum.’
There are two relevant instructions in the order book:
‘11 Remember
The amount of money that you are entitled to is based on what you told us when you claimed.
If things change and you do not tell us, you might get the wrong amount of money and you could be breaking the law …
16 Any new benefits
You must send us a letter or form A9 if you or your partner or your dependants start to get a new benefit.’
234
It is common ground that the receipt of unemployment benefit affected the amount of income support payable. It is also common ground that Mr
Jones had not reported the fact that he had received unemployment benefit, as opposed to the fact that he had claimed it. As Mr McManus pointed out,
not everyone who claims unemployment benefit, receives it; there may be many reasons, why upon investigation, the Department of Employment decide
that the claimant is ineligible.
There cannot be a non-disclosure of a fact which is unknown to the claimant (see R v Medical Appeal Tribunal (North Midland Region), ex p Hubble
[1958] 2 All ER 374, [1958] 2 QB 228). But Mr Jones knew that he was in receipt of unemployment benefit; he must have known that this affected the
amount of income support to which he was entitled and certainly any reasonable man who had read the instructions in the order book, which he said he
had, would know this. It seems to be plain therefore that there was a failure to disclose a material fact.
Moreover the overpayment was made in consequence of that non-disclosure, even though, if the department had followed their proper procedure,
they would have discovered that Mr Jones was not entitled to it. It would not have been paid if Mr Jones had disclosed the true position.
But the department have not proceeded on the basis of non-disclosure. Mr McManus submits that the effect of the declaration is to convert the
non-disclosure into a misrepresentation. The declaration ‘I have correctly reported ANY facts which could affect the amount of my payment’ must be
qualified by the implied inclusion of the words ‘known to me’ after the words ‘reported any facts’. Subject to this, it is a representation of fact, and in this
case it was not true. But Mr Rowland submits that it is not a representation of a material fact. A material fact he submits is one that affects the
entitlement to or amount of the benefit. Thus the material fact in this case is the receipt of unemployment benefits and not the fact that this receipt has or
has not been reported.
In my judgment, there are two answers to this submission. First, on the facts of this case the declaration can properly be expanded by the inclusion
of the words italicised to read as follows:
‘I have correctly reported any facts known to me which could affect the amount of any payment, including the fact that I have received
unemployment benefit.’
In other words the greater and general ‘any facts’ must include the lesser and particular fact.
Secondly, the statement ‘I have correctly reported ANY facts which could affect the amount of my payment’ is itself a statement of fact, and in my
view a material fact since unless the statement is true the claimant is not entitled to the amount of benefit claimed.
In the absence of the declaration the respondent could only rely on a non-disclosure of a material fact. Where the declaration is signed, such
non-disclosure is equally a misrepresentation and it is immaterial whether the Secretary of State claims to be entitled to recover the sum overpaid by
reason of a misrepresentation or failure to disclose, provided the latter is established. In my view, it is. Accordingly I would dismiss the appeal in this
case.
DILLON LJ. I gratefully adopt the summary of the relevant statutory provisions and of the facts of these cases in the judgment of Evans LJ.
235
Sharples
Mr Sharples’s appeal raises a very short and to my mind clear point. I see no answer to the final paragraph in the judgment of Evans LJ and I agree
with him that Mr Sharples’s appeal should be allowed.
Jones
Preamble
I find Mr Jones’s case considerably more difficult. Section 53 of the Social Security Act 1986 gives the Secretary of State the right to recover an
overpayment where any person has ‘misrepresented, or failed to disclose, any material fact’. It is not in doubt that that covers innocent, as well as
fraudulent, misrepresentation or non-disclosure.
The form of declaration which Mr Jones signed on the order in the standard form of pension or allowance order book each time he received payment
of benefit from the post office seems to have been calculated to ensure that each time he received a payment he represented that he had disclosed all
material facts viz:
‘I DECLARE that … I have correctly reported ANY facts which could affect the amount of my payment …’
I read that declaration as a representation by Mr Jones, each time he signed such a declaration, that there were no facts, known to him at the time he
signed, which could affect the amount of his payment, but which he had not reported. The representation must be limited, as a matter both of common
sense and law, to a representation that he has disclosed or reported all material facts known to him, since he cannot sensibly be expected to represent that
he has disclosed all material facts that are not known to him.
But that is not in itself enough to carry Mr Jones home on this appeal, since he did know that he had been awarded and from 13 December 1988 was
receiving unemployment benefit, and he had merely disclosed that he had applied for such benefit. The question is therefore whether the representation
each time he signed an order can be further qualified by the addition of words such as ‘in so far as disclosure could reasonably be expected of me’ as
suggested by Mr Comr Edwards-Jones in para 4(2) of his decision in Social Security Decision R(SB) 21/82.
We were told by Mr McManus, on instructions, that the department accepted Mr Comr Edwards-Jones’s formulation as correct when it was a
question of recovering overpayments on the ground of innocent non-disclosure. We are however here concerned with a representation.
With considerable regret I have reached the conclusion that it is not possible to read Mr Comr Edwards-Jones’s qualification into the representation.
It is well established in insurance law, as stated by Fletcher Moulton LJ in Joel v Law Union and Crown Insurance Co [1908] 2 KB 863 at 884 that
the duty of an applicant for insurance is to disclose to the insurer not merely what the applicant himself bona fide considers to be material, but what a
reasonable man would consider to be material even if the applicant himself does not. But the actual words of the representation ‘ANY facts which could
affect the amount of my payment’ are too wide and clear to be limited even to what a reasonable man would think would affect the amount of the
payment. Moreover Mr Comr Edwards-Jones’s formulation goes even further than that of Fletcher Moulton LJ in that it would or might exclude the
applicant for benefit from having to disclose matters which the applicant might reasonably have thought that the department would know.
236
It must follow if the representation is not qualified by Mr Comr Edwards-Jones’s formulation, that this appeal must fail, and for my part I would
dismiss it.
Mr Jones’s appeal dismissed. Mr Sharples’s appeal allowed. Leave to appeal to the House of Lords refused.
22 November. The Appeal Committee of the House of Lords (Lord Templeman, Lord Jauncey of Tullichettle and Lord Mustill) refused Mr Jones leave to
appeal.

[1994] 1 All ER 237
Re S and another (minors) (abduction: wrongful detention

FAMILY; Children
FAMILY DIVISION
WALL J
14 JULY 1993
Minor – Custody – Rights of custody – Foreign custody rights – Wrongful removal or retention – Habitual residence – Israeli parents agreeing to reside
in England for specified period of time – Mother deciding to remain in England with children and claiming that children’s habitual residence in England
– Father applying for return of children to Israel before expiry of agreed period – Parents having equal custody rights in Israeli law – Whether mother
wrongfully retaining children – Whether father having agreed or acquiesced to retention – Whether mother’s decision changing children’s habitual
residence – Child Abduction and Custody Act 1985, s 1, Sch 1, arts 3, 13.
The parents, who had two children aged 5 years and 15 months respectively, came to England from Israel in October 1992 intending to work for 12
months. However, the marriage broke down and the father moved out of the home in January 1993 and returned to Israel, where he commenced divorce
proceedings. In May 1993 the mother obtained ex parte interim residence and prohibited steps orders under the Children Act 1989 on the basis that she
feared that the father might attempt to remove the children to Israel. The father then issued an originating summons in England against the mother for the
immediate return of the children to Israel on the ground that the children’s habitual residence was in Israel and the mother was wrongfully retaining them
in England in breach of the father’s custody rights, contrary to art 3a of the 1980 Convention on the Civil Aspects of International Child Abduction
(which was 237 incorporated into English law by s 1(2) of the Child Abduction and Custody Act 1985 and set out in Sch 1 thereto). The mother
contended that the convention did not apply because (a) her agreement with the father was to remain in England for two years and therefore her retention
of the children was not wrongful, (b) the father had no rights of custody in Israeli law and (c) the children were habitually resident in England, or
alternatively, if the convention did apply, the father had acquiesced in the retention of the children in England and was precluded by art 13b from
claiming that they be returned to Israel. The mother deposed that she regarded the marriage as having irretrievably broken down and stated that she had
Preamble
settled in England and intended to stay for at least two years. Under Israeli law both parents had rights of guardianship, including custody, but the mother
would normally be granted custody if the parents were unable to reach an agreement as to custody.
________________________________________
a Article 3 provides: ‘The removal or the retention of a child is to be considered wrongful where—(a) it is in breach of rights of custody attributed to a person, an
institution or any other body, either jointly or alone, under the law of the State in which the child was habitually resident immediately before the removal or retention;
and (b) at the time of removal or retention those rights were actually exercised, either jointly or alone, or would have been so exercised but for the removal or retention.
The rights of custody mentioned in sub-paragraph (a) above, may arise in particular by operation of law or by reason of a judicial or administrative decision, or by
reason of an agreement having legal effect under the law of that State.’
b Article 13, so far as material, provides: ‘… the judicial or administrative authority of the requested State is not bound to order the return of the child if the person,
institution or other body which opposes its return establishes that—(a) the person, institution or other body having the care of the person of the child was not actually
exercising the custody rights at the time of removal or retention, or had consented to or subsequently acquiesced in the removals or retention; or (b) there is a grave risk
that his or her return would expose the child to physical or psychological harm or otherwise place the child in an intolerable situation …’
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – In order to establish wrongful retention of a child under art 3 of the convention a parent had to prove an act of wrongful retention on a specific
occasion and not merely a continuing state of affairs. Although the father could not unilaterally resile from the agreement with the mother as to custody
merely because their relationship had ended, and although the parents had agreed that they would not return to Israel until September 1993, the mother
could not rely on that agreement. Instead, the mother had committed an act of wrongful retention by the formation of her intention, as evidenced by the
statement in her affidavit, that she did not intend to return the children to Israel at all and that the children had acquired habitual residence in England,
even though that intention had not been communicated to the husband. Furthermore, the fact that an Israeli court would normally award custody to the
mother if there was a dispute as to custody did not affect the father’s rights of guardianship and custody. The mother’s refusal to return the children to
Israel and denial of contact with the father would therefore be a breach of the father’s custody rights in Israeli law. Moreover, if both parents had equal
rights of custody, unilateral action by one parent could not change a child’s habitual residence, except by the agreement or acquiescence of the other
parent or a court order. On the facts, there was no doubt that the children’s habitual residence was in Israel. It followed that the mother had wrongfully
retained the children in England under art 3 of the convention and the court would therefore grant the father’s application and order pursuant to art 12 that
the children be returned to Israel forthwith (see p 243 j, p 244 b to d, p 245 j to p 246 c, p 248 c to p 249 a g, post).
Re H and anor (minors) (abduction: custody rights) [1991] 3 All ER 230 followed.
Dictum of Lord Donaldson MR in C v S (minor: abduction: illegitimate child) [1990] 2 All ER 449 at 455 applied.
Re AZ (a minor) (abduction: acquiescence) [1993] 1 FLR 682 considered.
238
Notes
For the wrongful removal or retention of children, see 5(2) Halsbury’s Laws (4th edn reissue) para 987, and for cases on the subject see 28(3) Digest
425–427, 3578–3582.
For the return of children wrongfully removed, see 5(2) Halsbury’s Laws (4th edn reissue) para 988.
For the Child Abduction and Custody Act 1985, s 1, Sch 1, arts 3, 13, see 6 Halsbury’s Statutes (4th edn) (1992 reissue) 295, 310, 313.
For the Children Act 1989, see ibid 387.

AZ (a minor) (abduction: acquiescence), Re [1993] 1 FLR 682, CA.
C v S (minor: abduction: illegitimate child) [1990] 2 All ER 449, sub nom Re J (a minor) (abduction: custody rights) [1990] 2 AC 562, [1990] 3 WLR
492, CA; affd [1990] 2 All ER 961, [1990] 2 AC 562, [1990] 3 WLR 492, HL.
H and anor (minors) (abduction: custody rights), Re [1991] 3 All ER 230, [1991] 2 AC 476, [1991] 3 WLR 68, HL.
Originating summons
The father of two minors issued an originating summons on 11 June 1993 against the mother pursuant to the Child Abduction and Custody Act 1985
applying for an order for the immediate return of the minors to Israel. The summons was heard and judgment was given in chambers. The case is
reported by permission of Wall J. The facts are set out in the judgment.
James Turner (instructed by Mishcon de Reya) for the father.

F R Moat (instructed by Christopher Green & Partners, Southampton) for the mother.
Cur adv vult
WALL J. This case concerns the concept of wrongful retention under art 3 of the Convention on the Civil Aspects of International Child Abduction
signed at The Hague on 25 October 1980, which is incorporated into the law of England by s 1 of the Child Abduction and Custody Act 1985.
The points for decision can be formulated in the following way. Are children unlawfully retained under art 3 when: (1) they are brought to this
country from their country of habitual residence by agreement between their parents with the intention that they will reside here for a fixed period; (2)
both parents have equal parental rights and responsibilities under the law of the state of their habitual residence; (3) before the expiry of that fixed period
the relationship between the parents comes to an end and they separate; (4) one party returns to the country of his habitual residence and issues an
application under the convention seeking the peremptory return of the children to that country; and (5) the other party remains in England and asserts that
both she and the children have become habitually resident here?
In the instant case both parties (to whom I will refer as ‘the father’ and ‘the mother’ respectively) are Israeli citizens. They were married in Israel on
5 August 1985 and have two daughters (Y and N), both born in Israel and now 239 aged, respectively, nearly 5 years and 15 months. Both parties had
lived in Israel all their lives and neither child had been in England prior to September 1992.
With one important exception, the relevant facts are not in dispute. Both parties are scientists. In 1992 the father was employed by the State of
Israel in a research centre near Tel Aviv. During the course of that year he was offered the opportunity to come to England on sabbatical to carry out a
research project in Southampton. Paragraph 2 of his affidavit in these proceedings sworn on 29 June states:
Preamble
‘I discussed the sabbatical with the [mother] and we agreed we would travel to England with the children for a period of one year.’
The father’s case is that after this agreement had been reached the mother also secured a post in a laboratory in Southampton General Hospital in
order to pursue research. He exhibits to his affidavit two letters from the British Council, both dated 5 August 1992, which, so far as their terms and
conditions are concerned and apart from essential differences in the nature of the scholarships specified in their opening paragraphs, are in identical terms.
That to the father offers him a scholarship jointly funded by the Foreign and Commonwealth Office and the Anglo-Israel Association at the
Opto-Electronic Research Centre in the University of Southampton for a period of not more than 12 months starting from about October 1992. That to the
mother offers her a jointly funded scholarship at the same university to study molecular aspects of G proteins in the central nervous system at
Southampton University for a period of not more than 12 months, starting also in about October 1992.
The father was to be paid a stipend of £3,000 over six months. The mother was to receive a stipend of £800 a month and fees not exceeding £3,000,
plus the cost of travel from Israel at the beginning of the scholarship and back to Israel at its termination. The common parts of both letters contain the
following relevant sentence:
‘The purpose of the scholarship is that you should carry out in Britain the plan of studies agreed between yourself and the British Council and
should then return to resume your career in your own country.’
Each party also agreed to remain in Britain, not to accept any paid employment and to return to Israel at the conclusion of the scholarship.
The mother’s case is that in 1992 she was finishing her PhD thesis in Israel and that both she and the father were, in parallel, looking for research
posts which would suit them. She says the reasons they decided to travel to England rather than anywhere else was because both found suitable posts
with adequate finance offered by the British Council. The mother says that it was important to her to have at least two years attached to Southampton
University because of the nature of her work—research into multiple sclerosis—and that, accordingly, she and the father agreed—
‘that we should stay in England for a period of at least two years with an optional extension.’
She says that the father, accordingly, inquired of his employers about leave of absence without pay following the sabbatical year and was told this
was likely to be agreed.
The mother exhibits to her affidavit a letter from the Professor of Clinical Biochemistry at Southampton University which states that the mother
started 240 at the university in November 1991 ‘for a period of one to two years with an optional extension’. The letter goes on to state the mother
has a research grant to support her work and expresses confidence that she will continue to receive financial support for her study.
I have, of course, not heard oral evidence but when the case was opened to me Mr James Turner, for the father, accepted that, although the intention
was that the family would come over for one year, it was not beyond the realms of possibility that they would have stayed longer.
The parties arranged for their apartment in Israel to be let until the end of August 1993. The reason for the length of the letting, I was told, was that a
longer let would have given the tenant different rights of occupation and I, therefore, draw no inference one way or the other from the length of the
letting.
On 1 September 1992 the mother and the father arrived in England with the children. They then rented a property in Southampton, which, I was told
by Mr Moat, for the mother, was available for six months but which could be extended to two years.
On a number of occasions between November 1992 and April 1993 the father returned to Israel due to the terminal illness of his father. On one of
these visits, between 28 December 1992 and 6 January 1993, the mother and the children accompanied him. On 22 April the father returned permanently
to Israel and his father died some eight days later on 30 April 1993.
The father says that on 18 November 1992 when he returned from one of his visits to Israel he noticed a significant change in the mother’s attitude
towards him and he says that in December 1992 the mother asked him to leave the house. It is common ground that he moved out on or about 24 January
1993 and went to live in alternative accommodation in the same locality which allowed him frequent contact with the children. On 11 April 1993 the
father returned from one of his visits to Israel. He says that after that the mother refused to allow him to speak to the children and later changed her
telephone number so that he could not do so. He says he has not seen the children properly since April 1993.
Also in April 1993 (the precise date is not clear from the documentation) the father commenced proceedings for divorce against the mother in Israel.
I have not seen the documents in those proceedings but it is clear from expert opinion from an Israeli lawyer, Mr Mordechai Shorer, which the mother has
produced in these proceedings, that they allege that the mother has been unfaithful to the father and was conducting a romantic relationship with another
man. The mother does not deal with this allegation in her evidence and it is immaterial to the present proceedings.
What may, however, be of significance is that the mother has made an application in the Israeli divorce proceedings for maintenance for the children,
further that on 16 June 1993 the rabbinical court in Rehovot accepted jurisdiction to deal with the question of the custody of the children and set 2
September 1993 as the date for the consideration of that issue. The court took jurisdiction on the basis that the habitual residence of the mother and the
father was in Israel:
‘The couple went for a study year to the UK in order to return to Israel at the end of the year.’
On 6 May 1993 the mother obtained ex parte interim residence and prohibited steps orders under the Children Act 1989 in the Southampton County
Court. She says that she did this following an incident to which the children’s nanny 241 deposes in an affidavit sworn on 13 June 1993, the effect of
which was that the mother thereafter feared the father was attempting, unilaterally, to remove the children back to Israel.
Also on 6 May 1993 the father wrote to the mother from Israel by registered post. It is a very formal letter in the following terms, which I will read:
‘Re Demand to return the girls to Israel

Dear Madam
1. Further to our many prior conversations in the above matter I hereby repeat and demand your immediate return to Israel, [Y and N].
2. As you know, the standing was within the framework of my sabbatical. With my return to Israel you are required by law to return with our
daughters to Israel, which is our regular and permanent place of residence.
3. Your failure to return the girls to Israel constitutes a breach of my custody rights over the girls and the breach of my rights of visitation with
the girls.
4. Furthermore, I demand that you permit me to have telephone contact with the girls in an orderly fashion until their return to Israel. The fact
that you prevent me from talking with the girls constitutes mistreatment and is damaging to the girls, which is liable to cause them serious
Preamble
emotional damage.
5. I hope that you will act immediately in accordance with the above.
6. I hope that the conflict between us will not cause you to continue to harm the best interests of the girls and to violate the law.’
It does not appear that the mother replied to this letter and on 11 June 1993 the originating summons currently before me was issued by the father. It
seeks, inter alia, the immediate return of the children to Israel on the ground that the mother is wrongfully retaining them in England in breach of the
father’s rights of custody.
The mother’s case on the facts is that the agreement between herself and the father is, as I have stated, that they would stay in England for a period of
at least two years with an optional extension. She makes it clear that she regards the marriage as irretrievably broken down and expresses her clear wish
to remain in England with the children. She says that she has settled and made a life in England. She makes a number of allegations against the father,
which, like the father’s allegations against the mother, are immaterial for present purposes.
The father’s case on the facts as outlined is that at all material times the habitual residence of the children remained that of Israel and that the
mother’s unilateral decision to retain the children in England constitutes a breach of his custody rights under Israeli law. He submits that but for the
mother’s wrongful retention of the children, including her refusal to allow him to see them, he would be exercising those rights of custody. He, therefore,
submits that the children have been wrongfully retained by the mother in England within art 3 of the convention and that the court should order their
immediate return to Israel.
The mother takes a number of points in answer to the originating summons but her main contention is that the convention does not apply because her
retention of the children in England is not wrongful. She says, as I have already stated, that pursuant to the agreement originally made between the parties
she is entitled to remain in England with the children for, at the very least, a year from September 1992 and that her continued presence here with the
children 242 cannot be said to be wrongful before that period has elapsed. Alternatively, she says that the convention does not apply because the
father has no rights of custody under the law of Israel. In the further alternative, she says the convention does not apply because the children are now
habitually resident in England. If, however, contrary to those submissions, the convention does apply she seeks to rely on the provisions of art 13(a),
‘acquiescence’, and 13(b), ‘intolerable situation’.
To the mother’s primary argument the father’s response is that it was a condition precedent to the original agreement that the parties would bring the
children to England as a family and remain here as such. Thus the breakdown of the marriage and the refusal of the mother to contemplate a return to
Israel vitiates the agreement and constitutes a wrongful retention within art 3.
Points arising in the case

1. Does the mother’s action in refusing to return the children to Israel breach the father’s right at all, given the law of Israel and as set out in the
opinion of the Israeli expert?
2. Can there be a wrongful retention within art 3 when there has been agreement for the children to remain within the jurisdiction for a fixed term
and one party requires the return of the children to the country of their habitual residence before that term has elapsed?
3. Has the habitual residence of the children altered since they came to England in September 1992?
4. If the convention applies is the case within either art 13(a) or (b) on the facts?
The purpose of the convention

It is trite law but always important to remember what the convention is designed to achieve. Article 1, which is not enacted into the domestic law
but to which I am entitled to have regard, states that the objects of the convention are, firstly, to ensure the prompt return of children wrongfully removed
to or retained in any contracting state and, secondly, to ensure that rights of custody and access under the law of one contracting state are effectively
respected in the other contracting states.
In the instant case, therefore, as in any other case to which arts 3 and 12 are said to apply, I am not determining the merits of residence or contact
issues as between the parties. I am not determining where or with whom the children should live. I have to decide firstly whether or not the convention
applies and, secondly, if it does, whether or not the children should be promptly returned to Israel in order for the courts of that country to decide with
whom they should reside and where.
Wrongful retention
The decision of House of Lords in Re H and anor (minors) (abduction: custody rights) [1991] 3 All ER 230, [1991] 2 AC 476 makes it clear that to
establish that the child has been wrongfully retained within art 3 the complaining parent must prove an event occurring on the specific occasion which
constitutes the act of wrongful retention. Wrongful retention under the convention is not a continuing state of affairs. Thus in the instant case the father
must point to a specific event at a specific point in time which constitutes the act of wrongful retention.
243
Wrongful retention must in every case, therefore, be an issue of fact. The mother’s case on this point is that since wrongful retention has to be
related to a specific point in time it cannot be said that she is wrongfully retaining the children at any point prior, at the very earliest, to 1 September 1993.
Thus she asserts that by issuing his originating summons on 11 June the father has ‘jumped the gun’ and the summons must inevitably fall to be
dismissed. This proposition is at the heart of the case and must be examined carefully. I do so first by looking at the agreement between the parties.
There is an issue between the mother and the father as to precisely what the agreement between them was. For reasons which will be apparent later
in this judgment, I do not think it necessary to express a concluded view on the precise terms of the agreement. It is sufficient for present purposes and
for the way in which the argument for the mother was developed for me to hold that, on any view, the agreement was that the family would remain in
England for one year from 1 September 1992. Both parties’ contracts were to that effect and I was told that the mother’s immigration position is that she
has the right to remain in England only until 31 October 1993, although she can apply for an extension. For the purposes of this judgment, therefore, I
find as a fact that it was agreed between the parties that they would come to England for a period of at least one year.
The law of the state of Israel

Exhibited to the father’s affidavit is an extract from the Israeli Capacity and Guardianship Law in an authorised translation from Hebrew prepared at
the Ministry of Justice. Paragraphs 14 and 15 of Ch 2, ‘Parents and Minor Children’, read as follows:
‘14. Parents shall be the natural guardians of their minor children.

15. The guardianship of the parents shall include the duty and the right to take care of the needs of the minor, including his education, studies,
vocational and occupational training and work, and to preserve, manage and develop his property; it shall also include the right to the custody of the
minor, to determine his place of residence and the authority to act on his behalf.’
Preamble
Paragraphs 18 and 19 read as follows:
‘18. In any matter within the scope of their guardianship the parents shall act in agreement. The consent of one of them to an act of the other
may be given in advance or subsequently, expressly or by implication, for a particular matter or generally. Either parent shall be presumed to have
agreed to an act of the other unless the contrary be proved. In a matter admitting of no delay, either parent may act on his own.
19. Where the parents have reached no agreement in a matter relating to the property of the minor, either of them may apply to the Court, which
shall decide in the matter. Where the parents have reached no agreement in any other matter within the scope of their guardianship, they may
together apply to the Court, and the Court, if it does not succeed in bringing about agreement between them and if it deems it appropriate to decide
in the matter, shall either decide it itself or refer the matter for decision to whom it may think fit.’
Mr Moat for the mother produced an expert opinion written by an Israeli lawyer, Mr Shorer, the relevant portion of which reads as follows. Having
244 summarised the provisions of arts 15 to 19, which I have just read, he goes on to say this:
‘If the parents are living apart, as is the case with the [S] family, Article 24 of the Competency Law stipulates as follows: “In the case of the
parents of a child who are living apart—whether their marriage has been annulled, abandoned or broken off, or whether it still exists—they may
agree which of them will have the guardianship of the child, either wholly or in part, which of them will maintain the child and what the rights are
of the parent who does not maintain the child to have access to it. Such an agreement requires the endorsement of the court, and its ruling will be
tantamount to a ruling of a court of law”
F. If the parents cannot reach an agreement as detailed in art 24, or if they reach an agreement but the agreement is not carried out, the court
may—pursuant to the provisions of art 25— “... stipulate the matters referred to in art 24 in what it perceives to be in the best interests of the
child—except that children up to the age of six must remain with their mother unless there are special reasons for ordering otherwise”
G. As far as the special reasons are concerned, they could include violence by the mother towards the child, mental illness in the mother, or if
she is a drug addict or a prostitute, with no relationship with one man. In practice, the courts refer the matter to the local social services in the place
where the children are located to investigate the qualifications of the parents and submit their findings to the court. In this way the court is able to
obtain full details of the children’s situation from professionals prior to making a decision.
13. If we apply the provisions of the Competency Law to the [S] family it is evident there are two daughters, both of them below the age of 6
and one of them aged 1. It can safely be assumed that the district court, pursuant to the provisions of art 25 of the Competency Law, would stipulate
that custody should go to Mrs [S]. Further to what has been stated above in s 12(C) it is clear that the rabbinical court would give an identical
ruling to the district court, acting pursuant to the provisions of the Competency Law.’
Mr Shorer then goes on in the following paragraphs of his opinion to set out the stipulations of the religious law and, pursuant to his analysis, states
that these reach a similar conclusion. I do not, therefore, propose to read the balance of his opinion.
Mr Moat sought to persuade me on the basis of this opinion that the mother’s action in refusing to return the children to Israel could not constitute a
breach of the father’s rights of custody since he had no such rights. Accordingly, it was argued, since the outcome of any application to the court in Israel
would be that the custody would be awarded to the mother she, effectively, had sole rights of custody and, as a consequence, there was no breach of the
husband’s rights.
In my judgment, this argument confuses two concepts, the rights of custody under paras 14 and 15 of the code and the practice of the court in
resolving disputes between parents when they are unable to agree. The mere fact that in the event of a dispute between the parents the Israeli court would
normally award custody of girls of the ages of N and Y to the mother does not, in my judgment, affect the father’s rights under paras 14 and 15 of the
Israeli code. Thus, the mother’s actions, in my judgment, in refusing to return the children to Israeli and in denying the father contact with them—if that
is what she has 245 done—are capable of constituting breaches of his rights of custody under para 15.
Is the mother’s action in retaining the children in England in breach of the father’s rights of custody, given the agreement that the children will remain in
England, in any event, for one year?
I have found this the most difficult aspect of the case. I was initially attracted to the proposition that where parents agree that children shall remain
in England for a specified period there cannot be a wrongful retention until that period has elapsed. The mere fact that the relationship between the
parents has come to an end cannot entitle one parent unilaterally to resile from that which has been agreed between them. The example which springs to
mind is an agreement that the children should visit a foreign country for a specific time, such as a school holiday. Clearly, a parent in such circumstances
could not unilaterally change his mind and demand the return of the children before the term of the contact had expired.
Thus, if the mother’s case before me were that she intended at the expiry of one year to return the children to Israel or were she to establish for the
purpose of this argument that the agreement between them was that the children should be returned after two years and that she intended to return the
children at the expiry of that term then it seems to me she would have a complete defence to the originating summons, either because her retention of the
children was not wrongful, or, under art 13(a), because the father had consented not merely to the removal of the children but, by necessary implication,
had consented to their retention in England for a fixed term.
Mr Turner accepted, as, of course, he had to, that the removal of the children to England was not in breach of the father’s rights and that he
consented to it. Indeed, he submitted that the father was, in effect, exercising his rights by bringing the children to England with the mother. Mr Turner
submits, however, that the mother’s refusal now to return the children at any point of the future and irrespective of the original agreement constitutes a
breach of the father’s rights even though she is retaining the children in England within the period originally agreed.
The question, in my judgment, thus becomes: does the fact that the mother has stated her intention not to return the children to Israel at all mean that
there is a wrongful retention as at the date that intention is either formed or when it is communicated to the father, even though the period in which she is
entitled to retain the children in England has not yet expired?
In the absence of authority, my answer to this question might well have been No. An intention not to return after a given date which is capable of
being changed should not, in principle, render wrongful what has been agreed, namely retention up to the date in question. However, on reflection, I have
come to the conclusion that both the terms of art 3 and the case Re AZ (a minor) (abduction: acquiescence) [1993] 1 FLR 682 require a different answer.
Mr Turner argues that the terms of art 3 are, in a sense, exclusive. Provided its terms are fulfilled the wrongful retention is established and
extraneous factors do not fall to be considered. Thus, he says here that the mother’s decision not to return the children to the State of Israel is a breach of
the father’s rights of custody, that the children are habitually resident in Israel (notwithstanding their presence in England) and that at the time the mother
announced her intention not to return them the father would have been exercising his rights but for her refusal to allow him to see them and her 246
expressed intention not to return the children to Israel. He thus says that the terms of art 3 are fulfilled and the court is thus bound to order return under
Preamble
art 12.
Mr Turner further submits that art 13(a) cannot apply because, although there was an agreement to the removal into England, the father plainly does
not agree with the mother’s retention of the children in England and since retention under the convention refers to a fixed point in time and since, in the
context of this case, that retention can be dated by the mother’s announcement of her decision not to return the children, art 13(a) cannot apply since the
father has neither agreed, nor by his prompt action in taking proceedings, acquiesced.
In Re AZ the child was habitually resident in Germany. The mother brought him to England on a temporary basis with the father’s agreement and
then handed him over to an aunt. The father agreed that the child should remain with the aunt until he, the father, was able to come to England at
Christmas. On 19th December the aunt applied ex parte to the county court for residence and prohibited steps orders which were granted. Booth J found
that there were two points in time when the child was wrongfully retained in England. Booth J, as quoted by Sir Michael Kerr in the Court of Appeal,
said (at 688–689):
‘First, there is the question whether there was a wrongful retention. There are two points of time, in my judgment, when Z was retained in this
country wrongfully. Wrongful retention for the purpose of the Convention means retention “in breach of the rights of custody attributed to a
person, either jointly or alone, under the law of the State in which the child was habitually resident immediately before the removal or retention”.
The rights of custody, according to the German civil code, vest in the mother and father, they being married. The first point of time when Z’s
retention in this country was, in my judgment, wrongful was at the point that the mother decided not to return to Germany; that is, in November
1991. That was a unilateral decision taken by her. It was in breach of the father’s custody rights because she did not intend to return Z to
Germany, in breach of the agreement that they had previously come to. The mother decided, without consultation with the father, that Z should
stay with [the aunt and her husband]. The mother says that had the father come over to this country and at that point required or demanded or asked
that Z should go back to Germany with him, she would not have objected and neither would any of her family. But it seems to me that by her
unilateral decision to keep the child in this country herself and not return there was a wrongful retention.
The second, and perhaps the stronger, of the two points of time when the retention can be considered to be wrongful, was on 19 December 1991
when, on the ex parte application to the Oxford County Court, the aunt ... obtained, first, the residence order (that Z should reside with her until 17
January 1992) and, secondly, the prohibited steps order (that he should not be removed from the jurisdiction). It was a unilateral decision to make
that application and it was not taken in consultation with the father. The most that the father had done was to agree that until he could come to this
country Z should remain with [the aunt and her husband] and not live with the mother. He had agreed to nothing else. He certainly had not been
asked, nor had he agreed, to the prohibited steps order being obtained.’
In the Court of Appeal, Sir Michael Kerr commented on this passage in the following way (at 689):
247
‘Without deciding the point, particularly since it has not been pressed in argument, I am doubtful about the first ground on which the judge
relied. It seems to me that the uncommunicated decision which the mother took in her own mind in November 1991 not to return the boy on 21
January 1992 could hardly constitute a wrongful retention in November 1991. It was at most an uncommunicated intention to retain him in the
future from which she could still have resiled. But on balance I am driven to agree with the judge on the second ground, which she recognised to be
the stronger one, although it seems odd that an otherwise lawful and unconcealed application to a court can constitute a wrongful retention.
However, the unusual nature of this act as constituting a wrongful retention appears to me to have some relevance to the question of acquiescence,
as mentioned below.’
It is to be noted that Butler-Sloss LJ took the view that Booth J was ‘entirely justified in her conclusions under art 13 that the child was wrongfully
retained’ (at 684). I query whether or not the report has misprinted art 13 for art 3.
I confess that I initially shared the misgivings expressed by Sir Michael Kerr. If a parent, pursuant to an agreement that a child may live with him for
a given period, fears unilateral action by the other parent it seems to me very hard to suggest that an application to the court designed to protect the
presence of the child for the agreed period constitutes an act of wrongful retention. Thus, if the mother in the instant case applied for prohibited steps and
residence orders for the sole purpose of protecting the presence of the children within the jurisdiction until 1 September I would find it difficult to find
that an act of wrongful retention, alternatively, if it was, that the father had not consented to the retention until 1 September under art 13(a).
However, it seems to me that where a parent, as here, announces as part of her case that she does not intend to return the children to Israel at all she
can no longer herself rely on the father’s agreement to the limited period of removal or retention as protecting her either under art 3 or under art 13(a). As
Mr Turner puts it, she cannot have the benefit of the agreement without the burden. Equally, as an issue of fact, it seems to me that the decision which
precedes the announcement, even if not communicated to the father, must be capable itself of constituting an act of wrongful retention.
I therefore find that, by announcing her intention not to return the children to Israel at all and by asserting that she and the children have acquired
habitual residence in England, the mother has wrongfully retained the children in England as at the date of that announcement. On the facts of this case
the statement in her affidavit that she has settled and made a life in England is evidence of a previous determination to retain the children in England,
which is capable of being fixed in time and which, whilst there is no direct evidence of when it was formed, I fix in time prior to the filing of the
originating summons and upon or shortly after receipt of the letter from the father of 6 May 1993.
It follows, in logic, that the father has neither agreed in advance to the children remaining in England beyond 1 September, nor, plainly, has he
acquiesced. I, therefore, find a wrongful retention within art 3.
Habitual residence
I heard a great deal of argument on this point and was referred to a number of the cases on it. I am, however, satisfied that the issue can be resolved
shortly. The retention can, of course, only be wrongful if the children were habitually 248 resident in Israel immediately before they were wrongfully
retained in England. I am in no doubt at all that the habitual residence of the children remains that of Israel. Even if, which must be doubtful, the mother
has herself lost her habitual residence in Israel, it seems to me plain that where both parents have equal rights of custody no unilateral action by one of
them can change the habitual residence of the children, save by the agreement or acquiescence over time of the other parent, or court order determining
rights of residence and custody. In my judgment, the matter is concluded on this point by the observations of Lord Donaldson MR in C v S (minor:
abduction: illegitimate child) [1990] 2 All ER 449 at 455, [1990] 2 AC 562 at 562.
Article 13(b)
Mr Moat sought to argue on the basis of para 16 of the mother’s affidavit that there was a grave risk that to order the children’s return would expose
them to physical or psychological harm or otherwise place the children in an intolerable situation. Paragraph 16 reads as follows:
Preamble
‘[Y] is very well settled here. She speaks fluent English with a nice British accent. She has many friends at school and at home. She is
peaceful and enjoys going to school and living in England. I am afraid that she will get to Israel and will be exposed to bombs and terror which is
all part of life in Israel. She will also have to serve in the Israeli Army. My biggest concern of all however is that my husband will put my
daughters into a very religious boarding school. There are very many places like this in Israel and children in those schools appear to disappear
from one or other of their parents, all in the name of God. It is impossible to trace them and even the Israeli Police are unable to help when such
things happen. These events happen in Israel from time to time and there have been incidents when such things have occurred following bitter
marriage breakdowns.’
In my judgment, that paragraph does not even begin to make a case under art 13(b) of the convention and is, moreover, in contradiction to the
evidence of the mother’s own expert, which is that the custody of children of the ages of Y and N is likely to be granted to the mother.
It follows, in my judgment, that the father has made out his case under art 3, that none of the exceptions under art 13 apply and that the children must
be returned ‘forthwith’ under art 12. The children will, of course, remain in their mother’s care until such time as the court in Israel orders differently, if
it does. Had I discretion in the matter, I would have ordered that the children be returned to Israel not later than 2 September 1993. Whilst I have no
power, as I understand it, to specify what ‘forthwith’ means, I hope that the father will recognise that an orderly return of the children in their mother’s
care to Israel for the Israeli court to decide their future is in their interests and that peremptory action is likely to be unsettling for them. I therefore hope
that since the father has now succeeded in establishing the point of principle upon which he brought the originating summons the parties will negotiate a
civilised 249 timetable for the children’s return to Israel, pending any further decision by the Israeli court as to where they are to live.
Application granted.

[1994] 1 All ER 250
Hall (Inspector of Taxes) v Lorimer

TAXATION; Income Tax, Profits

DILLON, NOLAN AND ROCH LJJ
2, 3, 5 NOVEMBER 1993
Income tax – Profits – Profession or vocation – Employment – Contract of service or contract for services – Matters to be considered – Duration of
particular engagement – Number of people by whom taxpayer engaged – Vision mixer – Taxpayer working as freelance vision mixer for various
television production companies – Taxpayer working at production company studios and using studio equipment – Taxpayer providing no equipment of
his own – Taxpayer not contributing to production costs or sharing in profits or losses – Taxpayer receiving fees for services rendered under short-term
contracts with production companies – Whether taxpayer’s contracts with production companies contracts of service or contracts for services – Income
and Corporation Taxes Act 1988, s 19, Sch E.
The taxpayer trained as a vision mixer, which was a skilled editing job, involving selecting from different television camera shots the best and most
appropriate shots (in accordance with the programme director’s desired result) to make up the programme shown to viewers. In 1985 the taxpayer left
full-time employment with a television production company and went freelance, charging more than the union rate for his services. He registered for
value added tax and set up an office at home. His engagements consisted of short-term contracts usually lasting one or two days. Between 1985 and
1989 he worked for over 800 days. He did not hire any staff but on six occasions he provided a substitute with the consent of the production company
concerned. All his work was carried out at studios owned or hired by the production company and he would stay there until his work was completed.
The equipment was provided by the studios, the taxpayer providing none of his own. He neither contributed to the cost of production nor did he share in
the profit or loss made by the production company. However, he could lose money if a client became insolvent or an invoice remained unpaid. The
taxpayer appealed to a Special Commissioner against assessments to income tax under Sch E, Case I for the years 1984–85 to 1988–89, contending that
his profits had been earned not under contracts of service but under a series of contracts for services and were properly assessable under Sch D. The
Special Commissioner allowed the appeal on the grounds that the activities of the taxpayer bore the hallmarks of a man who was in business on his own
account and that his profits had been earned under contracts for services. The judge affirmed the Special Commissioner’s decision. The Crown appealed
to the Court of Appeal, contending that the taxpayer could not be said to be in business on his own 250 account because the production company
controlled the time, place and duration of any given engagement and the taxpayer provided no equipment, hired no staff, ran no financial risk save those
of bad debts and being unable to find work, had no responsibility for investment in or management of the work of programme-making and had no
opportunity of profiting from the manner in which he carried out individual assignments.
Held – In deciding whether or not the contracts from which the taxpayer derived his earnings were contracts of service, there was no single path to a
correct decision: an approach which was appropriate to the facts and arguments of one case might not be helpful in another. The question whether a
person was in business on his own account, though often helpful in distinguishing between a contract of service and a contract for services, might be of
little assistance in the case of a person carrying on a profession or vocation, and did not include factors which were significant in the taxpayer’s appeal,
viz the duration of the particular engagement or the number of people by whom the taxpayer was engaged. In deciding cases such as that of the taxpayer,
there was much to be said for bearing in mind the traditional distinction between a servant and an independent contractor, where what was significant was
the extent to which the individual was dependent on or independent of a particular paymaster for the financial exploitation of his talents. Since the
Preamble
Special Commissioner’s conclusion was not inconsistent with the facts found by him, the Crown’s appeal would be dismissed (see p 256 h, p 258 e f h
and p 260 g h, post).
Market Investigations Ltd v Minister of Social Security [1968] 3 All ER 732 considered.
Per curiam. An employment properly so called is not the less an employment because it is casual rather than regular (see p 256 f and p 260 h, post).
Notes
For the distinction between employment and a profession or vocation, see 23 Halsbury’s Laws (4th edn reissue) paras 177–178, 667, and for cases on the
subject, see 28(1) Digest (2nd reissue) 348–359, 461–467, 1684–1726, 2225–2247.

Davies (Inspector of Taxes) v Braithwaite [1931] 2 KB 628, [1931] All ER Rep 792.
Fall (Inspector of Taxes) v Hitchen [1973] 1 All ER 368, [1973] 1 WLR 286.
Lee Ting Sang v Chung Chi-Keung [1990] 2 AC 374, [1990] 2 WLR 1173, PC.
Market Investigations Ltd v Minister of Social Security [1968] 3 All ER 732, [1969] 2 QB 173, [1969] 2 WLR 1.
O’Kelly v Trusthouse Forte plc [1983] 3 All ER 456, [1984] QB 90, [1983] 3 WLR 605, CA.
Walls v Sinnett (Inspector of Taxes) [1987] STC 236.
Cases also cited

Andrews v King (Inspector of Taxes) [1991] STC 481.
Edwards (Inspector of Taxes) v Clinch [1981] 3 All ER 543, [1982] AC 845, HL; affg [1980] 3 All ER 278, [1981] Ch 1, CA.
Global Plant Ltd v Secretary of State for Health and Social Security [1971] 3 All ER 385, [1972] 1 QB 139.
Morren v Swinton and Pendlebury BC [1965] 2 All ER 349, [1965] 1 WLR 576, DC.
Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 1 All ER 433, [1968] 2 QB 497.
251
Warner Holidays Ltd v Secretary of State for Social Services [1983] ICR 440.
Young & Woods Ltd v West [1980] IRLR 201, CA.
Appeal
The Crown appealed from the decision of Mummery J ([1992] STC 599) on 22 May 1992 dismissing its appeal by way of a case stated (set out at [1992]
STC 600–609) by a Commissioner for the Special Purposes of the Income Tax Acts in respect of his decision to allow an appeal by Ian Malcolm Lorimer
(the taxpayer) against assessments to income tax under Case I of Sch E on his earnings as a freelance vision mixer for the years 1984–85 to 1988–89
inclusive, the commissioner holding that those earnings were properly assessable not under Sch E but under Sch D. The facts are set out in the judgment
of Nolan LJ.
Peter Goldsmith QC and Launcelot Henderson (instructed by the Solicitor of Inland Revenue) for the Crown.
Stephen J Allcock QC and Andrew Hitchmough (instructed by Simmons & Simmons) for the taxpayer.
Cur adv vult
5 November 1993. The following judgments were delivered.
NOLAN LJ (giving the first judgment at the invitation of Dillon LJ). This is an appeal by the Crown in the person of Mr Hall, inspector of taxes, against
a decision of Mummery J ([1992] STC 599) dismissing the appeal of the Crown against a decision of a Special Commissioner. The Special
Commissioner by that decision had upheld the appeal of Mr Lorimer (the taxpayer) against assessments under Case I of Sch E on his earnings as a
freelance vision mixer for the years 1984–85 to 1988–89 inclusive. The taxpayer contends, and the Special Commissioner held, that those earnings were
properly assessable not under Sch E but under Sch D. Case I of Sch E imposes a charge of tax ‘in respect of any office or employment on emoluments
therefrom’. The charge under Sch D is imposed on, inter alia, the profits ‘from any trade, profession or vocation’. For the first four of the assessments
the relevant charging provisions were contained in the Income and Corporation Taxes Act 1970. For the fifth they are in the Income and Corporation
Taxes Act 1988. Nothing turns on that; the language is identical.
The case has been argued before us, as it was below, on the agreed basis that the critical issue is whether or not the contracts from which the taxpayer
derived his earnings were contracts of service. If so the earnings were properly assessed under Case I of Sch E; if not they should be assessed under Sch
D.
The detailed facts of the matter which are so important in a case of this sort are set out with admirable thoroughness and clarity in the case stated by
the learned Special Commissioner and in the documentary evidence. I shall have to refer to some of the documents later in this judgment, but by way of
introduction I cannot do better than adopt the summary of the facts given by Mummery J in his judgment ([1992] STC 599 at 609–610):
‘It appears from the facts found by the Special Commissioner and set out in the case stated that the taxpayer, after a period in business on his
own account and then in employment as an electrician, trained as a vision mixer in 1983. During his period of training and down to the end of
January 1985 252 the taxpayer was employed by Molinare as a vision mixer in their business of producing television programmes. In 1985 the
taxpayer decided to leave full-time employment with Molinare and became a freelance vision mixer, doing work for a number of different
production companies. Vision mixing is undoubtedly a skilled editing job. It involves selecting, in the course of making both pre-recorded
television programmes and live television programmes, camera shots taken from different angles which come up on screens in front of the mixer.
The shots selected by the mixer determine what the viewer ultimately sees on his television screen at home. The vision mixer works closely with
the director. He does not himself produce the film or television programme; he is one of many involved in the production. Others involved are the
producer, director, musical director, cameramen, presenters, artistic directors, stagehands, electricians, engineers and so on. The production in
which the vision mixing occurs usually takes place in a studio owned or hired by the production company. The studio is equipped with very
expensive equipment owned or supplied by the studio company, though the advice of the vision mixer may be sought on the equipment to be used
in a particular production. After he left full-time employment with Molinare the taxpayer prepared a curriculum vitae. He made contact by letter,
telephone and personal visits with many companies in the television industry with a view to obtaining engagements as a vision mixer. In the first
Preamble
14 months he built up a list of 22 companies and in the three succeeding years the number on the list has remained at about 20. Some of the
original names stayed on the list. New names were added. Most of the time was spent on engagements with a relatively small number of
companies, though not always the same companies. The taxpayer kept busy in what is a volatile industry. He worked for over 800 days in the
period from 2 February 1985 to 5 April 1989. His annual number of engagements ranged from between 120 to 150. In the relevant period he had a
total of about 580 engagements. Apart from three occasions when he worked as a technical director, a director and a transmission controller, all of
the taxpayer’s engagements were as a vision mixer. On six occasions when bookings clashed he provided, with the consent of the production
company, a substitute hired at his expense for a sum less than he charged the production company, so that on those occasions he made a profit from
the engagement. The taxpayer has had no full-time or long-term contract with any one company since he left Molinare. He has been free to accept
engagements or not, as he wished, and the various production companies have been free to engage the taxpayer or not as they wished. He takes
bookings for periods of usually one to two days on a “first come first served” basis. The longest engagement was for ten days. When he accepts an
engagement the taxpayer goes to the studio and stays there until his part in the programme production has been satisfactorily completed. He does
no other work for the company engaging him. Bookings are usually made on the phone to his home, where he has an office, and are subsequently
confirmed by letter which often states the date, rate of pay, place of work and time. There are, however, no formal written conditions of
engagement. Varying lump sum amounts are agreed and charged as reward for the work, sometimes with the addition of a sum for travel expenses
and usually with the addition of value added tax. The taxpayer was registered for the purposes of value 253 added tax from 1 February 1985.
Some clients are bad payers and keep him waiting for three months before they pay up. Some companies have deducted PAYE income tax or Class
1 national insurance contributions from the agreed payments. It appears that the taxpayer’s charges are higher than the normal union rates of pay.
For most of the relevant period the taxpayer was a member of a union, the Association of Cinematograph Television and Allied Technicians. All of
the taxpayer’s work as a vision mixer is done at the studios owned or hired by the production company on equipment owned or supplied by the
studio company. The taxpayer does not provide any equipment or tools of his own. He does not contribute any money to the cost of the production
of the programme. He does not share in the profits or run the risk of losses on the production. He does not hire any staff, either to assist him with
his vision mixing at the production studio or at home, though his wife helped him with paperwork at home until their marriage was dissolved and he
employed an agent for a few months from March 1989. As to his financial arrangements, the taxpayer keeps a business account at his bank separate
from his personal account. In January 1985 he effected a retirement annuity policy and a life assurance policy approved by the Revenue under the
Income and Corporation Taxes Act 1970. In October 1986 he took out an insurance policy against sickness providing income after four weeks of ill
health.’
Before us Mr Goldsmith QC, representing the Crown, made a concession which had not been made below. It was that tax could not be charged
under Sch E in respect of the profits made by the taxpayer on the six occasions when, with the consent of the production company concerned, he provided
a substitute to carry out the work for which he had contracted. Mr Goldsmith accepted that in those cases the taxpayer could not be said to have earned
his profit in the performance of a contract of service because in the result he was not paid for his own skill and labour. Mr Goldsmith added, and I would
agree, that the concession had no significant bearing on the proper classification of the other 574 engagements which the taxpayer carried out during the
800 or more days on which he worked between 2 February 1985 and 5 April 1989.
Mr Goldsmith submitted, and again I would agree, that the conclusion of the Special Commissioner on those other engagements was a conclusion of
mixed law and fact. Therefore, it could only be disturbed on appeal if either the learned Special Commissioner had misdirected himself in law or the true
and only reasonable conclusion on the facts found by him was inconsistent with his determination. The Crown’s case before us as before Mummery J
was put forward primarily on the latter basis.
Mr Goldsmith submitted that the most useful test to adopt in judging the reasonableness or otherwise of the Special Commissioner’s decision was
that stated by Cooke J in Market Investigations Ltd v Minister of Social Security [1968] 3 All ER 732 at 737–738, [1969] 2 QB 173 at 184–185 when he
said:
‘… the fundamental test to be applied is this: “Is the person who has engaged himself to perform these services performing them as a person in
business on his own account?”. If the answer to that question is “yes”, then the contract is a contract for services. If the answer is “no” then the
contract is a contract of service. No exhaustive list has been compiled and perhaps no exhaustive list can be compiled of the considerations which
are relevant in determining that question, nor can strict rules be laid down as 254 to the relative weight which the various considerations should
carry in particular cases. The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded
as the sole determining factor; and that factors, which may be of importance, are such matters as whether the man performing the services provides
his own equipment, whether he hires his own helpers, what degree of financial risk he takes, what degree of responsibility for investment and
management he has, and whether and how far he has an opportunity of profiting from sound management in the performance of his task.’
That case was concerned with a lady who belonged to a panel of part-time interviewers carrying out specific surveys for a market research company. It
was held that each of her assignments constituted a separate contract of service in respect of which she fell to be treated as an insured person for national
insurance purposes. Cooke J’s observations were cited by Pennycuick V-C in Fall (Inspector of Taxes) v Hitchen [1973] 1 All ER 368, [1973] 1 WLR
286 when holding that a professional dancer was taxable under Case I of Sch E on his earnings from a particular contract with Sadler’s Wells Trust Ltd.
After referring to the passage which I have quoted Pennycuick V-C continued ([1973] 1 All ER 368 at 373, [1973] 1 WLR 286 at 292–293):
‘In the present case, it seems to me that virtually all the relevant factors point to this being a contract of service. The taxpayer is engaged to
work for a minimum period of rehearsals plus 22 weeks, and thereafter until the contract is determined by a fortnight’s notice on either side; he is
engaged to work full-time during specified hours for a regular salary; the company has the first call on his services, and indeed the exclusive call
subject only to this, that their consent to the taxpayer performing elsewhere shall not be unreasonably withheld; and then, again, the company
provides and owns the gear used by the taxpayer, with one exception. All these indicia point to the conclusion that he is not a person who is
performing those services in business on his own account; and there are really no indicia to the contrary.’
In Lee Ting Sang v Chung Chi-Keung [1990] 2 AC 374 at 382 Lord Griffiths, delivering the judgment of the Privy Council, said that ‘the matter had
never been better put’ than by Cooke J in the passage in question. The Privy Council proceeded to hold, reversing the decisions of the judge of first
instance and the Court of Appeal, that the applicant who was a casual worker on a building site was an employee of the sub-contractor for whom he was
working at the time he suffered an accident and was, therefore, entitled to be compensated under the Employees’ Compensation Ordinance of Hong Kong.
It was found that the applicant worked from time to time for other contractors, but when the work of the respondent was urgent would give priority to
him, telling any other employer for whom he was then working to engage someone else to finish the work. The applicant had been working on this
particular job for 20 days before the accident had occurred. Lord Griffiths said (at 383–384):
Preamble
‘All the tests, or perhaps it is better to call them indicia, mentioned by Cooke J. in Market Investigations Ltd. v. Minister of Social Security
([1968] 3 All ER 732 at 737–738, [1969] 2 QB 173 at 184–185) point towards the status of an employee rather than an independent contractor. The
applicant did not 255 provide his own equipment, the equipment was provided by his employer. He did not hire his own helpers; this emerged
with clarity in his evidence when he explained that he gave priority to the first respondent’s work and if asked by the first respondent to do an
urgent job he would tell those he was working for that they would have to employ someone else: if he was an independent contractor in business on
his own account, one would expect that he would attempt to keep both contracts by hiring others to fulfil the contract he had to leave. He had no
responsibility for investment in, or management of, the work on the construction site, he simply turned up for work and chipped off concrete to the
required depth upon the beams indicated to him on a plan by the first respondent. There is no suggestion in the evidence that he priced the job
which is normally a feature of the business approach of a subcontractor; he was paid either a piece-work rate or a daily rate according to the nature
of the work he was doing. It is true that he was not supervised in his work, but this is not surprising, he was a skilled man and he had been told the
beams upon which he was to work and the depth to which they were to be cut and his work was measured to see that he achieved that result. There
was no question of his being called upon to exercise any skill or judgment as to which beams required chipping or as to the depths that they were to
be cut. He was simply told what to do and left to get on with it as, for example, would a skilled turner on a lathe who was required to cut a piece of
metal to certain dimensions. Taking all the foregoing considerations into account the picture emerges of a skilled artisan earning his living by
working for more than one employer as an employee and not as a small businessman venturing into business on his own account as an independent
contractor with all its attendant risks. The applicant ran no risk whatever save that of being unable to find employment which is, of course, a risk
faced by casual employees who move from one job to another, and such casual employees are specifically covered by the Ordinance.’
Casual employees are not specifically covered by the charging provisions of Sch E, though provision is made for them in reg 50 of the Income Tax
(Employments) Regulations 1973, SI 1973/334. But it is, I think, clear from other passages in the Lee Ting Sang judgment that the specific mention of
casual employment in the Hong Kong Ordinance was not essential to the decision in the case. Mr Goldsmith submitted in effect that an employment
properly so called is not the less an employment because it is casual rather than regular and that I would accept.
Mr Goldsmith acknowledged that the work of the taxpayer, unlike that of Mr Lee Ting Sang, depended on his own rare skill and judgment but
submitted that the degree of skill involved in the work cannot alone be decisive. Again I agree. A brain surgeon may very well be an employee. A
window cleaner is commonly self-employed.
Mr Goldsmith invited us to adopt the same approach as that of Lord Griffiths in applying the test or indicia set out by Cooke J to the facts of the
present case. That is an invitation which I view with some reserve. In cases of this sort there is no single path to a correct decision. An approach which
suits the facts and arguments of one case may be unhelpful in another. I agree with the views 256 expressed by Mummery J in the present case where
he says ([1992] STC 599 at 612):
‘In order to decide whether a person carries on business on his own account it is necessary to consider many different aspects of that person’s
work activity. This is not a mechanical exercise of running through items on a check list to see whether they are present in, or absent from, a given
situation. The object of the exercise is to paint a picture from the accumulation of detail. The overall effect can only be appreciated by standing
back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative
appreciation of the whole. It is a matter of evaluation of the overall effect of the detail, which is not necessarily the same as the sum total of the
individual details. Not all details are of equal weight or importance in any given situation. The details may also vary in importance from one
situation to another. The process involves painting a picture in each individual case. As Vinelott J said in Walls v Sinnett (Inspector of Taxes)
[1986] STC 236 at 245: “It is, in my judgment, impossible in a field where a very large number of factors have to be weighed to gain any real
assistance by looking at the facts of another case and comparing them one by one to see what facts are common, what are different and what
particular weight was given by another tribunal to the common facts. The facts as a whole must be looked at, and a factor which may be
compelling in one case in the light of the facts of that case may not be compelling in the context of another case.”’
None the less in deference to the submission of Mr Goldsmith I am prepared to follow his suggested path and see where it takes us. Listing the specific
factors to which Cooke J referred, Mr Goldsmith said that the production company in any given engagement controlled the time, place and duration of
each programme, that the taxpayer did not provide any of his own equipment, that he hired no staff to assist him in his work, that he ran no financial risk
apart from the risk of bad financial debts and of being unable to find work, that he had no responsibility for investment in or management of the work of
programme making and consequently he had no opportunity of profiting from the manner in which he carried out individual assignments.
Each of these points was considered by the Special Commissioner. He did not fully accept their validity as a matter of fact in all cases. Thus he said
(at 608–609):
‘… the taxpayer provides no equipment (ie he has no tools), he provides no “work place” or “workshop” where the contract is to be performed,
he provides no capital for the production, he hires no staff for it. No; he does not. But that is not his business. He has his office, he exploits his
abilities in the market place, he bears his own financial risk, which is greater than that of one who is an employee, accepting the risk of bad debts
and outstanding invoices and of no or an insufficient number of engagements. He has the opportunity of profiting from being good at being a vision
mixer. According to his reputation there will be a demand for his services for which he will be able to charge accordingly. The more efficient he is
at running the business of providing his services the greater is his prospect of profit.’ (Mummery J’s emphasis.)
257
Mr Goldsmith submits that the Special Commissioner was not entitled to attach significance to the taxpayer’s risk of having no engagements
because, as was pointed out in the Lee Ting Sang case, this is a risk faced by casual employees who move from one job to another. That is so, but the risk
of bad debts and outstanding invoices is certainly not one which is normally associated with employment. Moreover, the income and expenditure
accounts reveal that the taxpayer incurred very substantial expenditure in the course of obtaining and organising his engagements and as an incident of
carrying them out. For example, in the period from 1 February 1985 to 30 April 1986 his expenses, including the cost of running his car or otherwise
travelling in the course of his work and of running his office from home, amounted to £9,250 against fees received of £32,875, though it may be that the
figure for fees included some reimbursement of expenses. All of those expenses, as Mr Allcock QC representing the taxpayer told us, without
contradiction, were considered to be deductible if the taxpayer were assessed under Sch D. In any event they would seem to me to be quite different in
nature and scale from those likely to be incurred by an employee.
More generally, as the Special Commissioner noted, the special features specified in the Revenue list would be found in the case of many individuals
who exploit their talents in the theatrical, operatic, orchestral and sporting fields but who are none the less independent contractors. Mr Goldsmith
Preamble
submitted that the fundamental distinction between a contract of employment and a contract for services is that in the former the contracting party sells his
skill or labour; in the latter he sells the product of his labour. In one case the employer buys the man; in the other he buys the job. If that were right, it
would have provided a short and simple answer in the Market Investigation, Fall v Hitchen and Lee Ting Sang cases, but, that aside, I find the distinction
very hard to apply in the case of a professional man. Surely the self-employed barrister advising in his chambers or the doctor advising in his surgery is
selling his skill and labour and not its product. If the scene shifts to the court or to the operating theatre can the client or patient really be said to be
buying the product, which may be a disastrous failure in spite of the best efforts of the advocate or the surgeon in the litigation or operation?
Again the question whether the individual is in business on his own account, though often helpful, may be of little assistance in the case of one
carrying on a profession or vocation. A self-employed author working from home or an actor or a singer may earn his living without any of the normal
trappings of a business. For my part I would suggest there is much to be said in these cases for bearing in mind the traditional contrast between a servant
and an independent contractor. The extent to which the individual is dependent on or independent of a particular paymaster for the financial exploitation
of his talents may well be significant. It is, I think, in any event plain that Cooke J was not intending to lay down an all-purpose definition of
employment. For example, his test does not mention the duration of the particular engagement or the number of people by whom the individual is
engaged. Cooke J said that he took account of the fact that the lady concerned was free to work as an interviewer for others but added that there was no
finding that she did so (see [1968] 3 All ER 732 at 740, [1969] 2 QB 173 at 188). This is of little assistance in the present case, of which the most
outstanding feature to my mind is that the taxpayer customarily worked for 20 or more production companies and that the vast majority of his 258
assignments, as appears from the documentary evidence, lasted only for a single day.
With these considerations in mind I am unable to accept the submission that the conclusion reached by the Special Commissioner was inconsistent
with the facts found by him.
Was it however reached on the basis of a misunderstanding of the law? Three points are relied on by Mr Goldsmith in this context. First, he says
that the Special Commissioner erred in placing reliance on the decision of Rowlatt J in Davies (Inspector of Taxes) v Braithwaite [1931] 2 KB 628, [1931]
All ER Rep 792 as an authority on the meaning of employment for the purposes of Sch E in its modern form. It is not surprising that the Special
Commissioner attached importance to the case because it concerned an actress, Miss Lillian Braithwaite, whose income-earning activities had much in
common with those of the taxpayer. Basing himself on the fact that the legislature in 1922 had moved private employments from Sch D to Sch E, which
dealt primarily with public offices and employments, Rowlatt J concluded that the legislature ‘had in mind employments which were something like
offices, and I thought of the expression “posts” as conveying the idea required’ (see [1931] 2 KB 628 at 635, [1931] All ER Rep 792 at 795). Mr
Goldsmith rightly points out that since 1956 the charging provisions of Sch E have simply referred to ‘any office or employment’ and that, as has been
agreed in the present case, in accordance with the decision of Pennycuick V-C in Fall v Hitchen the word ‘employment’ should be accepted as
synonymous with contract of service. Rowlatt J’s conception of a ‘post’, if by that is meant something which could be filled by successive holders, is
therefore no longer a helpful analogy in deciding whether or not an employment exists. But his judgment continued ([1931] 2 KB 628 at 635–636, [1931]
All ER Rep 792 at 795):
‘When a person occupies a post resting on a contract, and if then that is employment as opposed to a mere engagement in the course of carrying
on a profession, I do not think that is a very difficult term of distinction, though perhaps a little difficult to apply to all cases. But I would go further
than that and say that it seems to me that where one finds a method of earning a livelihood which does not consist of the obtaining of a post and
staying in it, but consists of a series of engagements and moving from one to the other—and in the case of an actor’s or actress’s life it certainly
involves going from one to the other and not going on playing one part for the rest of his or her life, but in obtaining one engagement, then another,
and a whole series of them—then each of those engagements cannot be considered an employment, but is a mere engagement in the course of
exercising a profession, and every profession and every trade does involve the making of successive engagements and successive contracts and, in
one sense of the word, employments. In this case I think it is quite clear that the respondent must be assessed to income tax under Sch. D, because
here she does not make a contract with a producer for a post. She makes a contract with a producer for the next thing that she is going to do, and
then with another producer, and then a third producer, and at any time she may make a record for a gramophone company or act for a film. I think
that whatever she does and whatever contracts she makes are nothing but incidents in the conduct of her professional career.’
259
In Fall v Hitchen Pennycuick V-C quoted that passage and continued ([1973] 1 All ER 368 at 376, [1973] 1 WLR 286 at 295–296):
‘In that judgment, Rowlatt J holds that the word “employment” means a post, and distinguishes it from a succession of engagements made in the
course of carrying on a profession. He then goes on to hold that, on the particular facts of that case, Miss Braithwaite did not hold any post and that
none of her particular engagements could be treated as a post, but that on the contrary all her successive engagements must be treated as incidents in
the conduct of her profession. The learned judge nowhere says that if an actor enters into a contract in such terms as to amount to what he calls a
post, then that actor is not chargeable under Sch E but under Sch D. On the contrary, it is implicit in the whole of his judgment, it seems to me, that
if a professional person, whether an actor or anybody else, enters into a contract involving what the learned judge calls a post, then that person will
be chargeable in respect of the income arising from the post under Sch E notwithstanding that he is at the same time carrying on his profession, the
income of which will be chargeable under Sch D. The instance of a musician puts that point very neatly. I do not think that most people today
would use the word “post”, which does not seem very apt to cover the countless instances of employment in the sense of a contract of service; but
every word of that judgment is applicable as between the carrying on of a profession and an engagement in the course of carrying on that
profession, on the one hand, and a contract of employment, on the other hand.’
With those words of Pennycuick V-C I would respectfully agree. The Special Commissioner was referred to Fall v Hitchen as well as to Davies v
Braithwaite and I see no reason to suppose that he misunderstood or misapplied the latter decision in any respect.
Then it is said that the Special Commissioner was not referred to Lee Ting Sang and so was mistaken in his expressed belief that there was no
reported case in this field where the individual provided service to an appreciable number of different people on very short engagements. But the report
of the Lee Ting Sang case, to which I have referred, tells us nothing about the number or duration of the applicant’s other engagements. I do not accept
that the Special Commissioner was led by his unawareness of the case into an erroneous conclusion.
Finally, it is said that the Special Commissioner, and for that matter the learned judge, was wrongly influenced by the decision of this court in
O’Kelly v Trusthouse Forte plc [1983] 3 All ER 456, [1984] QB 90 and failed to appreciate that in that case there was a finding of the custom and practice
in the industry which had no counterpart in the present case. But the Special Commissioner merely expressed interest in the Trusthouse Forte decision.
He does not appear to me to have placed any particular reliance on it. Even if he did so and did so wrongly, 260 his conclusion would seem to me to
be amply justified by the other authorities to which he referred.
Mr Goldsmith told us that in pursuing this appeal the Revenue were not trying to extend the scope of the Sch E charge but were concerned to prevent
Preamble
it from being eroded in the case of casual employments. The decision of the Special Commissioner in the present case does not appear to me to justify
this concern. On the contrary, it seems to me to be fully in line with the earlier cases. Therefore, despite Mr Goldsmith’s careful and attractively
presented submissions I would dismiss the appeal.
DILLON LJ. I agree.
ROCH LJ. I also agree.
Appeal dismissed.
Susan J Murphy Barrister.

[1994] 1 All ER 261
Bishopsgate Investment Management Ltd (in liq) v Maxwell (No 2)

COMPANY; Directors

RALPH GIBSON, LEGGATT AND HOFFMANN LJJ
11 FEBRUARY 1993
Director – Fiduciary duty – Breach of fiduciary duty – Director transferring shares held by company for no consideration – Director failing to make
inquiry about transfers – Judge giving summary judgment for company and ordering director to make interim payment – Whether director’s breach of
duty causing company loss – Whether order for interim payment should have been made.
The plaintiff company brought proceedings against the defendant, a director of the company, for breach of his fiduciary duty in signing various stock
transfers whereby shares held by the company as trustee of a number of pension funds were transferred for no consideration to another company
controlling his father’s private interests. The defendant was also a director of that company. The plaintiff company’s articles of association required the
stock transfers to be signed by two directors or one director and the secretary. The transfers were not authorised by the board of directors. The defendant
made no inquiry about the transactions and signed the transfers because his brother and co-director had done so. The plaintiff company obtained
summary judgment against the defendant for damages to be assessed and an order for an interim payment of £500,000. The defendant appealed against
the summary judgment on the ground that the plaintiff company had failed to show that it had suffered any loss as a result of his breach of duty since it
had not demonstrated that if the defendant had made proper inquiries it would have prevented the loss. The defendant also sought leave to appeal against
the order for an interim payment on the grounds, inter alia, that there was insufficient evidence of the damage 261 suffered by the company and that
the judge had given insufficient consideration to the evidence that the defendant could not pay £500,000.
Held – (1) The defendant was in breach of his duty because he had given away company assets for no consideration to a private family company of which
he was a director. The cause of action was constituted not by the failure to make inquiries but by the improper transfer which had caused the company
loss and the necessary causal connection had therefore been established. Accordingly the appeal against the order for summary judgment would be
dismissed (see p 265 d to f j to p 266 a, p 267 j, p 268 j to p 269 e, post).
(2) At the hearing of the application for an interim payment no objection had been raised to the company’s evidence concerning the value of the
shares transferred and it would be wrong to allow the defendant to take the point on appeal. Furthermore, the defendant’s lack of means and the
likelihood that he would be bankrupted if ordered to pay £500,000 were factors the judge had taken into account. There were no grounds for interfering
with the judge’s discretion and the application for leave to appeal against the order for an interim payment would also be refused (see p 266 j to p 267 b d
g to j and p 269 e f, post).
Notes
For a director’s liability to the company for a breach of his duty, see 7(1) Halsbury’s Laws (4th edn reissue) paras 614, 643, 645, and for cases on the
subject, see 9(2) Digest (2nd reissue) 195–235, 4666–4937.
Case referred to in judgments

McWilliams v Sir William Arroll & Co Ltd [1962] 1 All ER 623, [1962] 1 WLR 295, HL.
Cases also cited

Agip (Africa) Ltd v Jackson [1992] 4 All ER 451, [1991] Ch 547, CA.
Baden v Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA (1982) [1992] 4 All ER 161, [1993] 1 WLR
509.
Bonnington Castings Ltd v Wardlaw [1956] 1 All ER 615, [1956] AC 613, HL.
British and Commonwealth Holdings v Quadrex Holdings [1989] 3 All ER 492, [1989] QB 842, CA.
Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218, [1874–80] All ER Rep 271, HL.
Karak Rubber Co Ltd v Burden (No 2) [1972] 1 All ER 1210, [1972] 1 WLR 602.
Lagos v Grunwaldt [1910] 1 KB 41, [1908–10] All ER Rep 939, CA.
Lipkin Gorman (a firm) v Karpnale Ltd [1992] 4 All ER 512, [1991] 2 AC 548, HL.
Selangor United Rubber Estates Ltd v Cradock (a bankrupt) (No 3) [1968] 2 All ER 1073, [1968] 1 WLR 1555.
Preamble
Symon v Palmer’s Stores (1903) Ltd [1912] 1 KB 259, CA.

Underwood (A L) Ltd v Bank of Liverpool and Martins Bank [1924] 1 KB 775, [1924] All ER Rep 230, CA.
West Jewell Tin Mining Co, Re, Weston’s Case (1879) 10 Ch D 579, CA.
Appeal
The defendant, Ian Robert Charles Maxwell, appealed from that part of the decision of Chadwick J ([1993] BCLC 814) given on 21 December 1992 in
proceedings brought by the plaintiff, Bishopsgate Investment Management Ltd 262 (in liquidation), claiming damages for negligence and/or breach of
fiduciary duty whereby the judge (i) gave interlocutory judgment for damages to be assessed and ordered the defendant to indemnify the plaintiff against
all loss suffered by reason of the transfer of certain sterling investments, (ii) ordered an inquiry into the amount of such loss, (iii) ordered the defendant to
make an interim payment of £500,000 pursuant to RSC Ord 29, r 11(1)(b) and (iv) refused the defendant leave to appeal. The facts are set out in the
judgment of Hoffmann LJ.
Colin Rimer QC and Paul Girolami (instructed by Kingsley Napley) for the appellant.
John Brisby (instructed by Stephenson Harwood) for the respondent was not called on.
HOFFMANN LJ (giving the first judgment at the invitation of Ralph Gibson LJ). Bishopsgate Investment Management Ltd, which I shall call ‘the
company’, was trustee of the assets of a number of pension schemes for employees of companies controlled by the late Mr Robert Maxwell. After the
death of Mr Robert Maxwell on 5 November 1991 it was found that assets worth hundreds of millions of pounds held on behalf of the pension funds had
been wrongfully sold or pledged for the benefit of Mr Robert Maxwell’s other companies. The company was unable to meet its liabilities to the pension
funds and was compulsorily wound up on 4 March 1992.
The defendant, Mr Ian Maxwell, was at all material times a director of the company. On 8 May 1992 the company commenced proceedings against
him claiming that he was liable to make good the loss caused by a number of specified misappropriations on the ground they had been caused by breaches
of the fiduciary duty or duty of care which he owed to the company. The company proceeded by summons for judgment under RSC Ord 14 for damages
to be assessed and also claimed an interim payment under Ord 29, r 11.
The summons was heard by Chadwick J over five days between 23 and 31 July 1992, when judgment was reserved. On 21 December he found in
favour of the company on one set of misappropriations and ordered an interim payment in the sum of £500,000 (see [1993] BCLC 814). Against these
orders Mr Ian Maxwell now appeals. The claims in respect of the other misappropriations were dismissed and against that part of the order there is no
cross-appeal.
Before dealing with the merits of the appeal, I feel I should say, having discussed the matter with my brethren, that we think the time taken to deliver
judgment was excessive. We do not of course know why it took so long. The hearing was arranged at fairly short notice to come on before the end of the
summer term. The parties are entitled to feel that there was little point in exerting themselves if they were not going to have a decision for five months.
There has also been inconvenience and additional expense arising out of a matter of which the judge could not at the time have been aware. Mr Ian
Maxwell gave his solicitors a second charge over his house to secure payment of their fees. It was registered on 31 July 1992. The plaintiff wants to
apply under the provisions of the Insolvency Act 1986 which give the court jurisdiction to set aside preferences given within six months before
presentation of a bankruptcy petition. I say nothing about whether this charge even arguably satisfied the statutory criteria for a preference. But the time
taken to give judgment used up five out of the six months and the statutory demand which 263 must precede a bankruptcy petition requires another
three weeks. The company was obliged to persuade this court to qualify its stay of the interim payment order by allowing presentation of a petition
provided that it was thereafter frozen pending this appeal.
A further difficulty was caused when Mr Ian Maxwell then issued a summons to set aside the statutory demand, a step which ordinarily would have
prevented presentation of a petition for some weeks until the summons could be heard: see s 267(2)(d) of the Insolvency Act 1986. Chadwick J was
obliged to hear the summons as a matter of urgency and dismissed it in time to enable the petition to be presented with three days to spare. All this
expensive last-minute activity should have been unnecessary.
I return to the merits of the appeal. Mr Ian Maxwell’s evidence was that he knew that the company’s business consisted principally, if not
exclusively, of managing the assets of the pension funds. He knew that he was a director. Nevertheless, he took no interest whatever in the management
of the company. He attended few meetings and paid little attention to business when he did. He said he trusted and relied upon the other directors.
In relation to all but one of the misappropriations, his inactivity was total. The company does not allege he participated in or even knew of the
relevant transactions. Its complaint is that he should as a director have taken enough interest to find out what was happening and prevent it.
The judge did not decide whether Mr Ian Maxwell’s failure to acquaint himself with the company’s business was a breach of duty. In the older cases
the duty of a director to participate in the management of a company is stated in very undemanding terms. The law may be evolving in response to
changes in public attitudes to corporate governance, as shown by the enactment of the provisions consolidated in the Company Directors Disqualification
Act 1986. Even so, the existence of a duty to participate must depend upon how the particular company’s business is organised and the part which the
director could reasonably have been expected to play. The judge was right not to enter into these questions on a summons under Ord 14.
The ground upon which he gave leave to defend was that there was a triable issue on causation. In cases in which the alleged breach of duty is an
omission, the plaintiff must prove that compliance would have prevented the damage. If it would have happened anyway, the plaintiff has failed to prove
his case. Thus in cases concerning safety equipment such as McWilliams v Sir William Arroll & Co Ltd [1962] 1 All ER 623, [1962] 1 WLR 295, to
which Mr Rimer QC referred us, the plaintiff must show that the omission to provide the safety equipment caused the accident. He or his personal
representative must therefore prove that he would have used the equipment and that it would have been effective. He may be assisted by presumptions
which shift the duty to adduce evidence but the burden of proof is upon him. The judge gave leave because he was not persuaded to the necessary
standard for the purposes of Ord 14 that any steps which Mr Ian Maxwell could have been under a duty to take would have prevented the
misappropriations. It seems to me that not only was the judge right, but the attempt to obtain judgment under Ord 14 in respect of these transactions was
misguided. It was inevitable that there would be triable issues on both liability and causation and the attempt to demonstrate the contrary on affidavit was
a waste of time and money.
In the case under appeal, however, Mr Ian Maxwell’s breach of duty was not an omission. The transaction involved the transfer of five parcels of
publicly 264 quoted shares from the company for a nil consideration to Robert Maxwell Group plc, a company of which Mr Ian Maxwell was also a
director and which controlled Mr Robert Maxwell’s private interests. The company’s articles required the transfer to be signed by a director and another
director or the secretary. Mr Ian Maxwell signed as a director beneath the signature of his brother Kevin. At the same time, as a director of Robert
Maxwell Group plc, he also signed blank transfers which enabled the shares to be pledged to Crédit Suisse to secure advances for the benefit of Mr Robert
Maxwell’s private interests. Three of the five parcels of shares were sold on 18 October 1991 and the proceeds credited by Crédit Suisse to the collateral
account of Robert Maxwell Group plc. The bank claims to be entitled as bona fide pledgee to retain these proceeds. Another parcel was dealt with in the
Preamble
same way at a later date and one parcel may have been returned to Robert Maxwell Group plc and realised for the benefit of that company, which is
heavily insolvent. The plaintiff company has received nothing.
The transfers by the company were not authorised by the board. Furthermore, no grounds have been put forward upon which it could honestly have
been thought that the transactions were for the benefit of the company as trustee of the pension funds. Mr Ian Maxwell made no inquiry about the
transactions but signed them because Kevin had signed.
The judge said of these transfers ([1993] BCLC 814 at 832–833):
‘… in signing the relevant stock transfer forms, Ian Maxwell was exercising a fiduciary power, conferred by the articles, to alienate property of
the company by an instrument which took effect as if executed by the company. In my view there is no doubt, that in exercising that power, Ian
Maxwell was required to satisfy himself that the transfers were authorised by the board of directors or by a committee of the directors; or, at the
least, that the transfers could properly be ratified by the board. In the absence of board authority, Ian Maxwell was, at the least, required to consider
and understand why the stock was being transferred to [Robert Maxwell Group plc] and to satisfy himself that the transfers were in the interests of
the plaintiff company.’
In my judgment the contrary is unarguable. If a director chooses to participate in the management of the company and exercises powers on its
behalf, he owes a duty to act bona fide in the interests of the company. He must exercise the power solely for the purpose for which it was conferred. To
exercise the power for another purpose is a breach of his fiduciary duty. It is no answer that he was under no duty to act in the first place. Nor can Mr Ian
Maxwell be excused on the ground that he blindly followed the lead of his brother Kevin. If one signature was sufficient, the articles would have said so.
The company was entitled to have two officers independently decide that it was proper to sign the transfer. Mr Ian Maxwell was in breach of his
fiduciary duty because he gave away the company’s assets for no consideration to a private family company of which he was a director. This was prima
facie a use of his powers as a director for an improper purpose and in my judgment the burden was upon him to demonstrate the propriety of the
transaction.
Mr Rimer submits in this case too that the company has failed to show that these breaches of duty caused the loss. He says that the essence of the
breach of duty was Mr Ian Maxwell’s failure to make proper inquiries before signing. The company must therefore demonstrate that proper inquiry
would have 265 prevented the loss. Mr Rimer says it will fail if the evidence shows that Mr Ian Maxwell would have been fobbed off with some
plausible explanation or, I suppose, if someone else would have been found to sign instead.
This is an attempt to characterise the breach of duty as an omission equivalent to Mr Ian Maxwell’s inactivity concerning the other transactions. But
in my view it is fallacious. I say nothing about cases in which the breach of duty consists in doing an act without first making reasonable inquiries. Mr
Rimer referred us to authorities which do not speak with one voice on whether it must be assumed that the defendant would have learnt the truth or
whether he might have been told a plausible lie. In the case of breach of the fiduciary duty, it seems to me that the cause of action is constituted not by
failure to make inquiries but simply by the improper transfer of the shares to Robert Maxwell Group plc. Even if Mr Ian Maxwell had made inquiries and
received reassuring answers from other directors whom he was reasonably entitled to trust, he would not have escaped liability for a transfer which was in
fact for a purpose outside the powers entrusted to the board. He may or may not have been entitled to relief under s 727 of the Companies Act 1985 but
since in fact he made no inquiry, no reliance has—in my view rightly—been placed on this section. The burden of justification is upon Mr Ian Maxwell
and on this he has adduced no evidence to raise a triable issue. It was the improper transfer which caused the loss and the necessary causal connection is
therefore established. I therefore think that the judge was right to hold there was no triable issue on the Crédit Suisse transactions and the appeal should
therefore be dismissed.
Mr Ian Maxwell also asks for leave to appeal against the judge’s order that he make an interim payment of £500,000 in respect of damage caused to
the company caused by the Crédit Suisse misappropriations. To some extent his application was linked with the Ord 14 appeal but it is also made upon
independent grounds.
The relevant provisions of Ord 79, rr 10 and 11 are as follows:
‘10.—(1) The plaintiff may, at any time after the writ has been served on a defendant, and the time limited for him to acknowledge service has
expired, apply to the Court for an order requiring that defendant to make an interim payment …
(3) An application under this rule shall be supported by an affidavit which shall—(a) verify the amount of the damages, debt or other sum to
which the application relates and the grounds of the application; (b) exhibit any documentary evidence relied on by the plaintiff in support of the
application …
11.—(1) If, on the hearing of an application under rule 10 in an action for damages, the Court is satisfied … (b) that the plaintiff has obtained
judgment against the respondent for damages to be assessed … the Court may, if it thinks fit … order the respondent to make an interim payment of
such amount as it thinks just, not exceeding a reasonable proportion of the damages which in the opinion of the Court are likely to be recovered by
the plaintiff …’
Mr Rimer says first that there was no sufficient evidence to verify the amount of the damages in accordance with r 10(3)(a). This is he submits a
matter which, by analogy with the sufficiency of an affidavit complying with the rules under Ord 14 goes to the jurisdiction of the court. It is true that the
first affidavit in support of the summons does not ascribe any particular value to the claim in 266 respect of the five transfers on which the company
succeeded. It merely verifies the statement of claim which includes the five parcels in stock pledged to Crédit Suisse said in para 9.5.2 of the statement of
claim to have had a value about £61m. Paragraph 9.7.3 alleges that Mr Ian Maxwell signed transfers of some of these shares but does not identify them or
state their value. Finally, the statement of claim alleges that the company has suffered damage on various alternative bases, one of which is that it is
liable to the pension funds to replace the value of the shares.
This omission was sought to be remedied by a further affidavit sworn by Mr Neil Cooper, the company’s joint liquidator, in the course of the hearing
on 27 July 1992. He exhibited the transfers signed by Mr Ian Maxwell and a covering letter from Mr Larry Trachtenberg on behalf of London and
Bishopsgate Group Ltd, another private Maxwell company, which says that the shares are enclosed and states their value. The total was £579,500. But
Mr Rimer says that this did not amount to a verification on affidavit of the amount of the damages. There was no objection to Mr Cooper’s affidavit and
in my judgment it provided evidence on which the judge could find that the value of the shares at the time of the transfer was £579,500. As they were
quoted shares, it was a point which could easily have been checked if anyone had thought it worthwhile to do so. Furthermore, it is clear from an
exchange between Mr Veeder QC, who was appearing for Mr Ian Maxwell, and the judge about his ability to pay £500,000 that everyone was proceeding
on the assumption that Mr Trachtenberg’s letter was evidence of the value of the shares. After judgment on 21 December the judge heard further
submissions from Mr Girolami as to why he should nevertheless not order an interim payment. There was no suggestion that he lacked evidence of the
value the shares. I think it would be wrong to allow Mr Ian Maxwell to take this point now.
Secondly, Mr Rimer says it does not follow that the company’s loss would be the full value of the shares. It might be able to get something back
from Crédit Suisse. But the company held the shares as trustee for the pension funds and its liability as trustee was to restore the fund. Prima facie,
Preamble
therefore, its loss was its liability to make good the value of the shares. Crédit Suisse appears to have taken the shares on the basis that they were
registered in the name of Robert Maxwell Group plc and claim to be bona fide pledgees. I do not think that the judge was required to speculate on the
possibility that the company might be able to defeat this plea. It has no duty to engage in doubtful litigation for the purpose of minimising the loss for
which Mr Ian Maxwell is liable. In my judgment therefore the judge was acting within his discretion in deciding that £500,000 was a reasonable
proportion of the damages which the company was likely to recover.
Finally, Mr Rimer says that the judge did not give any or sufficient consideration to the evidence that Mr Ian Maxwell could not pay £500,000. In
his affidavit sworn on 20 July 1992 he said that he had no means sufficient to pay any of the claims against him or any significant part of any of them.
That was said when the claims exceeded £400m. Mr Ian Maxwell was nevertheless able on 31 July 1992 to provide his solicitors with security over his
house which has enabled them to receive £250,000. The defendant’s lack of means is something to which the judge should have regard but it is not, as in
the case of personal injury claims, a bar to the order: compare Ord 29, r 11(2)(c). Mr Rimer says that the orders in this case do not assist the company,
because Mr Ian Maxwell cannot pay, and will cause him irreparable harm because it is likely to form the 267 basis of a petition for his bankruptcy.
These points were put to the judge by Mr Girolami when he made the order on 21 December and there is no reason to believe that the judge did not take
them into account. The transcript records him as saying that if Mr Ian Maxwell would be bankrupted by having to pay £500,000, it would be better to
find this out as soon as possible rather than after more expensive legal proceedings. This seems to me a practical and sensible approach. The judge may
also have taken the view that bankruptcy proceedings might assist the company to discover exactly what assets Mr Ian Maxwell did have, whether he had
given any away and to impose some control on his expenditure on legal fees. None of this would have been unreasonable. In my judgment we should not
interfere with the judge’s discretion. This application should therefore be refused.
LEGGATT LJ. I agree that both the appeal and application should be dismissed.
RALPH GIBSON LJ. I also agree that the appeal from the order for summary judgment should be dismissed. It has not been argued on appeal for Mr
Ian Maxwell that he was not in breach of the fiduciary duty which the judge held was owed by him to the plaintiff company. He did fail before signing
the transfer forms to make any inquiries in order to consider and understand why the five sterling investments were being transferred. He failed to satisfy
himself that such transfers were in the best interests of the plaintiff company.
It was acknowledged by the notice of appeal first filed that it was right to order Mr Ian Maxwell to indemnify the plaintiff company against all loss
suffered by reason of his failure to comply with the duty upon him. But it was contended that it was necessary to order an inquiry as to what if any loss
had been thereby caused. An amended notice of appeal presented to the court today in respect of which leave was given contends that there should have
been unconditional leave to defend.
The basis of these contentions was that the plaintiff company had failed either to allege or to prove any causal connection between the breach of
fiduciary duty and the loss of the value of the shares transferred. In particular nothing was proved, it was said, as to what would have occurred if Mr Ian
Maxwell had made the inquiries which the judge had held he should have made, or to show that, if he had made such inquiries, he would not have signed
the stock transfer forms for the sterling investments.
Further, it was said that Mr Ian Maxwell could not reasonably be expected, in proceedings for summary judgment, before discovery or
interrogatories, to adduce evidence either as to what (if any) causal connection there was between the breach of duty found by the judge and the loss
claimed, or as to what would have occurred if Mr Ian Maxwell had made the inquiries which he should have made.
The development of these contentions by Mr Rimer in argument, and the citation of authority, failed to persuade me that there was no sufficient
allegation or evidence before the learned judge upon which his decision could be based. After reference to para 9.7.3 of the statement of claim, which in
abbreviated form contained the allegation:
‘Effecting … individual transfers of shares … without taking any steps … to ensure that such transfers were duly authorised by the plaintiff
company, acting by its board of directors or that they were in the best interests of the company … or authorised by any relevant pension scheme’,
268
it was submitted that the allegation there pleaded is not that Mr Ian Maxwell was in breach of duty by merely signing the transfers: the breach alleged is
signing without first making proper inquiries. It did not follow, it was said, that any such breach of duty also caused the loss alleged to have been
suffered by the plaintiff company in consequence of the share transactions. Further, the allegation in para 9.9 was that ‘by reason of the said breaches of
duty the plaintiff company has suffered loss and damage’. There was no allegation that, had Mr Ian Maxwell made proper inquiries, he would not have
been justified in signing the transfers or that he would not have signed them, or that the transactions with regard to the shares would not have taken place
at all.
There is, in my judgment, no force in these submissions. It is, of course, true that the allegation made against Mr Ian Maxwell with reference to
these transactions is not that he was in breach of duty by merely signing the transfers. The relevant allegations in the statement of claim include the
following: (i) the shares had been purportedly disposed of to third parties; (ii) the shares formed part of the property of the common investment fund or
belonged to one or more pension schemes; (iii) the transactions for which the transfers were used were not entered into bona fide in the best interests of
the plaintiff company and the plaintiff derived no benefit therefrom, and they were entered into for a collateral purpose, namely to provide financial
support to other Maxwell companies including Robert Maxwell Group plc; and (iv) therefore by reason of Mr Ian Maxwell procuring the particular
transactions (9.7), by effecting the share transfers (9.7.3) without making proper inquiries, the plaintiff company suffered loss and damage (9.9) in the
amount of the value of the missing shares (9.9.2).
Those allegations can be summarised in the simple statement that Mr Ian Maxwell and Mr Kevin Maxwell by signing the share transfers as directors
misapplied the property of the plaintiff company by applying it for a purpose to which the company could not lawfully apply it. If that is proved, the
directors responsible must replace the property or make good the loss and it matters not that in so acting they acted honestly: see 7(1) Halsbury’s Laws
(4th edn reissue) para 645 and the cases there cited.
The liability of directors participating in breaches of trust is joint and several. It might be that a director who signs a share transfer by which shares
owned by the company are alienated for no consideration could show, or raise an arguable case to the effect, that the transaction was for the benefit of the
company and constituted no breach of trust. Upon the evidence before the judge it was, I think, clearly shown that the transfer of these shares constituted
misapplication of the company’s property and Mr Ian Maxwell has made no attempt to show that the transactions were even arguably for the benefit of
the company. I agree also with the reasons given by Hoffmann LJ for dismissing the main appeal.
As for the application for leave to appeal, with reference to the interim payment, I agree that it also should be refused for the reasons given by
Hoffmann LJ.
There are aspects of this litigation which give rise to concern. The obligation of Mr Ian Maxwell to make good the assets of the pension funds lost
through his breach of trust is and was worth no more to the beneficiaries of the funds than his ability to pay. It is clear that a very large proportion of his
Preamble
assets are said to have been spent in legal costs before and after the commencement of these proceedings. There are many other legal proceedings with
which we are not concerned and of which we have no knowledge. From the remaining assets of 269 the pension funds, however, sums have been
spent in seeking summary judgment for a vast amount of money which Mr Ian Maxwell could not possibly pay and part of those sums so spent in costs
will not, by reason of the order for costs made by the judge, be recovered in any event. It would have been very much better for all concerned if the
application for summary judgment had been limited in the first place to the matters in respect of which the order of the judge was made and which this
court has upheld. The costs incurred in the application on the other matters would have been saved. No doubt the delay in the giving of judgment upon
which Hoffmann LJ rightly commented would not have occurred and the added costs relating to the presentation of a bankruptcy petition would have
been avoided. We know that our knowledge of the circumstances affecting these matters is incomplete. We have not heard Mr Brisby for the respondents
because in our judgment it was not necessary to hear him for the disposal of the matters in issue. I make it clear, therefore, that I make no criticism of the
conduct of these matters by any individual. Nevertheless, whatever the causes were, the outcome has been unsatisfactory. It would be wrong therefore
for this court not to express concern about it, having regard to the number of persons interested in the funds.
Appeal dismissed. Application for leave to appeal refused.

[1994] 1 All ER 270
R v Jefferson and others

CRIMINAL; Criminal Law, Police

WATKINS LJ, AULD AND SCOTT BAKER JJ
8, 15 JUNE 1993
Criminal law – Riot – Indictment – Ingredients of offence – Indictment charging defendants with being present with 12 other persons and using or
threatening unlawful violence for common purpose – Indictment required to state statutory context of 12 persons present together using or threatening
unlawful violence for common purpose and commission of the offence by actual use of unlawful violence – Public Order Act 1986, s 1(1).
Criminal law – Violent disorder – Aiding and abetting – Whether public order offences may be committed by aiders and abettors – Whether offences may
only be committed by principals – Accessories and Abettors Act 1861, s 8 – Public Order Act 1986, s 2.
Criminal evidence – Police interview – Interview of juvenile – Presence of appropriate adult – Adult intervening in interview and questioning or
contradicting juvenile being interviewed – Whether unsympathetic adult ‘appropriate adult’ – Code of Practice for the Detention, Treatment and
Questioning of Persons by Police Officers, paras 1.7, 13.1, note 13C.
The four appellants were charged with various public order offences following serious and widespread public disorder in Bedford after an English victory
in a televised football match. Thirty people were arrested, including the appellants, who were charged with riot contrary to s 1(1)a of the Public Order
Act 1986 and, in the alternative, violent disorder contrary to s 2(1)b of that Act. Under s 1 of the 1986 Act where ‘12 or more persons who are present
together use or threaten unlawful violence for a common purpose … each of the persons using unlawful violence for the common purpose is guilty of
riot’. Count 1 of the indictment charged the defendants with riot, the particulars of the offence being stated to be that the defendants being present
together and with 12 or more other persons used or threatened unlawful violence for a common purpose. In the absence of any evidence of specific
violence by the appellants, the prosecution case was that by their presence at specific incidents of disturbance and violence they had encouraged, and had
intended to encourage, others in the use of unlawful violence and had thereby aided and abetted that unlawful 270 violence. The defence of each
appellant was that he was merely an onlooker, not a participant. Two of the appellants, S and R, were convicted of riot and the other two, J and K, were
convicted of violent disorder. S and R appealed against their convictions, inter alia, on the ground that count 1 of the indictment charging riot was
defective in that it had failed to particularise the charge as defined by s 1 of the 1986 Act. The appellants contended that an indictment which charged an
offence under s 1 should reflect both parts of the section, namely that 12 or more persons who were present together had used or threatened unlawful
violence for a common purpose and that the defendants had actually used, and not merely threatened, violence for the common purpose, whereas count 1
of the indictment had only charged the offence as the use or threat of unlawful violence and therefore stated the first ingredient only. The appellants
submitted that count 1 as framed had misled the jury into believing that they could convict of riot a defendant who had threatened, as distinct from used,
unlawful violence, which was an offence not known to the law. J and K appealed, inter alia, on the ground that the prosecution case against them was that
they were aiders and abettors to, and not principals in, the use of violence, and since s 6(2)c of the 1986 Act stated that a person was guilty of the offence
of violent disorder ‘only if he intends to use or threaten violence’ the offence could be committed only by principals and not by aiders and abettors. The
appellants submitted that s 6 excluded the operation of s 8d of the Accessories and Abettors Act 1861, which provided that whoever aided or abetted an
indictable offence should be tried and punished as a principal offender, and that aiding and abetting by encouragement of an offence under the 1986 Act
was not itself an offence under that Act. K, who was 15 at the time he was interviewed by the police about his part in the disturbance, also appealed on
the ground that the interviews were defective because his father, who was present in the capacity of an ‘appropriate adult’ under paras 1.7e and 13.1f of
the Code of Practice for the Detention, Treatment and Questioning of Persons by Police Officers, had not fulfilled his role as according to note 13Cg of
the code of advising the juvenile, observing whether the interview was conducted fairly and facilitating communication with the juvenile being
interviewed. K’s father had intervened robustly in the interview and had often questioned his son and contradicted him.
________________________________________
Preamble
a Section 1(1) is set out at p 274 j, post
b Section 2(1) is set out at p 279 g, post
c Section 6, so far as material, is set out at p 280 c to e, post
d Section 8 is set out at p 280 a, post
e Paragraph 1.7, so far as material, is set out at p 286 e f, post
f Paragraph 13.1, so far as material, is set out at p 286 d e, post
g Note 13C is set out at p 286 g, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – The appeals would be dismissed for the following reasons—

(1) The offence of riot in s 1(1) of the 1986 Act had two parts: the first part specified the context, namely ‘Where 12 or more persons who are present
together use or threaten unlawful violence for a common purpose’, which context provided as an alternative to the use of unlawful violence the threat of
such violence; and the second part specified the actual offence, namely ‘each of the persons using unlawful violence for the common purpose is guilty of
riot’. The offence so described did not include the threat of unlawful violence as an alternative to its use. An indictment charging an offence under s 1(1)
of the 1986 Act should reflect the two parts of the provision, first stating the statutory context and second the commission, within that context, of the
offence as 271 defined. Although the indictment in count 1 was badly framed, in that it was incomplete as it only charged the offence as the use or
threat of unlawful violence and failed to specify the precise use of violence, and an ingredient which did not form part of the offence had been included, ie
a threat of violence, that did not render the indictment or the trial a nullity. It was plain from the way in which the Crown had argued its case and from
the judge’s directions to the jury that the unlawful violence alleged was of a general character among a very large crowd of youths over a long period of
time in various parts of the town. In so far as the complaint was based on the incorrect impression given by the wording of the count that a threat of
unlawful violence alone might constitute the offence, the jury would not have been misled because it was never part of the Crown’s case that any of the
appellants had individually threatened anyone with violence (see p 275 a b, p 277 d to g, p 278 e f and p 288 d, post); R v Tyler (1992) 96 Cr App R 332
applied.
(2) The offences created by the 1986 Act could be committed by aiders and abettors as well as by principals. Aiding and abetting an offence was a
common law notion, not a statutory creation, and could be applied generally to all offences, whether common law or statutory, unless expressly excluded
by statute. Section 8 of the 1861 Act merely provided how aiders and abettors were to be dealt with at trial. The proper approach to be taken was to
consider whether there was anything in the 1986 Act which excluded, in relation to the public order offences created by it, the general common law
principles of aiding and abetting. Since s 6 of the 1986 Act was concerned only with the identification, in statutory form, of the requisite mens rea for the
offence under s 2, it did not exclude or cut down in relation to that offence the liability of an aider and abettor who was aware of and party to the requisite
intent of the principal offender. In the case of violent disorder, of which J and K had been convicted, the application of the common law principles made
them guilty under s 6(2) if they had aided and abetted by the encouragement of others as described in s 2 and had intentionally used or threatened violence
or had used conduct that they had been aware could be violent or threatened violence (see p 280 f to p 281 a and p 288 d, post).
(3) The fact that K’s father may have been a critical observer at the interview did not mean that he had failed to fulfil the functions indicated by note
13C of the Code of Practice since he was not estranged from K or unwanted at the interview nor was he unable to perform the role required of him. There
was no further duty for K’s father to protect his son from fair and proper questioning by the police officers, and encouragement by an appropriate adult of
a juvenile who was being fairly interviewed to tell the truth should not be stigmatised as a failure by the adult to fulfil the duties required of him by the
code, nor should it disqualify him from being ‘an appropriate adult’ (see p 287 e to j and p 288 d, post); DPP v Blake [1989] 1 WLR 432 and R v Morse
[1991] Crim LR 195 distinguished.
Notes
For riot and violent disorder, see 11(1) Halsbury’s Laws (4th edn reissue) paras 149–150, and for cases on the subject, see 14(1) Digest (2nd reissue)
236–242, 2153–2222.
For principal and secondary offenders, see 11(1) Halsbury’s Laws (4th edn reissue) paras 44–46, and for cases on the subject, see 14(1) Digest (2nd
reissue) 98–129, 769–1036.
272
For police interviews with persons at risk, see 11(1) Halsbury’s Laws (4th edn reissue) para 741.
For the Accessories and Abettors Act 1861, s 8, see 12 Halsbury’s Statutes (4th edn) (1989 reissue) 80.
For the Police and Criminal Evidence Act 1984, s 66, see ibid 909.
For the Public Order Act 1986, ss 2, 6, see ibid 1033, 1037.

DPP v Blake [1989] 1 WLR 432, DC.
Pepper (Inspector of Taxes) v Hart [1993] 1 All ER 42, [1993] AC 593, [1992] 3 WLR 1032, HL.
R v Ayres [1984] 1 All ER 619, [1984] AC 447, [1984] 2 WLR 257, HL.
R v Gunewardene [1951] 2 All ER 290, [1951] 2 KB 600, CCA.
R v Mathias [1989] Crim LR 64, Crown Ct; rvsd (1989) 139 NLJ 1417, CA.
R v Morse [1991] Crim LR 195, Crown Ct.
R v Silcott [1987] Crim LR 765, CCC.
R v Tyler (1992) 96 Cr App R 332, CA.
Appeals against conviction and sentence

Andrew Stephen Jefferson appealed with the leave of the single judge against his conviction on 26 April 1991 in the Crown Court at Northampton (sitting
at Bedford) before Judge May and a jury of violent disorder, for which he was sentenced on 20 May 1991 to 15 months’ imprisonment. Joseph Skerritt
appealed with the leave of the single judge against his conviction on 27 April 1991 in the Crown Court at Northampton (sitting at Bedford) before Judge
May and a jury of, inter alia, riot and the sentence of 21 months’ imprisonment imposed therefor on 20 May 1991. Desmond Anthony Keogh appealed
with the leave of the single judge against his conviction on 17 May 1991 in the Crown Court at Northampton (sitting at Bedford) before Judge May and a
jury of violent disorder, for which he was sentenced on 7 June 1991 to six months’ detention in a young offender institution. Paul Terence Readman
appealed with the leave of the single judge against his conviction on 27 April 1991 in the Crown Court at Northampton (sitting at Bedford) before Judge
Preamble
May and a jury of riot, for which he was sentenced on 20 May 1991 to 21 months’ imprisonment. The facts are set out in the judgment of the court.
Stuart Trimmer (assigned by the Registrar of Criminal Appeals) for the appellants Jefferson and Readman.
Philip Head (assigned by the Registrar of Criminal Appeals) for the appellant Skerritt.
David Lee (assigned by the Registrar of Criminal Appeals) for the appellant Keogh.
Michael Pert QC and Amjad Malik (instructed by the Crown Prosecution Service, Bedford) for the Crown.
Cur adv vult
15 June 1993. The following judgment of the court was delivered.
AULD J. On the evening of 21 June 1990 there was serious and widespread public disorder in Bedford. It immediately followed and was occasioned by
the victory by England over Egypt in a World Cup football match played that evening. The match, which had been televised, had been watched by many
273 football fans in a number of public houses in the centre of Bedford. They spilled out onto the streets in what began as a celebration of victory but
ended in widespread and sustained public disorder involving much violence and damage to property. The disorder, which eventually involved a crowd of
about 300 youths, moved around the central area of Bedford. As the crowd moved about there were various individual incidents of violence and of
criminal damage, and certain participants in the disorder were observed in various permutations at a number of such incidents. In the result, 30 youths
were arrested and variously charged with offences under the Public Order Act 1986, and the Offences against the Person Act 1861.
These four appeals against conviction arise from separate trials of two groups of the 30 arrested, which took place in April and May 1991 before
Judge May and a jury sitting in the Crown Court in Bedford. The appellants Jefferson, Skerritt and Readman were among the defendants in the first trial,
and the appellant Keogh was one of the defendants in the second trial. All four appellants were charged with riot contrary to s 1(1) of the 1986 Act and in
the alternative with violent disorder contrary to s 2(1) of the 1986 Act. Skerritt and Readman were convicted of riot and Jefferson and Keogh were
convicted of violent disorder. Skerritt and Readman, who also faced alternative counts of causing grievous bodily harm with intent and assault
occasioning actual bodily harm in relation to a particular incident, were acquitted of both those charges. A number of the other defendants in both trials,
who were jointly charged with the appellants, were convicted of riot or violent disorder and a number were acquitted of those charges. Skerritt and
Readman now appeal against their respective convictions for riot and Jefferson and Keogh appeal against their respective convictions for violent disorder.
The prosecution case against all the appellants on the counts of riot and violent disorder was that their presence at various of the specific incidents of
disturbance and violence demonstrated a willing and persistent involvement in the disorder. The prosecution maintained that, although there might be no
evidence of specific violence by any one of them, their presence at what took place was, and was intended by them to be, an encouragement to others to
use violence. In short the prosecution case was that each of them aided and abetted the violence of the night.
The defence of each of appellant was that his presence, to the extent that it had been proved, at various of the incidents of violence was merely that
of an onlooker, not a participant.
Skerritt and Readman—riot—the indictment

Counsel for these two appellants submitted that count 1 of the indictment, which charged riot, was defective in that it failed properly to particularise
the charge as defined by s 1 of the 1986 Act, and that, because of the nature of the prosecution case, it was likely to have misled the jury. Section 1(1) of
the 1986 Act provides:
‘Where 12 or more persons who are present together use or threaten unlawful violence for a common purpose and the conduct of them (taken
together) is such as would cause a person of reasonable firmness present at the scene to fear for his personal safety, each of the persons using
unlawful violence for the common purpose is guilty of riot.’
274
As this court has recently observed in R v Tyler (1992) 96 Cr App R 332, this provision has two parts. The first specifies the context, namely ‘Where
12 or more persons who are present together use or threaten unlawful violence for a common purpose …’ The context of the offence thus provides, as an
alternative to the use of unlawful violence, a threat of such violence. The second part of the section specifies the actual offence, namely ‘each of the
persons using unlawful violence for the common purpose is guilty of riot’. The offence, so described, thus does not include the threat of unlawful
violence as an alternative to its use.
An indictment charging an offence under s 1(1) of the 1986 Act should reflect the two parts of the provision, first stating the statutory context and
second the commission, within that context, of the offence as defined. Count 1 of the indictment in this case did not do that. In what amounted to an
adaptation of the first part of the provision only, it charged the offence as the use or threat of unlawful violence. This is how it read:
‘Statement of Offence
Riot, contrary to Section 1(1) of the Public Order Act 1986.
Particulars of Offence
[The named defendants] on the 21st day of June 1990 being present together and with other persons unknown, the total number of whom were
twelve or more, used or threatened unlawful violence for a common purpose and the conduct of them (taken together) was such as would cause a
person of reasonable firmness present at the scene to fear for his personal safety.’
This court indicated in R v Tyler that the proper formulation of the particulars of the offence is set out in Blackstone’s Criminal Practice (1993) para
B11.19, namely:
‘… on or about the … day of …, being one of 12 or more persons present together at … and using [or threatening] unlawful violence for a
common purpose, namely …, used unlawful violence for the said common purpose by assaulting members of the public, the conduct of the 12 or
more persons aforesaid, taken together, being such as would cause a person of reasonable firmness present at the scene to fear for his personal
safety.’
In R v Tyler an indictment for riot, framed in much the same way as count 1 of this indictment, was amended, with the leave of the judge, during the
trial so as to conform with s 1(1) of the 1986 Act. The point taken on appeal was that the defect in the indictment had rendered it and the trial a nullity
Preamble
and that the trial judge had, therefore, been wrong to allow its amendment and the trial to proceed. The Court of Appeal rejected that argument,
indicating that the inadequacy lay in the particulars, not in the statement, of the offence charged and that no prejudice had been caused to the appellant by
the late amendment. On the issue of the validity of the indictment as originally framed, Farquharson LJ, giving the judgment of the court, said (96 Cr
App 332 at 336):
‘The statement of offence clearly and accurately referred to riot. The particulars disclosed the correct offence but widened its ambit to include
“threaten” as well as the “use” of violence. In our judgment, that is not in the same category as alleging an offence which does not exist … It gives
an 275 imperfect description of one that does. In those circumstances the defect is capable of amendment …’
Here, there was no amendment of the indictment. When the judge began his summing up the jury had a copy of it, and he, in directing them about
count 1, read its particulars to them. He went on to give them further directions on the count to which we shall return. Later, during a break in his
summing up, counsel for Readman noticed the defect in the formulation of the count and prepared a draft amendment to cure it. He showed the draft to
all the other defence counsel and to prosecution counsel. They all approved it. At the end of the adjournment, when the judge was about to resume his
summing up, prosecution counsel, Mr Bray, handed to him a copy of the proposed amendment. When he did so the following exchange took place:
‘Mr Bray. For the sake of absolute correctness a suggestion has been made that there should be an amendment to the particulars of count 1.
Your Honour will see that there is no actual mention of the use of unlawful violence by the defendants, do you see, in the way that it is phrased, so
it is a little infelicitously expressed perhaps, and an amendment has been suggested to me. I am happy to adopt it.
Judge May. It is late in the day, Mr Bray. Mr Bray. Yes, I agree.
Judge May. Yes. I think the jury will have the point. Mr Bray. Well …
Mr Farrell (counsel for one of the accused, not an appellant). Certainly the defence would seek to have that amendment put before the jury
because in its new form it would not mislead the jury, and it may be that, with all due respect to your Honour’s directions, if they have it wrongly
phrased on the indictment, which, of course, they have a copy of, they might be misled.’
The judge continued his summing up without again referring to the proposed amendment. At the end of it, and just before the jury retired,
prosecuting counsel reminded him obliquely of the proposal. This is what he and the judge said:
‘Mr Bray. The only other matter which comes to my mind is the matter which I raised with your Honour yesterday.
Judge May. I have considered that. Mr Bray. Yes, your Honour’s summing up covers the matter quite plainly.’
The matter was left there, and the jury retired with a copy of the indictment containing count 1 as originally framed.
Counsel for Skerritt and Readman have submitted that count 1 was defective and misleading in indicating to the jury that they could convict of riot a
defendant who had threatened, as distinct from used, unlawful violence. They argued that, as the prosecution case against them on that count was simply
that they had encouraged, by their presence, others to use violence, their convictions were of an offence not known to the law. In support of that
submission they relied upon s 3 of the Indictments Act 1915 and rr 5 and 6 of the Indictment Rules 1971, SI 1971/1253. Section 3 of the 1915 Act
provides that every indictment shall contain a statement of the specific offence together with ‘such particulars as may be necessary for giving reasonable
information as to the nature of the charge’. Rule 5 repeats that provision. Rule 6 supplements both provisions by providing that the particulars must
disclose the essential elements of the offence, and contains the following proviso in r 6(b):
276
‘Provided that an essential element need not be disclosed if the accused person is not prejudiced or not embarrassed in his defence by the failure
to disclose it.’
The submission, in short, was that the particulars did not in the case of each appellant confine his alleged part in the riot to the use of violence as
distinct from the threat of it. Counsel distinguished this case from R v Tyler on two bases: first, that here the defect was not cured by amendment and,
second, that there was prejudice to the appellants because, even if the judge’s directions on the law were correct, the jury retained as an incorrect
aide-mémoire a copy of the indictment containing count 1 as originally framed. As to the latter, counsel pointed out that the judge’s directions on the
matter had occurred in the main at the beginning of a summing up lasting over a day, and that the jury’s verdicts on this count, in respect of these two
appellants, were delivered some two and a half days after they had originally retired to consider their verdicts. The suggestion was that the misleading
form of count 1 would by then have undone any correction of it to be found in the judge’s directions.
Counsel for the Crown conceded that count 1 was badly framed. However, he submitted that the incompleteness of the particulars in their failure to
specify more precisely the use of violence and their inaccuracy in including an ingredient which did not form part of the offence, namely a threat of
violence, do not justify interference by the Court of Appeal. He argued that, whatever the defect in the formulation of the count, the judge had directed
the jury properly on the essential issues that they had to decide.
In our view, counsel for the Crown is correct in his submissions. In so far as the complaint about the particulars is based on their incompleteness, it
is difficult to see what further particulars of the use of ‘unlawful violence’ could have been given. It was plain from the way in which the prosecution put
its case and from the judge’s direction that the unlawful violence alleged was of a general character among a very large crowd of youths over a long
period of time in various parts of the centre of Bedford. In so far as any more particulars of the use of unlawful violence might have been included, their
absence is clearly covered by the proviso to r 6(b) of the Indictment Rules 1971. In so far as the complaint is based on the incorrect impression given by
the wording of the count that a threat of unlawful violence alone might constitute the offence, the jury could not have been misled because it was never
part of the prosecution case that any of these appellants individually threatened anyone with violence. The prosecution case was that by their presence
they encouraged and intended to encourage, and thereby aided and abetted, others in the use of unlawful violence. This is how the judge directed the jury
on this important part of the prosecution case:
‘Now the prosecution say they participated by using unlawful violence in some cases, or, in others encouraging others to use it. Now, it is not
sufficient within this context simply to show that a defendant was present during the riot. This is because mere presence at the scene of an offence
when it is committed does not prove guilt … In order to be guilty you must have participated in the offence in some way. Now, in order to prove
that the defendant participated in this offence by encouraging others it is not enough to prove merely that he was present. It must be proved that he
gave encouragement, and did so intending to encourage others to use unlawful violence … somebody who joins part of a crowd, stays with it,
277 moving to incident of violence to incident, running between them, for instance, he is guilty if a jury are satisfied that by remaining with the
Preamble
crowd, and being present at the incidents of unlawful violence, he was encouraging others to use unlawful violence and was intending to encourage
them. So, in this case, a bystander or somebody who joined the crowd to celebrate the victory in a lawful way, with no intent of using unlawful
violence, would be not guilty. But once the crowd, or part of it, started to use unlawful violence, breaking windows and the like, a person with the
crowd may be guilty, and he would be guilty if you are satisfied that he was part of the crowd using unlawful violence, moving with that part, and
by his presence at the incidents of violence encouraging others in the unlawful use of violence and intending so to do. So, you have to decide in
this context whether a part of the crowd was using unlawful violence. Well, that has not really been disputed. Next you must decide whether a
defendant, when you are considering his case, was part of it, and, thirdly, whether by his presence in that part of the crowd and going around with it
he was intentionally encouraging others in the use of unlawful violence. So, you must be satisfied in the case of each defendant before you convict
him that he either used or encouraged the use of unlawful violence; you must be satisfied at the time he either intended to use violence, or was
aware that his conduct may be violent.’
In our view, that clear and emphatic direction about what the prosecution had sought to prove, and what it had to prove to establish guilt, could not
possibly have been blunted by the copy of count 1 which the jury had as an aide-mémoire during the long period of their consideration of their verdicts.
So far as these appellants were concerned, the case had always been about the encouragement that they were alleged to have given to others to use
violence and not about threats of violence either by them or others.
In our view, if the defect in count 1 is properly to be regarded as an irregularity, it was not a material irregularity. If it is regarded as an error of law,
it cannot have prejudiced the appellants in the circumstances of the case, and justifies the application of the proviso to s 2(1) of the Criminal Appeal Act
1968: see generally the summary of authorities set out in the current edition of Archbold’s Pleading, Evidence and Practice in Criminal Cases (44th edn,
1993) paras 7-90–7-91, 7-116, in particular R v Ayres [1984] 1 All ER 619 at 626, [1984] AC 447 at 461 per Lord Bridge.
Skerritt and Readman—riot—common purpose

Counsel for Skerritt and Readman also submitted that the judge failed to direct the jury, adequately or at all, that before they could convict any
individual defendant of riot they had to be sure that he had used unlawful violence for a specified common purpose. Now, count 1 did not specify the
common purpose alleged. However, the prosecution case from the outset was that the common purpose of all those concerned in the riot, and of each
appellant, was to use unlawful violence in celebrating the victory of England over Egypt in their World Cup match that evening. The prosecution never
suggested in the case of any of the appellants that he might have had a different purpose from that of the main body of those engaged in the disturbance.
Nor did either of the appellants canvass such a possibility as part of his defence.
The judge dealt at the outset of his summing up with the alleged broad common purpose of the violence in this way:
278
‘The prosecution said in this case and contended that the common purpose was football hooliganism, celebrating England’s win in an unlawful
manner, using or threatening violence and vandalism. It was put shortly during speeches as a violent celebration of the England victory. Now, it is
open to you to find there was such a common purpose. It is a matter for you to decide whether there was or not.’
Counsel for Skerritt and Readman complained that the judge failed, in his subsequent directions on the constituents of the offence of riot in relation
to the case against each defendant, to repeat and apply that test of common purpose to the individual allegation. It is true that he did not do that.
However, it is plain from the whole basis of the prosecution case, and from the above early passage in the judge’s summing up, that the jury could have
been in no doubt that they could only convict any of the appellants of riot if they were sure that he had used or was a party to the use of violence for the
overall common purpose described by the judge. In any event, as we have already remarked, it was never part of the case of either of them that they
might have used violence for some purpose other than the overall common purpose alleged.
The judge’s directions on the individual participation of Skerritt and Readman in the use of violence were clearly given in the context of their alleged
participation in the use of unlawful violence for that overall common purpose. In our judgment, there is no merit in this ground of appeal.
Jefferson and Keogh—violent disorder—aiding and abetting

Counsel for Jefferson and Keogh submitted that the prosecution case against them was that they were aiders and abettors to, and not principals in, the
use of violence, and that s 2 of the 1986 Act, which defines the offence of violent disorder, creates an offence for principals only. Whilst he was only
concerned with s 2, under which the appellants Jefferson and Keogh were convicted, he made the same submissions about s 1, riot, s 3, affray, s 4, fear or
provocation of violence, and s 5, harassment, alarm or distress. Section 2(1) of the 1986 Act provides:
‘Where 3 or more persons who are present together use or threaten unlawful violence and the conduct of them (taken together) is such as would
cause a person of reasonable firmness present at the scene to fear for his personal safety, each of the persons using or threatening unlawful violence
is guilty of violent disorder.’
Counsel submitted that the offence of violent disorder, in common with the other offences created by ss 1, 3, 4 and 5, is confined to the person who
actually commits the actus reus by virtue of s 6 of the Act. Section 6, in a series of subsections, deals with the mental element respectively required for
each of the offences in ss 1 to 5. The formula in each subsection is the same, namely that a person is guilty of the specified offence ‘only if he intends’ a
particular consequence appropriate to that offence. In the case of violent disorder sub-s (2) provides that a person is guilty of it ‘only if he intends to use
or threaten violence or is aware that his conduct may be violent or threaten violence’. Counsel submitted that the scheme of s 6, in particular the use of
the term in the case of each offence ‘only if he intends’, is to exclude the operation of s 8 of the Accessories and Abettors Act 1861. That section
provides:
279
‘Whosoever shall aid, abet, counsel, or procure the commission of any indictable offence, whether the same be an offence at common law or by
virtue of any Act passed or to be passed, shall be liable to be tried, indicted, and punished as a principal offender.’
Thus, counsel submitted that aiding and abetting by encouragement—the essence of the prosecution case against all these appellants—of an offence
under the 1986 Act is not itself an offence under the Act. He also relied in support of that submission on the scheme of s 6 in its reflection of the grading
in ss 1 to 5 of the seriousness of public order offences. We should, therefore, set out the material provisions of the section in full:
‘6.—(1) A person is guilty of riot only if he intends to use violence or is aware that his conduct may be violent.
Preamble
(2) A person is guilty of violent disorder or affray only if he intends to use or threaten violence or is aware that his conduct may be violent or
threaten violence.
(3) A person is guilty of an offence under section 4 only if he intends his words or behaviour, or the writing, sign or any other visible
representation, to be threatening, abusive or insulting, or is aware that it may be threatening, abusive or insulting.
(4) A person is guilty of an offence under section 5 only if he intends his words or behaviour, or the writing, sign or other visible representation,
to be threatening, abusive or insulting, or is aware that it may be threatening, abusive or insulting or (as the case may be) he intends his behaviour to
be or is aware that it may be disorderly …’
In our judgment, the offences created by the 1986 Act may be committed by aiders and abettors as well as by principals. As counsel for the Crown
pointed out, the question is not whether s 6 of the 1986 Act excludes s 8 of the 1861 Act, and it is only in part one of construction. An aider and abettor
of an offence is a common law notion, not a creation of statute. It is of general application to all offences, whether at common law or of statutory
creation, unless expressly excluded by statute. Section 8 of the 1861 Act is merely a deeming provision as to how aiders and abettors are to be dealt with
at trial. The proper approach is to consider whether there is anything in the 1986 Act which excludes, in relation to the public order offences created by
it, the general common law principles of aiding and abetting.
In our view, s 6 is concerned only with identifying, in statutory form, the requisite mens rea for each of the offences provided for in ss 1 to 5. It does
not exclude or cut down in relation to any of those offences the liability of an aider and abettor who is aware of and party to the requisite intent of the
principal offender.
As to the reliance of counsel for Jefferson and Keogh on the scheme of grading in ss 1 to 5, as reflected in s 6(1) to (4), we do not see that it is
harmed by the application to it of the ordinary common law principles of aiding and abetting of offences. There is already some overlap between the
different provisions, and that will not be significantly increased by applying those principles to them.
In the case of violent disorder, of which Jefferson and Keogh were convicted, the application of those principles made them guilty under s 6(2) if
they aided and abetted, by encouraging and intending to encourage, others as described in s 2 intentionally to use or threaten violence or, where
appropriate, to use 280 conduct that they were aware might be violent or threaten violence. That is just how the judge put it to the jury. For
convenience, we repeat just one of the passages in the summing up in which he put the point accurately, clearly and shortly:
‘… in order to prove that the defendant participated in this offence by encouraging others it is not enough to prove merely that he was present.
It must be proved that he gave encouragement, and did so intending to encourage others to use unlawful violence.’
We are fortified in our conclusion by preparatory material for the 1986 Act, to which, if there were ambiguity, we would be entitled to have regard:
see Pepper (Inspector of Taxes) v Hart [1993] 1 All ER 42 esp at 64–65, [1993] AC 593 esp at 634–635 per Lord Browne-Wilkinson. First, the Law
Commission in 1983 published a final report, Offences relating to Public Order (Law Com no 123), which contained a draft bill, the scheme of which
formed the basis of the 1986 Act. Second, the Home Office and the Scottish Office, having considered the Law Commission’s proposals, published in
1985 a white paper, Review of Public Order Law (Cmnd 9510), generally adopting the Law Commission’s proposals and scheme for legislation.
The Law Commission, in its report and accompanying draft bill, clearly envisaged that the new statutory offences which it proposed could be
committed by aiders and abettors as well as by principals. Paragraph 6.22 of the report reads:
‘If there are at least twelve persons using or threatening unlawful violence with the necessary common purpose, then, provided that the other
requirements specified in the following paragraphs are satisfied, any of those persons commits the offence if, having that purpose, he uses unlawful
violence, as distinct from the mere threat of violence. “Violence” here has the same meaning as it has in the context of violent disorder; thus it will
not be necessary to prove that those using violence actually commit, or attempt to commit, offences against the person or property, although the
likelihood is that a high proportion of them will do so in the course of the riot … The conduct of those whose activities fall short of … [actual
violence] will in our view be adequately dealt with by charges of aiding and abetting etc., or of one of the alternative offences.’
The Home Office and the Scottish Office in their white paper expressed the same intention for the new legislation. Paragraph 3.17 of the paper
identified a number of ways in which the offence of riot in its new form was to have a ‘distinct and markedly more serious’ character ‘than the public
order offences ranged below it’. One of those ways was the requirement that each defendant would have to be shown to have ‘used unlawful violence’.
Paragraph 3.18 reads:
‘On the Law Commission’s definition this would include violence to property as well as to people: those encouraging or assisting the violence
would also come within the scope of the offence, since they would be liable to be charged with inciting or aiding and abetting the rioters.’
Whilst those passages from the Law Commission’s report and the white paper were in the context of the proposed offence of riot, they were clearly
of equal application to the other proposed offences, including violent disorder.
281
Jefferson and Keogh—violent disorder—adequacy of direction as to aiding and abetting

Counsel for Jefferson and Keogh submitted that, even if, as we have found, there is an offence of aiding and abetting violent disorder, the judge’s
direction in each trial as to aiding and abetting by encouragement was, overall, defective. The judge’s direction on this matter in each trial was virtually
identical. Counsel acknowledged that in the case of count 1, riot, the early passage in the summing up in the first trial that we have set out was an
adequate direction both as to the fact of encouragement and as to intention to encourage the use of violence. However, he maintained that when the judge
went on to deal with count 2, the offence of violent disorder on which Jefferson and Keogh were convicted, his direction was inadequate. In relation to
that count the judge said in the first trial:
‘It has to be proved … first of all that three or more persons present together used or threatened unlawful violence, and the conduct of them
taken together was such as to cause a person of reasonable firmness present at the scene to fear for his or her personal safety. And … it must be
proved that a defendant participated by using or threatening unlawful violence or encouraging others to use or threaten unlawful violence … It
doesn’t have to be proved that a defendant used or encouraged the use of violence, but that he threatened or encouraged others to threaten unlawful
violence … The directions which I have given you in relation to a person being present and also encouraging apply to this count too, bearing in
mind the different elements which I have gone through.’
Preamble
Counsel for Jefferson and Keogh submitted that that incorporation by reference into count 2, violent disorder, of the appropriate direction as to
intention in relation to count 1, riot, was insufficiently specific. He also complained that in subsequent references in the summing up to the issue of
encouragement the judge failed to repeat his initial express direction, in the case of riot, or his reference to it, in the case of violent disorder, of the
requirement of an intention to encourage as well as the fact of encouragement.
In our judgment, there is no substance in this submission. In his directions on count 1, riot, that we have set out he told the jury on no less than five
occasions that they had to be sure that a defendant both encouraged and intended to encourage the use of violence before they could convict him. Just
over a page after those repeated directions he referred to them again in the short passage that we have just set out on count 2, violent disorder. The jury
can have been in no doubt, throughout his treatment of this issue in his summings up, that they had to be sure, before they could convict any defendant of
either riot or violent disorder, that he both actively encouraged and intended to encourage the use of violence as charged.
Skerritt and Keogh—prejudicial remarks in interview of co-defendants

Counsel for Skerritt and Keogh submitted that the judge wrongly refused to require the prosecution to edit the interviews of certain of their
co-defendants so as to exclude prejudicial references to them which were not the subject of any admissible evidence against them. In the case of Skerritt
counsel submitted to us, as he did to the judge, that any reference, direct or indirect, to Skerritt in the interviews of co-defendants should have been
deleted from the evidence of the interviews put before the jury and that there should have been substituted for 282 those references the word ‘a
person’ or ‘someone’. He submitted that in the context of each of the interviews identification of Skerritt was not probative against any of the defendants
who mentioned him as being present at a particular incident or incidents in the night’s violence. Equally, he submitted that such references were not
admissible as against Skerritt and would be highly prejudicial to his case. Counsel for Keogh made similar submissions on his behalf in the second trial.
At the first trial, in answer to the submissions of counsel for Skerritt, the judge indicated, by reference to the arguments put before him on the issue,
that the passages containing a reference to Skerritt were relevant in that they identified the maker of the statement with specific incidents in the course of
the disturbance at which their presence was alleged to have been an intentional encouragement to the use of violence. As to the proposal that that
probative evidence could be preserved by omitting any reference, direct or indirect, to Skerritt, the judge left it in this way:
‘Subject to argument about particular passages, as a matter of principle, it seems to me that these passages do have relevance, they have a
probative value, that which you have yourself noted. I will direct the jury, of course, in the usual way as to how they should approach those
passages. It is a commonplace of these cases that defendants make statements implicating others and juries have to be directed in the normal way,
and I can see no reason for departing from the normal practice.’
Immediately afterwards counsel for Skerritt attempted to reopen his submission, but the judge made plain that he intended to adhere to his ruling.
Counsel took that as an indication that it would be fruitless to raise the matter again, as the judge’s ruling indicated would be possible, in relation to
particular passages.
At the second trial the judge ruled against the submission of counsel for Keogh, again indicating that he would give the jury the usual warning, and
this time making no mention of the possibility of a different approach for any particular passages.
Accordingly, in the first trial the jury heard references by three of Skerritt’s co-defendants to him in the course of their interviews and of allegations
made by the police about him to a fourth co-defendant, the appellant Readman, in the course of his interview, albeit denied by Readman. Counsel on his
behalf urged that these references were potentially very prejudicial to his case because, apart from the allegations of causing grievous bodily harm with
intent and occasioning actual bodily harm in counts 3 and 4 on which he was acquitted, they were the only suggestion that he had been physically violent
that night. In the second trial the jury heard prejudicial remarks about Keogh made by one co-defendant.
In each trial the judge gave a general direction on this issue early in his summing up in the following terms:
‘What one defendant says in interview about another is not evidence against the other …’
Later, in his summing up in the first trial, when he summarised each of the interviews of the four co-defendants in question, he referred briefly to the
references to Skerritt and in two of the four cases added a warning. In relation to the first co-defendant, Adrian Bolton, he concluded the reference by
saying:
283
‘That is not evidence against Joseph Skerritt, as you know, but, of course, it is evidence against Mr Bolton because it shows that he was there
when this particular incident of violence happened because he is able to describe what occurred, or what he says occurred.’
In the case of the second co-defendant in whose interview such references occurred, the appellant Jefferson, he gave no such warning. In the case of the
third co-defendant who referred in his interview to Skerritt, Ignatius Powell, he concluded by saying:
‘… you will see that there is what the prosecution say is a graphic description of what happened at the River Island. Evidence, of course,
against him and not against Mr Skerritt.’
In the case of the fourth co-defendant, the appellant Readman, to whom the police made allegations in interview about Skerritt, he, as we have
already indicated, denied the allegations. Therefore, there was no statement of his against Skerritt about which a warning was required.
In the second trial the judge, in addition to his general direction and warning at an early stage of his summing up, repeated it after he had summarised
the evidence of interview of a co-defendant, Roy Hendrickson, in which he had made allegations against Keogh:
‘Pausing there, that is not evidence against Desmond Keogh, of course, but evidence against this defendant because it shows that he was there if
he was able to repeat what he says happened.’
The point made by counsel on behalf of Skerritt and Keogh was that these prejudicial references were readily removable without damage to the
prosecution case against the co-defendants concerned, and that such prejudice could not be overcome by a warning from the judge, however strongly
expressed. They argued that, in any event, the judge’s warnings were inadequate. Counsel for Skerritt maintained that the general direction at the
beginning of the summing up was perfunctory and lacked the emphasis which Lord Goddard CJ in R v Gunewardene [1951] 2 All ER 290 at 295, [1951]
Preamble
2 KB 600 at 610–611 said such a direction should have. He also maintained that the subsequent directions in relation to each interview, where given,
were equally insufficient. Counsel for Keogh, by implication, criticised the inadequacy of the warning in his case too, and he also complained that the
judge had unnecessarily rehearsed much of the prejudicial matter about Keogh in the interview of Hendrickson.
On the issue whether the judge was wrong to reject the applications to edit the evidence of the interviews in the way suggested by counsel for
Skerritt and Keogh, we are of the view that it was essentially a matter within his discretion. As he observed, when ruling on the application in the first
trial, such problems are commonplace in trials of more than one defendant. Courts deal with them by a warning which is now so standard that it is one of
the specimen directions issued by the criminal committee of the Judicial Studies Board and approved by the Lord Chief Justice.
It is true that a trial judge may, in the exercise of his discretion in a particular case, avoid the prejudice and the need for such a direction by
permitting the prosecution to edit the evidence of a co-defendant’s interview so as to delete any reference to a defendant: see for example R v Silcott
[1987] Crim LR 765, in which Hodgson J gave a ruling for counsel to agree the substitution of letters of 284 the alphabet for the names of defendants
mentioned in other defendants’ interviews; see also R v Mathias [1989] Crim LR 64 per Judge Pearlman. However, this approach may often be
inappropriate. For example, in a case involving many defendants whose names are sought to be excised and substituted by some other designation, such
as letters of the alphabet, it could confuse the jury. Equally, the editing of descriptive passages and their substitution by others may leave the jury with a
false impression—a bowdlerised version—of the statement credited to the defendant concerned. There can also be problems of selection in which
defendant A seeks to have excised from his co-defendant’s statement in interview unfavourable references to himself but to retain favourable ones. There
may be other problems for the fair conduct of a trial in a trial judge agreeing too readily to editing of the sort proposed here.
In any event, this court should be slow to intervene where a trial judge, the matter having been canvassed before him, has formed the view that in the
circumstances of the case editing was inappropriate, and has decided to deal with the problem by the appropriate direction and warning to the jury. As
counsel for the Crown observed, in reliance on certain observations of Lord Goddard CJ in the passage from his judgment in R v Gunewardene [1951] 2
All ER 290, [1951] 2 KB 600 to which we have referred, if the problem is acute, application can be made for a separate trial and, if the judge is of the
view that the prejudice is not such as to justify a separate trial, he is normally entitled to deal with the undoubted prejudice by means of the standard
direction and warning. Lord Goddard CJ said ([1951] 2 All ER 290 at 294–295, [1951] 2 KB 600 at 610):
‘This is a matter of very frequent occurrence where two or more prisoners are charged with complicity in the same offence. This state of affairs
is, no doubt, a ground on which the judge can be asked to exercise his discretion and order a separate trial, but no such application was made in the
present case. If no separate trial is ordered it is the duty of the judge to impress on the jury that the statement of one prisoner not made on oath in
the course of the trial is not evidence against the other and must be entirely disregarded, and that warning was emphatically given by HILBERY, J.,
in the present case.’
Further, where the trial judge has given the appropriate direction and warning and has done so adequately, this court should not normally intervene
on the basis that the jury may have ignored it.
Here, there was no application for separate trial, and the judge was, in our view, entitled to refuse the applications for editing and to deal with the
question of prejudice by the standard direction and warning to the jury.
The remaining question is whether his directions and warnings were adequate. In our judgment, they were. As we have indicated, he gave a general
direction at an early stage of his summing up in each trial which, though short, was accurate and clear. In the first trial he then repeated it in two of the
three (or four—if the police allegations in Readman’s interview are included) instances where it arose in the course of his treatment of the interviews. In
the second trial he repeated it when dealing with the interview of the only co-defendant who implicated Keogh. Neither jury can have been in any doubt
what was evidence against Skerritt and Keogh and what was not.
285
Keogh—admissibility of evidence of interview—appropriate adult

Keogh was 15 at the time he was interviewed twice by the police about his part in the disturbance. The prosecution relied on much of what he said
in those interviews in support of its case that he was present at, and intentionally encouraging by his presence, various incidents of violence in the course
of the disturbance. His father, who accompanied him at both interviews, intervened robustly from time to time, sometimes joining in the questioning of
his son and challenging his exculpatory account of certain incidents. In the first interview, which lasted about 54 minutes, the father intervened 11 times,
on some occasions to clarify Keogh’s answers, on others to comment on his answers and in one instance to contradict him. In the second interview,
which lasted only 13 minutes, his interventions were fewer and of little significance. In both interviews the father’s interventions were of little effect and
did not cause Keogh to change his account.
At the trial counsel for Keogh applied to the judge to exclude those interviews under s 76(2)(b) and/or s 78 of the Police and Criminal Evidence Act
1984 on the ground that there had been a breach of para 13.1 of the then Code of Practice for the Detention, Treatment and Questioning of Persons by
Police Officers (Code C). That paragraph provided:
‘A juvenile … whether suspected or not, must not be interviewed or asked to provide or sign a written statement in the absence of the
appropriate adult …’
Paragraph 1.7 of the code defined ‘the appropriate adult’:
‘In this code ‘the appropriate adult’ means: (a) in the case of a juvenile: (i) his parent or guardian … (ii) a social worker; or (iii) failing either of
the above, another responsible adult who is not a police officer or employed by the police …’
Notes for guidance 13C indicated the role of the ‘appropriate adult’ at such an interview:
‘The appropriate adult should be informed that he is not expected to act simply as an observer. The purposes of his presence are, first, to advise
the person being questioned and to observe whether or not the interview is being conducted properly and fairly; and, secondly, to facilitate
communication with the person being interviewed.’
Counsel for Keogh submitted to us, as he did to the trial judge, that, although there was nothing intrinsically inappropriate about the father for the
purpose of these provisions, his behaviour, particularly in the first interview, made him so. He argued that a person is not an appropriate adult if he does
not fulfil the role envisaged for him in note 13C, and referred us to two cases. The first was DPP v Blake [1989] 1 WLR 432, in which the Divisional
Court held that the estranged father of a juvenile, whom the juvenile did not wish to attend her interview, was not an appropriate adult since it put at risk
Preamble
the object of note 13C, of ensuring a fair interview and of assisting if necessary. The second case was R v Morse [1991] Crim LR 195, a decision of
Judge Beezley in the Crown Court at Wisbech, where the judge, whilst holding that there was no basis for exclusion of the evidence under s 76(2)(b) of
the 1984 Act, expressed the view that the father of the juvenile was of such low intelligence that he could not have fulfilled the role of advising the
juvenile.
286
The trial judge here rejected the submission that Keogh’s father was not an appropriate adult for the purpose of those provisions. He said:
‘However, Mr Keogh senior was not an estranged parent, as had been the father in DPP v Blake, nor was he of low intelligence, as in R v
Morse. It is pointed out that Mann LJ in DPP v Blake (at 440) said that an appropriate adult could not be a person with whom the juvenile has no
empathy. But in this case there is no evidence that there was a lack of empathy between father and son. There was some robust intervention during
the interview, but, in my judgment, it goes no further than that, and it would not be right on that evidence for me to infer that there was no empathy
and as a result that the father was not an appropriate adult … I have to consider what the effect of those interventions was. Were they such as to
render unreliable any confession made as a result? I bear in mind the burden and standard of proof which, of course, is on the prosecution under s
76. I have come to the conclusion, having read the whole of the interview, that, in fact, the father’s interventions were of very little effect. They
did not cause the son to change his account or, indeed, to make admissions. He maintained the same account. In those circumstances I have to ask
myself whether the interventions by the father would have caused the confession or any confession to be unreliable. I am quite satisfied that they
did not and accordingly the interviews should not be excluded under s 76.’
In our view, the judge was correct in those rulings. Keogh’s father was not estranged from him or unwanted at the interview by him as in DPP v
Blake or unable to perform the role required of him by note 13C as in R v Morse. The fact that he may have been a somewhat critical observer and
participant at the first interview does not mean that he did not fulfil any of the three functions specified in that note of advising his son where necessary,
observing that the interview was fairly conducted and, if and where necessary, making sure that the police officers and his son understood each other. He
had no further duty, as counsel for Keogh appeared to suggest, of protecting his son from fair and proper questioning by the officers, for example by
advising him to remain silent or by refraining from intervening to encourage him to be truthful. Encouragement by an appropriate adult of a juvenile who
is being fairly interviewed to tell the truth should not normally be stigmatised as a failure of the adult to fulfil the first of his duties under note 13C,
namely ‘to advise’ him; nor should it have the consequence of turning him from an appropriate adult to an inappropriate adult for the purpose of these
provisions.
In our judgment, the father’s conduct here was not such as to disqualify him as an appropriate adult. In any event, as we have already indicated, the
father’s interventions had little effect on the account given by Keogh in the interviews of his involvement in the disturbances. The judge was, therefore,
correct in ruling that he would not exclude evidence of anything said by him in the interviews under s 76(2)(b) of the 1984 Act as likely to be unreliable,
or under s 78 of the Act as unfair.
Readman—lie in interview
The police interviewed Readman three times. In the first and second interviews he denied that he had been present at a specific incident of violence
in the course of the disturbances. In the third interview he admitted that he had been present at it. There was no other evidence in the case to connect him
with 287 that incident. The judge referred to this inconsistency in two passages of his summing up, but did not warn the jury specifically in relation
to this evidence that, if they concluded that he had lied in the first two interviews, it did not necessarily point to guilt. However, he had earlier given a
general warning about lies when dealing with a similar point in the case against the first of the defendants named in the indictment, Adrian Bolton. This
is what he said:
‘Now, just pausing there because this point is going to occur not only in his case but in a number of other cases. He told a lie because, in due
course, he admitted that he was there. You must ask yourselves why. Was it, as the prosecution say, due to a consciousness of guilt, or was it for
some other reason, as the defence say? For instance covering up for friends. And you will have to ask yourselves in each case what the real reason
may have been. Does it help you, does the fact that the defendant lied about where he was and denied that he was present, does that help decide
whether he was participating in what happened or not?’
In our judgment, this general direction was clear and adequate and the judge was not obliged to repeat it, defendant by defendant, as he dealt with
each instance in which there was evidence of potential lying by a defendant.
Accordingly, none of the grounds of appeal against conviction having succeeded, each of these appeals against conviction is dismissed.
[The court then gave judgment on an appeal by the appellant Skerritt against the sentence of 30 months’ imprisonment imposed on him for the
offence of riot and quashed it, substituting therefor a sentence of 21 months’ imprisonment.]
Appeals against conviction dismissed. Appeal by appellant Skerritt against sentence allowed; sentence substituted. The court refused to certify, under s
33(2) of the Criminal Appeal Act 1968, that a point of law of general public importance was involved in its decision in relation to editing records of
police interviews to avoid identification of co-defendants.
Kate O’Hanlon Barrister.

288
[1994] 1 All ER 289
R v Horseferry Road Magistrates’ Court, ex parte Bennett (No 2)

CIVIL PROCEDURE
Preamble

SIMON BROWN LJ AND BUCKLEY J
19 OCTOBER, 11 NOVEMBER 1993
Discovery – Privilege – Production contrary to public interest – Class of documents – Documents relating to police investigation – Voluntary disclosure
to defence by Crown Prosecution Service – Whether Crown Prosecution Service entitled to disclose privileged documents to defence without court order
– Safeguards for voluntary disclosure by Crown Prosecution Service.
The Crown Prosecution Service (the CPS) may in exceptional cases voluntarily and without obtaining a court order disclose to the defence documents
which would otherwise be in a class covered by public interest immunity although ordinarily it is the court’s responsibility to decide where the balance of
public interest lies. However, before making a voluntary disclosure the CPS should obtain the Treasury Solicitor’s express written approval. In seeking
such approval, the CPS should submit to the Treasury Solicitor copies of the documents proposed to be disclosed, identify the public interest immunity
class into which they fall and indicate the materiality of the documents to the particular proceedings in which it is proposed to disclose them. Before
giving his approval, the Treasury Solicitor should consult any other relevant government department and satisfy himself that the balance is clearly in
favour of disclosing the documents, and in making that assessment he will inevitably have regard, inter alia, to the particular class of documents involved,
their materiality to the proceedings and the extent to which disclosure will damage the public interest in the integrity of the class claim. The Treasury
Solicitor should more readily approve disclosure of documents likely to assist the defence case than those which the CPS wish to disclose with a view to
furthering the interests of the prosecution, and before approving disclosure of class documents sought to be used by the prosecution he should consider the
importance of the documents to the prosecution’s case as well as the importance of the prosecution case itself, as it may be preferable to abandon the case
than to damage the integrity of the class claim. The Treasury Solicitor should also maintain a permanent record of all approvals given for voluntary
disclosure of documents (see p 296 c to f and p 297 a to h, post).
Notes
For public interest immunity, see 13 Halsbury’s Laws (4th edn) paras 86–91, and for cases on the subject, see 18 Digest (2nd reissue) 203–219,
1822–1879.

Bennett v Horseferry Road Magistrates’ Court [1993] 3 All ER 138, [1994] AC 42, [1993] 3 WLR 90, HL; rvsg [1993] 2 All ER 474, DC.
Conway v Rimmer [1968] 1 All ER 874, [1968] AC 910, [1968] 2 WLR 998, HL.
Coventry Newspapers Ltd, Ex p [1993] 1 All ER 86, [1993] QB 278, [1992] 3 WLR 916, CA.
Makanjuola v Comr of Police of the Metropolis [1992] 3 All ER 617, CA.
289
R v Davis [1993] 2 All ER 643, [1993] 1 WLR 613, CA.
R v Governor of Brixton Prison, ex p Osman (No 1) [1992] 1 All ER 108, [1991] 1 WLR 281, DC.
R v Ward [1993] 2 All ER 577, [1993] 1 WLR 619, CA.
Cases also cited

Air Canada v Secretary of State for Trade [1983] 1 All ER 910, [1983] AC 394, HL.
Amand v Secretary of State for Home Affairs [1942] 2 All ER 381, [1943] AC 147, HL.
American Cyanamid Co v Ethicon Ltd [1975] 1 All ER 504, [1975] AC 396, HL.
Evans v Chief Constable of Surrey [1989] 2 All ER 594, [1988] 1 QB 588.
R v K (DT) (1992) Times, 8 December, (1992) 136 SJ (LB) 328, CA.
Thorburn v Hermon (1992) Times, 14 May, QBD.
Motion
The applicant, Paul James Bennett, by a notice of motion dated 10 July 1993, sought an order that the respondents, the Crown Prosecution Service (the
CPS), within seven days from the date of such order produce for inspection or supply copies of (i) all facsimile messages, letters, telexes sent or received
from the police authorities, government departments and/or official agencies listed in the first schedule to the notice of motion together with any
attendance notes of conversations by telephone or otherwise had with the aforementioned authorities relating to (a) the arrangements relating to his travel
to New Zealand and/or to or via the United Kingdom, (b) any travel documents required by the applicant to facilitate his travel arrangements, (c) the
allegations that caused the applicant to be detained by the South African authorities, (d) monitoring the progress of the applicant’s flight from
Johannesburg to Taipei and thereafter, (e) the reports of Major Ely and Detective Warrant Officer Russell-Bennett, (f) the allegations raised by David
Gliders and (g) the movement of the applicant to any future destination, and (ii) all documents from internal files in the possession of the respondents in
the United Kingdom relating to the above issues on the ground that there was mention of various communications between the British authorities, the
South African authorities and the authorities in Taipei in the affidavits filed on behalf of the CPS which had not been disclosed and which were plainly
relevant to issues that the court had to consider. The facts are set out in the judgment of Simon Brown LJ.
Alan Newman QC and Brian Jubb (instructed by Hallinan Blackburn Gittings & Nott) for the applicant.
Colin Nicholls QC, Stephen Richards and Robert Ward (instructed by the Crown Prosecution Service, Southwark) for the CPS.
11 November 1993. The following judgments were delivered.
At the conclusion of the argument the court announced that it would order disclosure of the documents sought for reasons to be given later.
SIMON BROWN LJ. On 19 October 1993 we made an order for discovery, requiring the Crown Prosecution Service (hereafter CPS) to produce for
inspection by the applicant, Paul James Bennett, a large number of documents of a class ordinarily attracting public interest immunity. We now give our
290 reasons for doing so and, an altogether harder task, some measure of guidance as to how in future the CPS would be entitled to deal with such
Preamble
applications.
Making the order in the present case presented no difficulty. The application for disclosure was unopposed. Indeed the CPS were at one with the
applicant in wanting the documents in question to be available at the substantive hearing. More importantly, the documents go to the very heart of a
factual dispute between the parties, a dispute which if resolved in the applicant’s favour could well bring to an end the criminal proceedings against him.
Although, therefore, these documents are covered by a ministerial certificate objecting to their production on well-established public interest immunity
grounds ordinarily regarded as compelling, there could be no doubt here where the balance falls between the competing public interests in play.
The essential facts surrounding the present application are these. The applicant is a New Zealand citizen who was wanted in the United Kingdom for
serious criminal offences committed in connection with the purchase of a helicopter in 1989. The English police traced him to South Africa, where he
was arrested and eventually put on a flight to New Zealand via Heathrow. The police, having earlier consulted with the CPS, had decided not to request
his return through the extradition process. (There are no formal extradition provisions in force between the United Kingdom and South Africa and any
extradition would have had to be by way of special arrangements under s 15 of the Extradition Act 1989.) The applicant was arrested on arrival at
Heathrow on 22 February 1991 and charged with two offences of obtaining by deception. On 22 May 1991 he was committed by the stipendiary
magistrate for trial at the crown court.
On 11 September 1991 the applicant was given leave to apply for judicial review of those committal proceedings and of the decision to commit him
for trial. His ground of challenge was that the proceedings constituted an abuse of the process. His essential allegation was that, having taken the
decision not to proceed by way of extradition, the English police had colluded with the South African police to have him arrested in South Africa and
forcibly returned to this country. He says that when he was arrested in South Africa on 28 January 1991 he was told that he was wanted by Scotland Yard
and was being taken to England. He says the South African police told him that there was a fax from the English police saying he was to be returned to
England in any way possible. Initially he was placed on an aeroplane for deportation to New Zealand via Taipei but once at Taipei he was returned to
South Africa. He then remained in custody until 21 February when he was put on a flight from Johannesburg to Heathrow where on the following
morning he was arrested by English police officers.
English police officers for their part have sworn affidavits denying any involvement with the South African police in returning the applicant to this
country. They say that when they learned from the South African police that the applicant might be repatriated to New Zealand via the United Kingdom
they sought advice from the CPS and as a result notified the South African police that in that event the applicant would be arrested on arrival. That was as
far as it went.
That, I should say, is a substantially compressed account of the very extensive evidence filed on the issue in these proceedings.
On 31 July 1992 the Divisional Court decided to consider as a preliminary issue whether it had jurisdiction to inquire into the circumstances by
which the 291 applicant had come to be within the jurisdiction of the courts of England and Wales (see [1993] 2 All ER 474). It ruled that it had not
and accordingly dismissed the application.
On 24 June 1993 the House of Lords allowed the applicant’s appeal from the Divisional Court’s ruling, holding, first, that the High Court, in the
exercise of its supervisory jurisdiction, has power to inquire into the circumstances by which a person had been brought within the jurisdiction and, in an
appropriate case, to stay the prosecution as an abuse of process and order the release of the defendant, second, that where such a question arose the
magistrates should adjourn the matter to enable an application to be made to the Divisional Court which was the proper forum for deciding the matter (see
[1993] 3 All ER 138, [1994] AC 42). The case was therefore remitted to the Divisional Court for further consideration.
In the light of that history the Divisional Court will now have to determine at a future substantive hearing whether the applicant’s allegations are well
founded and, if so, what relief should be granted. The exercise is, of course, very different from that normally involved in the discharge of the court’s
supervisory jurisdiction, the essential dispute being one of fact. On the material issue there is a direct conflict between the evidence filed by the applicant
and that filed on behalf of the CPS. The court will have to resolve that conflict. In doing so, the documents passing between the English police and the
South African authorities will be highly relevant, perhaps decisive.
As stated, these documents are covered by a ministerial certificate. This was signed by the Home Secretary in July 1992, at a time when the Home
Secretary was objecting to their production. Now, as indicated, he no longer objects. On the application before us Mr Nicholls QC appeared together
with Mr Stephen Richards. He told us that both counsel have at various stages of these proceedings been instructed by the Home Office as well as by the
CPS. Consideration has been given to separate representation for these departments. Both, however, now agree that the court should be invited to order
discovery of the documents.
It is nevertheless clearly appropriate to describe something of the contents of the Home Secretary’s certificate so as to indicate the nature and
importance of this class of documents. Put broadly, the class consists of communications passing between officers of the Metropolitan Police or
prosecuting authorities in London and police officers or the prosecuting authorities in other jurisdictions (here South Africa). The public interest in their
non-disclosure relates essentially to the protection of the process of criminal investigation, including in particular co-operation between police and
prosecuting authorities in different jurisdictions.
The certificate gives three principal reasons for withholding this class of documents from public disclosure. First, that it is undesirable that the
workings of the criminal investigation process should be revealed, in particular the manner in which different police forces in different jurisdictions
co-operate with each other. Second, that such co-operation is essential for the efficient investigation of offences and apprehension of offenders and there
is a very real risk that it will be withheld unless the participating authorities can be sure that the information they impart will be treated in absolute
confidence and not disclosed. Third, that on occasion the information exchanged may be incomplete or partly conjectural and those imparting it would be
inhibited from freely setting out their suspicions and judgments if there was a risk of it being 292 disclosed. I should perhaps mention that some of
the documents here being disclosed fall not into the particular class outlined above but rather into a related class consisting of internal memoranda and the
like, recording and commenting upon the communications passing between co-operating authorities; also that some of the documents contain reports from
the Metropolitan Police to the CPS informing them of the progress of the investigation and seeking advice as to its further prosecution, reports which are
themselves within a recognised class of immune documents.
That all these documents do indeed fall within one or more classes to which public interest immunity attaches is plain both from the reasoning in the
certificate itself and on the basis of authority. It is sufficient for present purposes to mention one only of the cases recognising the immunity of these
classes of documents, Conway v Rimmer [1968] 1 All ER 874 at 889, [1968] AC 910 at 953–954, where Lord Reid said:
‘It has never been denied that [the police] are entitled to Crown privilege with regard to documents, and it is essential that they should have it.
The police are carrying on an unending war with criminals many of whom are today highly intelligent. So it is essential that there should be no
disclosure of anything which might give any useful information to those who organise criminal activities …’
That for present purposes sufficiently indicates the clear public interest in withholding these classes of documents from disclosure: essentially so as
not to divulge information useful to criminals, and not to inhibit the fullest co-operation between co-operating authorities in different jurisdictions.
It is nevertheless trite law that such public interest in non-disclosure, clear and important though it is, is neither absolute nor conclusive. On the
contrary it must always be weighed against any competing public interest in the administration of justice. The balancing exercise to be performed was
Preamble
neatly put by Mann LJ in R v Governor of Brixton Prison, ex p Osman (No 1) [1992] 1 All ER 108 at 117, [1991] 1 WLR 281 at 289 thus:
‘… do the interests of justice in the particular case outweigh those considerations of public interest as spoken to in the certificate?’
In short, to say of a class of documents that it attracts public interest immunity is something of an oversimplification. What documents in the class attract
is no more than a prima facie immunity from disclosure, an immunity dependent upon there being no weightier public interest requiring their disclosure.
In a criminal case, moreover, the balancing of the competing public interests is subject to special considerations. That is hardly surprising. Let me
again cite from Mann LJ’s judgment in Ex p Osman (No 1) [1992] 1 All ER 108 at 116, [1991] 1 WLR 281 at 288:
‘Where the interests of justice arise in a criminal case touching and concerning liberty or conceivably on occasion life, the weight to be attached
to the interests of justice is plainly very great indeed.’
A somewhat similar passage is to be found in the judgment of the Court of Appeal, Criminal Division in Ex p Coventry Newspapers Ltd [1993] 1 All
ER 86 at 91, [1993] QB 278 at 287:
‘The court [in Makanjuola v Comr of Police of the Metropolis [1992] 3 All ER 617] recognised, however, that circumstances may arise which
require … 293 the disclosure of documents within this otherwise immune class because of some yet more potent countervailing public interest.
The public interest in establishing innocence in criminal proceedings is classically recognised as one such.’
No doubt the applicant’s concern in the present case is less to establish his innocence than to escape prosecution on the grounds that he was
unlawfully returned to the jurisdiction. Nevertheless, these are undoubtedly criminal proceedings and their outcome clearly touches the applicant’s
liberty.
Presumably with those sort of considerations in mind, the Crown eventually thought it right in the present case to drop its earlier objection to
discovery. Once the House of Lords decision made it necessary for the Divisional Court (unusually) to determine the factual circumstances in which the
applicant came to be flown to Heathrow, the critical importance of these documents to the just disposal of these proceedings became obvious. To my
mind, certainly, that has now become the paramount public interest. That is why we have ordered discovery of these documents.
I turn next to the further and more difficult question raised in argument before us, the question whether the CPS themselves are entitled to take the
decision to disclose class documents (documents in a class covered by public interest immunity) without referring the matter to the court for a ruling. Is
this ever appropriate and, if so, in what circumstances? The CPS argue that this course should be open to them, to be taken whenever in criminal
proceedings they themselves conclude that the balance falls obviously in favour of disclosure.
Before answering this question it is convenient first to consider a related question upon which we are asked to express a view: what weight can
properly be attached to the public interest in enabling relevant material to be used by the prosecution in criminal proceedings?
Mr Nicholls for the CPS submits that the public interest in enabling the prosecution to present its case effectively and with the benefit of material
evidence is itself a public interest of very considerable weight: the administration of justice is not a one-sided affair and the interests of the prosecution in
using otherwise immune documents should be properly recognised.
I would accept that submission so far as it goes. But it seems to me at once to require two caveats. First, that the public interest in the prosecution’s
use of the documents (in this context it is really the use of the documents in court rather than their initial disclosure to the defendant that is under
consideration) can never have the same weight as the public interest in the defendant having a proper opportunity of establishing his innocence (or at any
rate furthering his defence). That is really to say no more than that it is obviously more important that an innocent man be acquitted than that a guilty one
be convicted. And of course the prosecution, unlike the defence, always has a further option open to it: to abandon the prosecution altogether rather than
allow class documents to be disclosed.
The second caveat is this. If the prosecution believes the documents assist its cause rather than the defence (and inevitably, through having access to
the documents, the prosecution will be better able to judge of this than the defence) it will inevitably be under the temptation to regard the public interest
as better served by disclosing the documents than by withholding them in the interests of the integrity of the class.
294
In such a case, therefore, it is plainly necessary that someone other than the CPS be alert to the public interest in the immunity of the class and astute
to protect it where appropriate.
I turn to address the first question: should the CPS ever disclose class documents without a court order?
Counsel’s researches have uncovered little of direct relevance in the authorities. Perhaps the most helpful passages from the cases are these. First
from Bingham LJ’s judgment in Makanjuola v Comr of Police of the Metropolis [1992] 3 All ER 617 at 623:
‘Public interest immunity is not a trump card vouchsafed to certain privileged players to play when and as they wish. It is an exclusionary rule,
imposed on parties in certain circumstances, even where it is to their disadvantage in the litigation. This does not mean that in any case where a
party holds a document in a class prima facie immune he is bound to persist in an assertion of immunity even where it is held that, on any weighing
of the public interest in withholding the document against the public interest in disclosure for the purpose of furthering the administration of justice,
there is a clear balance in favour of the latter. But it does, I think, mean: (1) that public interest immunity cannot in any ordinary sense be waived,
since, although one can waive rights, one cannot waive duties; (2) that where a litigant holds documents in a class prima facie immune, he should
(save perhaps in a very exceptional case) assert that the documents are immune and decline to disclose them, since the ultimate judge of where the
balance of public interest lies is not him but the court …’
Second, this passage from Mann LJ’s judgment in Ex p Osman (No 1) [1992] 1 All ER 108 at 116, [1991] 1 WLR 281 at 288 speculating on the
paucity of authority with regard to public interest immunity in criminal proceedings:
‘It may be that prosecutions are not initiated where material is not to be exposed, or it may be that the force of the balance is recognised by
prosecuting authorities and the immunity is never claimed.’
Mr Nicholls reminded us also of two important recent decisions of the Criminal Division of the Court of Appeal—R v Ward [1993] 2 All ER 577,
[1993] 1 WLR 619 and R v Davis [1993] 2 All ER 643, [1993] 1 WLR 613. Those cases deal with the prosecution’s duty generally to disclose ‘all
relevant evidence of help to the accused’ (meaning, as explained by Glidewell LJ in R v Ward [1993] 2 All ER 577 at 601, [1993] 1 WLR 619 at 645, ‘all
the material evidence which the prosecution have gathered’) and more particularly with the procedures to be followed with regard to class documents.
Preamble
The judgments are, however, expressed in the context of the prosecution’s presumed reluctance to give discovery of class documents, not, as now arises
for consideration, the prosecution’s positive desire to do so. That is why to my mind no light is thrown upon our case by either of two particular
sentences from those judgments drawn to our attention. When in R v Ward [1993] 2 All ER 577 at 603, [1993] 1 WLR 619 at 647 Glidewell LJ said:
‘It is of course implicit in [certain earlier authorities] that the ultimate decision as to whether evidence which was otherwise disclosable should
be 295 withheld from disclosure on the grounds of public interest immunity was one to be made by the court. Certainly that is our view’,
he meant no more than that the decision would be one for the court to make whenever the prosecution maintain an objection to disclosure on public
interest immunity grounds. And when in R v Davis [1993] 2 All ER 643 at 647, [1993] 1 WLR 613 at 617 Lord Taylor CJ said:
‘If the prosecution wish to rely on public interest immunity or sensitivity to justify non-disclosure, then [certain procedures would follow]’,
he can hardly be thought to have been deciding that whenever the prosecution does not wish to rely on public interest immunity, they can always simply
waive it.
In short, all that one gets from the cases is that ordinarily it is the court’s responsibility to decide where the balance of public interest lies (‘save
perhaps in a very exceptional case’ (Makanjuola)), although one suspects (in common with Mann LJ in Ex p Osman (No 1)) that sometimes in criminal
cases the prosecuting authority recognises where the balance must fall and disclose the class documents voluntarily.
Should, then, criminal cases on occasion be treated as ‘exceptional’ and should the court give its blessing to some measure of voluntary disclosure of
class documents by the prosecution? I believe so, but provided always that proper procedures are established and safeguards observed. These, as it seems
to me, are necessary to ensure first that the public interest underlying the existence of the class claim is fully and faithfully weighed before voluntary
disclosure is made and second that some reliable record is maintained of any voluntary disclosures.
The value of such a record will be obvious. If at any future date the court is to be asked to rule upon disclosure with regard to a particular class of
documents it will be greatly assisted by knowing how often and in what circumstances such disclosure has been made voluntarily in the past. It is one
thing to refuse disclosure on the basis of a class claim to which exceptions are never made; quite another to do so when in reality the integrity of the class
claim has been weakened by repeated past disclosures. Take the facts of the present case. With each voluntary disclosure made, it will clearly be the
more difficult to assert in a ministerial certificate a very real risk that co-operation between authorities in different jurisdictions will be withheld unless the
participating authorities can be sure that the information they impart will be treated in absolute confidence and not disclosed.
I do not say that a class claim is necessarily destroyed by repeated disclosure in given circumstances: the series of cases concerned with police
complaints authority documents, culminating in Ex p Coventry Newspapers Ltd [1993] 1 All ER 86, [1993] QB 278 clearly indicates the contrary.
Immunity for that class of documents, it will be remembered, was claimed only in respect of proceedings other than disciplinary or criminal proceedings
brought against the police officer in question. That particular class claim accordingly recognises that co-operation can in certain circumstances be won by
assurances that documents will be used only for certain specified purposes. It is clearly important, however, that when a court is called on to carry out the
balancing exercise in any particular case it should be told just what disclosure of the class documents has been made in the past and it is for that reason
that a record should be kept.
296
With these considerations in mind I would answer the question put to us by the CPS as follows. (1) It is not necessary in every criminal case where,
but for public interest immunity, documents would ordinarily fall to be disclosed as part of the material evidence gathered by the prosecution, for the CPS
to seek the court’s ruling. They can instead, provided the following safeguards are observed, make voluntary disclosure of class documents to the
defence. (2) Before making such voluntary disclosures they should first obtain the Treasury Solicitor’s express written approval for such a course. The
Treasury Solicitor need not, of course, act in person; a responsible member of his department should be assigned to the task. (3) In seeking such approval,
the CPS should submit to the Treasury Solicitor copies of the documents proposed to be disclosed, identify the public interest immunity class into which
they fall, and indicate the materiality of the documents to the particular proceedings in which it is proposed to disclose them. (4) Before giving his
approval, the Treasury Solicitor should consult any other relevant government department and satisfy himself that the balance in his view falls clearly in
favour of disclosing the documents. In making that assessment he will inevitably have regard, inter alia, to (a) the particular class of documents involved,
(b) their materiality to the proceedings and (c) the extent to which disclosure will damage the public interest in the integrity of the class claim. The
Treasury Solicitor should be the readier to approve disclosure of documents likely to assist the defence case than those which the CPS wish to disclose
with a view to furthering the interests of the prosecution. Indeed, before approving disclosure of class documents sought to be used by the prosecution,
the Treasury Solicitor should consider not merely the importance of the documents to the prosecution’s case but also the importance of the prosecution
itself: it may be preferable to abandon the case rather than damage the integrity of the class claim. (5) The Treasury Solicitor should maintain a
permanent record of all approvals given for voluntary disclosure of documents.
I recognise that the CPS would prefer to operate a system whereby they themselves decide when the balance clearly falls in favour of disclosure. In
my judgment, however, that would not satisfactorily protect the various interests involved. If the court is not to rule (except, of course, when an objection
to disclosure is maintained) then the Treasury Solicitor must be consulted. The procedure I propose would at least be quicker and cheaper than seeking
the court’s ruling. And if the Treasury Solicitor’s involvement were to lead to the refinement and perhaps narrowing of certain class claims, at any rate
with regard to disclosure in criminal proceedings, so much the better.
A final comment: courts do not ordinarily give ‘guidance’. We do so here only because it is difficult to see how this question could ever fall for
direct decision. Given that the point could only arise when, as here, an application for disclosure is already before the court, guidance seems the only way
forward.
BUCKLEY J. I agree.
Motion allowed.

297
[1994] 1 All ER 298
Preamble
Re solicitors, ex parte Peasegood

PROFESSIONS; Lawyers

STUART-SMITH LJ AND JUDGE J
26, 30 APRIL 1993
Solicitor – Disciplinary proceedings – Applicant in person – Application to strike solicitor’s name off roll – Jurisdiction – Whether court having
jurisdiction to entertain application by litigant in person – Whether application to strike solicitor’s name off roll must be made by counsel – Solicitors Act
1974, ss 50(2), 51 – RSC Ord 5, r 6.
The respondent solicitors were instructed by the applicant’s husband in connection with divorce proceedings which he was taking against her. During the
proceedings the respondents practised for the period from 1 November 1986 to 27 January 1987 without practising certificates partly because some of the
relevant forms were lost in the post and partly because of delay in returning the application forms to the Law Society. In 1992 the applicant applied in
person for an order pursuant to ss 50(2)a and 51b of the Solicitors Act 1974 that the respondents’ names be struck off the roll of solicitors on the grounds
that they had acted while uncertificated, that they had attempted to recover costs for work done while uncertificated and that they had behaved in a
manner unbefitting solicitors in the conduct of the applicant’s matrimonial proceedings. The respondents applied to dismiss the application on the
grounds that it disclosed no reasonable cause of action and/or was an abuse of process.
________________________________________
a Section 50(2) is set out at p 304 j, post
b Section 51, so far as material, is set out at p 302 j to p 303 a, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – An applicant for an order that a solicitor be struck of the roll pursuant to ss 50 and 51 of the 1974 Act had to apply through counsel and could not
make the application in person, notwithstanding that RSC Ord 5, r 6c provided that ‘any person … may begin and carry on proceedings in the High Court
… in person’. That rule did no more than state the practice which had long existed in relation to litigants in person and which was subject to the
exception in the case of applications under ss 50 and 51 of the 1974 Act. It was clear that both before and after the Supreme Court of Judicature Act 1873
an application to strike a solicitor off the roll could only be made by counsel. Solicitors were subject to the discipline of the court under its inherent
jurisdiction, but that jurisdiction was limited in practice, in that the application could only be made if supported by counsel. Accordingly, the court had
no jurisdiction to entertain the application, but, even if it had, the motion would have been dismissed on the merits because the applicant’s complaints
against the respondents were misconceived and on the grounds of the delay in making the application (see p 304 h j, p 305 a b d e g to j and p 306 b c f to
j, post).
________________________________________
c Rule 6, so far as material, is set out at p 304 d, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Notes
For the disciplinary jurisdiction of the Supreme Court over solicitors, see 44 Halsbury’s Laws (4th edn) para 252, and for cases on the subject, see 44
Digest (Reissue) 406–407, 4420–4430.
298
For the Solicitors Act 1974, ss 50, 51, see 41 Halsbury’s Statutes (4th edn) 62, 63.

McKernan’s application, Re (1985) Times, 26 October, CA.
Myers v Elman [1939] 4 All ER 484, [1940] AC 282, HL.
Peasegood v Hayes (1988) Independent, 23 June.
Peasegood v Hayes (29 July 1988, unreported), QBD.
Peasegood v Meisel [1988] CA Transcript 917.
Pitt, Ex p (1833) 2 Dowl 439.
R v Bow Street Stipendiary Magistrate, ex p DPP (1989) 91 Cr App R 283, DC.
Solicitor, Re a [1903] 2 KB 205, CA; affg [1903] 1 KB 857, DC.
Thew (R & T) Ltd v Reeves (No 2) [1982] 3 All ER 1086, [1982] QB 1283, [1982] 3 WLR 869, CA.
Two solicitors, Re [1937] 4 All ER 451, [1938] 1 KB 616, CA.

Abse v Smith [1986] 1 All ER 350, [1986] QB 536, CA.
Adlam v Law Society [1968] 1 All ER 17, [1968] 1 WLR 6.
Associated Leisure Ltd v Associated Newspapers Ltd [1970] 2 All ER 754, [1970] 2 QB 450, CA.
Biss v Lambeth Southwark and Lewisham Health Authority [1978] 2 All ER 125, [1978] 1 WLR 382, CA.
Dobbie v Medway Health Authority (1992) 3 Med LR 217.
Gray (James) (a solicitor), Re, ex p Incorporated Law Society (1869) 20 LT 731.
Hunter v Chief Constable of West Midlands [1981] 3 All ER 727, [1982] AC 529, HL.
Preamble
Nordglimt, The [1988] 2 All ER 531, [1988] QB 183.

Peasegood v Meisel (27 November 1987, unreported), QBD.
R v Solicitors Disciplinary Tribunal, ex p Gallagher (1991) 89 LS Gaz, 15 April, p 43.
Application
Hannah Susan Peasegood applied by notice of motion dated 20 July 1992 for an order under ss 50 and 51 of the Solicitors Act 1974 that the names of the
respondents, Sian Mari Meisel, Richard Hugh Pope, Alison Margretta Laitner and Sheila Rachel Thomas, be struck off the roll of solicitors of the
Supreme Court. The respondents applied by notice of motion dated 25 February 1993 that Mrs Peasegood’s notice of motion and affidavit be struck out
and that her application to have their names struck off the roll of solicitors of the Supreme Court be dismissed on the ground that her notice of motion
disclosed no reasonable cause of action and/or that her notice of motion and affidavit were scandalous, frivolous, vexatious or oppressive and/or were
otherwise an abuse of the process of the court. The facts are set out in the judgment of Stuart-Smith LJ.
Mrs Peasegood appeared in person.

Simeon Maskrey (instructed by Rees Edwards Maddox, Birmingham) for the first, third and fourth respondents.
The second respondent appeared in person.
Cur adv vult

299
30 April 1993. The following judgments were delivered.
STUART-SMITH LJ. On 20 July 1992 Mrs Peasegood applied to the High Court for an order pursuant to ss 50 and 51 of the Solicitors Act 1974 that
the four respondents, who are solicitors, should be struck off the roll of solicitors. By notice of motion dated 25 February 1993 the first, third and fourth
respondents, whom I shall refer to as solicitors, applied to dismiss Mrs Peasegood’s application on the basis that it disclosed no reasonable cause of action
and/or was scandalous, frivolous, vexatious, oppressive or otherwise an abuse of the process of the court. The second respondent, Mr Pope, has
subsequently supported that application.
The background to Mrs Peasegood’s application is this. The first three respondents were at the material time partners of a firm of solicitors
practising in Birmingham called Blair Allison & Co. The fourth respondent was a solicitor employed by Blair Allison. The firm had been instructed by
Mr Peasegood, himself a solicitor, in connection with divorce proceedings which he was taking against his wife, Mrs Peasegood. He had the benefit of
legal aid. The first respondent was the solicitor named in the legal aid certificate, the fourth respondent was the person who did most of the day-to-day
work on the case.
Some time early in 1987 Mrs Peasegood discovered that her husband did not have in force a valid practising certificate. She also discovered, or
thought she had, that none of the respondents did either for the period 1 November 1986 to 27 January 1987. That came about in this way. Practising
certificates expire on 31 October next after the date of issue. Certificates issued in November or December in any year bear the date 1 November, so they
are backdated. Otherwise they bear the date of issue (see s 14 of the 1974 Act). In October 1986 application forms arrived at Blair Allison’s office for all
the solicitors except Mr Pope. In November Mrs Laitner telephoned the Law Society to seek an application form for Mr Pope. She was told that a
duplicate would be sent. It did not arrive and Mrs Laitner’s secretary telephoned again in December. A duplicate form was sent and shortly before
Christmas the original form arrived. It had obviously been lost in the post. For some reason which is not explained and may now not be capable of
further explanation, but presumably because of some administrative muddle in the solicitors’ office, the applications were not sent off till 26 January
1987. The practising certificates were in due course issued. Those in respect of Mrs Laitner and Mrs Thomas were dated 27 January 1987; for some
reason which is not explained that of Mrs Meisel was dated 1 November 1986 and that issued to Mr Pope was not dated, but related to the year 1986–87.
The possession of a current practising certificate is an important matter. No person is qualified to practise as a solicitor unless he has been admitted as a
solicitor, his name is on the roll and he has in force a current practising certificate (see s 1 of the 1974 Act). It is an offence for an unqualified person to
act as a solicitor (s 20). But obviously the circumstances of the offence may vary enormously; it is very serious for a totally unqualified person to act as a
solicitor; it is quite another matter when a properly qualified person fails to renew his certificate in time, albeit through negligence. No costs are
recoverable in respect of anything done by any unqualified person acting as a solicitor (s 25).
On 26 January 1987 Mrs Peasegood harassed Mrs Thomas when she was trying to conduct her business on behalf of Mr Peasegood. Later that day
she attended the solicitors’ office and caused a nuisance. As a result the solicitors applied ex parte in the divorce proceedings for an order that Mrs
Peasegood be 300 restrained from harassing Mrs Thomas and attending at the solicitors’ office. The return date for the inter partes hearing was 17
February 1987. It appears that shortly before this hearing Mrs Peasegood discovered that the solicitors had been uncertificated from 1 November 1986 to
27 January 1987. She raised the matter before the judge at the hearing; but he continued the injunction which had been made ex parte, whereupon Mrs
Peasegood threw a glass of water over Mrs Thomas. Mrs Peasegood again attended at the solicitors’ office on 28 April 1987; that was in breach of the
injunction. She demanded to know why the firm had practised without a practising certificate; she appears to have thought there was some conspiracy.
She said that she would leave if she had an answer. Mr Pope in his affidavit says that she was given an oral explanation on the lines I have already set
out. But she asked for a letter. This was written by Mr Pope and sent to her. It seems that she did not leave and the police had to be called to remove
her; but she was not arrested and no proceedings for committal were taken. The letter, which was dated 28 April 1987, said:
‘… initially the Law Society failed to send us all the relevant forms and the last form was returned by the end of January. There was no other
reason for the late issue of the certificates.’
For my part I do not think that was a wholly accurate description of what had occurred, since it does not mention or explain the delay in dealing with
the matter between Christmas and 26 January.
On receipt of the letter of 28 April Mrs Peasegood made a complaint to the Law Society. The matter was referred to the Solicitors Complaints
Bureau, who required an explanation from the solicitors. They replied setting out the explanation which I have given. In due course the matter was
referred to the adjudication committee of the Law Society, which considered the matter on 21 October 1987. That committee did not think that it was
appropriate for the complaints to be prosecuted before the Solicitors Disciplinary Tribunal. But the committee decided that Mr Pope’s letter of 28 April
was misleading and he was rebuked. The solicitors were warned that in future they must renew their practising certificates by the due date.
In June 1987 the solicitors concluded that, because of the abuse and hostility shown to them and particularly Mrs Thomas by Mrs Peasegood, they
should no longer act for her husband. The solicitors thought that they had heard the last of the matter when they received the verdict of the adjudication
Preamble
committee. Indeed they heard no more until the notice of motion was served on them in July 1992.
But that was not the end of the matter so far as Mrs Peasegood was concerned. In November 1987 she applied ex parte for an Anton Piller order
against the Law Society. It appears that she wanted disclosure of all payments made under the legal aid scheme in respect of solicitors, including the
respondents, who had practised without having in force a practising certificate. Her application was refused and her appeal to the Court of Appeal
dismissed.
In April 1988 Mrs Peasegood sought an order under ss 50 and 51 of the 1974 Act against ten officers of the Law Society. She alleged against them
conspiracy to conceal illegal conduct, fraud, conniving at illegal conduct, perverting the course of justice, obtaining pecuniary advantage by deception
and destroying records; these serious allegations were based on the fact that a number of solicitors, including the respondents, had practised without
current practice certificates and the defendants, all solicitors, had not prevented it or investigated her complaints properly. Those defendants applied to
strike out 301 Mrs Peasegood’s application in a similar way as the respondents have done here. Schiemann J struck out Mrs Peasegood’s application
on 22 June 1988 (see Peasegood v Hayes (1988) Independent, 23 June) and she was refused leave to appeal by the Court of Appeal on 29 July 1988.
On 2 August 1988 Mrs Peasegood once again sought an Anton Piller order against the Law Society directing them to preserve a large number of
legal aid documents and give her discovery of them. The application was made as a preliminary to an application which she proposed to make against the
respondents’ solicitors under ss 50 and 51 of the 1974 Act. Schiemann J dismissed her application and her appeal was dismissed by the Court of Appeal
on 8 November 1988 (see Peasegood v Meisel [1988] CA Transcript 917).
In giving judgment O’Connor LJ, after referring to the grounds on which Mrs Peasegood proposed to proceed against the respondents’ solicitors as
being based on the allegation that they had practised without a practising certificate, said:
‘There is the case that the appellant wishes to put before the court. In order to do that she has chapter and verse for the fact that this firm of
solicitors [that is a reference to Blair Allison], all four partners and her husband, were not certificated during the relevant period. She has it in the
form of letters from the Law Society to her, who are the certifying body, so she needs no help in establishing that. Her affidavit and her particulars,
in particular the draft which she has proffered to the court of what she ultimately proposes to put forward (which I must not be in any way taken as
approving because large parts of it appear to me to be both irrelevant and scandalous). Sufficient is put forward that she can say, of her own
knowledge, that these solicitors were indeed practising as solicitors during the relevant period. What is more, that they were practising in some
cases under legal aid certificates.’
So it is plain that by August 1988, if not by November 1987, in the opinion of the Court of Appeal Mrs Peasegood had all the essential information
to launch an application based on the fact that the solicitors had practised uncertificated. Indeed she had drafted an affidavit setting out her allegations.
In her affidavit in support of her present motion Mrs Peasegood makes a large number of allegations of serious misconduct against the solicitors, but
they can, I think, be summarised under three heads: (1) those arising out of the allegation that each of the solicitors practised between 1 November 1986
and 27 January 1987 while uncertificated; (2) that they attempted to recover costs for work done while uncertificated; (3) that they behaved in a manner
unbefitting of solicitors in the conduct of Mrs Peasegood’s matrimonial proceedings, including making untruthful statements and deceiving the court.
At the outset of the submission Mr Maskrey raised two points which went to the jurisdiction of the court. But he made it plain that he did not wish to
win on what might be regarded as technical points and he invited us to and we did consider the merits of the application. Nevertheless the court is bound
to consider questions of jurisdiction and I propose to do so first.
Failure to give notice to the Law Society

Section 51(1) and (2) of the 1974 Act is in these terms:
‘(1) Where an application to strike the name of a solicitor off the roll or to require a solicitor to answer allegations contained in an affidavit is
made 302 to the High Court, then, subject to section 54, the following provisions of this section shall have effect in relation to that application.
(2) The court shall not entertain the application except on production of an affidavit proving that the applicant has served on the Society
fourteen clear days’ notice of his intention to make the application, together with copies of all affidavits intended to be used in support of the
application.’
Mrs Peasegood submits that she has satisfied sub-s (2). She produced an affidavit sworn by her on 4 November 1992 in which she deposes that she
served copies of her application and supporting affidavit on the Law Society on 6 August 1992. But her notice of motion was dated 20 July 1992 and
received in the Crown Office on 3 August 1992. Mr Maskrey says that is too late. Mrs Peasegood submitted that it was not until she appeared before this
court that she actually made the application and therefore she was in time. I think Mrs Peasegood is right. The notice of motion is notice of intention to
make the application, which is made when the court is moved by the applicant.
No right to appear in person

Mr Maskrey submitted that the court cannot entertain an application under ss 50 and 51 of the 1974 Act unless it is made by counsel. This was
undoubtedly the law before and after the Supreme Court of Judicature Act 1873. In Ex p Pitt (1833) 2 Dowl 439 at 440 Lord Denman CJ, after consulting
the other judges and the Master of the Crown Office, said:
‘The motion against an attorney being in the nature of a criminal information, the Court requires that it should be made by a gentleman at the
bar; and it cannot be made in person. Otherwise, we have not the sanction of a barrister for the propriety of such an application.’
In Re a solicitor, ex p Incorporated Law Society [1903] 1 KB 857 at 859 Lord Alverstone CJ said:
‘The point was raised in the case of Ex parte Pitt in the year 1833. I refer to it not only because it is an authority on which this Court has acted
continuously before the [Solicitors Act] 1888, but because the reasons of the judgment have as much weight to-day as they had at the time that the
judgment was delivered. In that case a gentleman applied in person for a rule to shew cause why certain attorneys should not be required to answer
certain matters contained in a certain affidavit. That was a much less stringent and serious application than the application to strike a solicitor off
the rolls. According to the old practice there were two applications which might be made against a solicitor—one to strike him off the rolls, and the
other to call upon him to answer the matters contained in an affidavit.’
Wills J said (at 860):

Preamble
‘I entirely agree. I have had very considerable experience in cases of this kind, as for a long period when at the bar I represented the Law
Society, and, during the fifty years and rather more that I have been in the profession, I have never known a case in which an application of this
kind was heard either before or since the Act of 1888 in which the matter was not conducted by counsel.’
That case went on appeal. It was upheld in the Court of Appeal (see [1903] 2 KB 205). Collins MR said (at 207):
303
‘… I think it is quite clear that that can only be done by a person through counsel representing him. I do not think the old practice in that
respect is affected by the Solicitors Act, 1888.’
The correctness of that decision was accepted in Re two solicitors [1937] 4 All ER 451 at 456, 458, [1938] 1 KB 616 at 629, 633 per Greer and Scott
LJJ. The decision was distinguished in that case. It involved an appeal from a decision of the Disciplinary Committee of the Law Society, the forerunner
of the Solicitors Disciplinary Tribunal. The court held that, since a complainant could complain in person, he was entitled to appear in person to
prosecute an appeal to the High Court which the statute gave.
The question was canvassed before Schiemann J in Peasegood v Hayes (1988) Independent, 23 June, to which I have referred. He considered the
possibility that a right of audience might have been conferred by RSC Ord 5, r 6, which provides:
‘(1) Subject to paragraph (2) and to Order 80, rule 2, any person (whether or not he sues as a trustee or personal representative or in any other
representative capacity) may begin and carry on proceedings in the High Court by a solicitor or in person …’
He did not decide the point, though he expressed the view that the old rule still applied.
The point was also considered in the Court of Appeal in Re McKernan’s application (1985) Times, 26 October. That was an appeal from a decision
of Woolf J, who had refused McKernan’s application to strike the respondent off the roll of solicitors. Woolf J entertained the application, but had
dismissed it on its merits. Lawton LJ, who gave the leading judgment, did not in terms say that Woolf J was wrong to entertain it, though I think the
implication of the judgment is that he was. The court held that the applicant could not appear in the Court of Appeal in person. The question of Ord 5, r 6
was not canvassed. But it would be surprising if the court, which included Robert Goff and Dillon LJJ, was unmindful of it. Dillon LJ clearly thought
that the old rule still applied. He said (and I read from the transcript):
‘The position remains that Mr McKernan is invoking the jurisdiction under s 50 which, by the express wording of the section, relates back to the
jurisdiction exercised by the courts before the Supreme Court of Judicature Act 1873. It must be subject to the same procedural restrictions as
before and the authorities, as it seems to me, are clear on that.’
In my judgment Ord 5, r 6, which was first introduced in 1962, does not affect the position. In fact it does no more than state the practice which had
long existed in relation to litigants in person. That practice was subject to the exception in the case of applications under ss 50 and 51 of the 1974 Act.
Section 50(2) is in these terms:
‘Subject to the provisions of this Act, the High Court, the Crown Court and the Court of Appeal respectively, or any division or judge of those
courts, may exercise the same jurisdiction in respect of solicitors as any one of the superior courts of law or equity from which the Supreme Court
was constituted might have exercised immediately before the passing of the Supreme Court of Judicature Act 1873 in respect of any solicitor,
attorney or proctor admitted to practise there.’
304
The jurisdiction therefore is the same as that exercised before 1873. Solicitors were then subject to the discipline of the court under its inherent
jurisdiction; but the jurisdiction was limited in practice, in that the application could only be made if supported by counsel. In my judgment the reason for
the rule applies as much today as it ever did. It is very easy for disgruntled litigants to make complaints, often in lurid terms against their own or the
opposite parties’ solicitors. It is perhaps anomalous that the punitive, as opposed to compensatory, powers of the court to make orders against solicitors
should have survived now that the statutory tribunal has been set up and a right of appeal to the High Court given to the complainant (see s 49 of the 1974
Act). In Myers v Elman [1939] 4 All ER 484 at 508, [1940] AC 282 at 318 Lord Wright doubted whether the court would entertain an application to
strike a solicitor off the roll instead of leaving the matter to the Disciplinary Committee of the Law Society. And in R & T Thew Ltd v Reeves (No 2)
[1982] 3 All ER 1086 at 1088, [1982] QB 1283 at 1286 Lord Denning MR said: ‘The punitive jurisdiction of the court itself is now rarely if ever
exercised. It is left to the Solicitors Disciplinary Tribunal.’ (Lord Denning MR’s emphasis.)
The court undoubtedly has jurisdiction under s 50 to entertain an application, if supported by counsel; but it is not obliged to do so. It does not have
jurisdiction to entertain an application made by the applicant in person and even if it did it seems to me that the discretion should not be exercised save in
an exceptional case.
The merits of the application to dismiss Mrs Peasegood’s notice of motion

The court has jurisdiction in criminal proceedings to strike out the proceedings where delay on the part of the prosecutor has given rise to genuine
prejudice and unfairness; prejudice in some cases can be presumed from substantial delay, in which case it is for the prosecution to rebut the presumption.
Even in the absence of a presumption, if there is substantial delay it is for the prosecution to justify the delay: see R v Bow Street Stipendiary Magistrate,
ex p DPP (1989) 91 Cr App R 283. These proceedings are in the nature of quasi-criminal proceedings, being brought to invoke the punitive jurisdiction
of the court. In my judgment the same principles apply. Moreover in civil cases the court will strike out an action for want of prosecution if there has
been inordinate and inexcusable delay and it is such that there can no longer be a fair trial of the action or the defendant has suffered prejudice from the
delay. In my opinion Mrs Peasegood has given no satisfactory explanation of the long delay between November 1988 and July 1992. She says that she
was considering an appeal to the House of Lords and applying for legal aid to prosecute this application. But there are no documents before the court to
support that assertion and in any event I find it a wholly unacceptable explanation.
In my judgment the solicitors are prejudiced by this very long delay. They now have to meet allegations, in particular those relating to their conduct
of the matrimonial proceedings, when their file no longer exists. They had thought that the matter had long since been disposed of when Mrs Peasegood’s
complaint was dealt with by the adjudication committee. I think that it is a hardship and prejudice to them to have the matter resurrected again. Mr
Maskrey eschewed the proposition that Mrs Peasegood was estopped by her complaint to the Law Society from making an application under s 50 of the
Preamble
1974 Act; he said that by itself that was not an abuse of process. That may be so, since Mrs Peasegood claims that she did not know the result of the
adjudication committee’s deliberation. She could have made a complaint to the tribunal; she 305 did not do so, perhaps for the same reason. In my
opinion, if a complainant does make a complaint to the disciplinary tribunal which determines the matter, then, whether or not the complainant avails
himself of his right of appeal, it is an abuse of process subsequently to make an application under ss 50 and 51 of the 1974 Act on the same grounds.
If I thought there was some merit in Mrs Peasegood’s application I might hesitate to strike it out on the grounds that the solicitors have been caused
such prejudice by the delay. But for the reasons which I shall shortly state I do not consider that the grounds put forward by Mrs Peasegood possibly
justify the court making an order striking off the solicitors. Accordingly I would dismiss the motion on the grounds of delay.
The merits of Mrs Peasegood’s complaint

In order to justify the exercise of the punitive jurisdiction to strike off a solicitor he has to be guilty of ‘conduct which would reasonably be regarded
as disgraceful or dishonourable by solicitors of good repute’ (see per Viscount Maugham in Myers v Elman [1939] 4 All ER 484 at 488, [1940] AC 282 at
288–289).
Failure to renew their practising certificates in time and even Mr Pope’s somewhat misleading letter of 28 April 1987 could not possibly fall into this
category on the facts of this case. In my judgment it was appropriately dealt with by the adjudication committee. I am not persuaded that there is any
evidence that the solicitors attempted to recover costs in respect of work done while they were uncertificated. On 8 November 1990 the solicitors wrote
to the Law Society; they said:
‘We understand that England Strickland & Co have applied for an interim payment of our costs in a letter of 29th October which has been
forwarded to us. We have said specifically to England Strickland they were to make no application for a payment on account of our profit costs and
we are extremely concerned that they have done so.’
Even if the solicitors did at one time seek to obtain costs for work done during the uncertificated period, I do not think in the particular circumstances
of the case that this could be described as disgraceful or dishonourable conduct.
The complaints in relation to the solicitors’ conduct of the divorce proceedings are in my judgment wholly misconceived. I have considered them
carefully to see whether they are supported by the evidence adduced by Mrs Peasegood; they are not. Although they are couched in lurid language, they
amount in my judgment to nothing that could possibly be described as disgraceful or dishonourable conduct. The court should only dismiss a motion or
complaint as disclosing no cause of action or that is frivolous and vexatious in a plain and obvious case. In my opinion this is such a case. I would
dismiss Mrs Peasegood’s application.
JUDGE J. For the reasons given by Stuart-Smith LJ I agree that Mrs Peasegood’s application should be dismissed.

306
[1994] 1 All ER 307
Hammond v Allen and others

AGRICULTURE: LANDLORD AND TENANT; Other Landlord and Tenant

OWEN J
6, 7 FEBRUARY, 10 JULY 1992
Agricultural holding – Repairs – Maintenance and repair of fixed equipment – Notice to repair served by tenant on landlord – Landlord serving
counter-notice for determination of dispute by arbitration – Counter-notice served out of time – Whether counter-notice valid – Whether time of essence
in service of counter-notice – Agricultural Holdings Act 1986, s 7 – Agriculture (Maintenance, Repair and Insurance of Fixed Equipment) Regulations
1973, Sch, paras 12, 15.
Agricultural holding – Repairs – Maintenance and repair of fixed equipment – Enforcement of landlord’s repairing liability – Model clauses incorporated
in tenancy agreement – Tenant commencing proceedings for damages or specific performance to enforce landlord’s repairing liability – Model clauses
permitting tenant to execute repairs and recover cost from landlord – Model clauses further providing that any ‘claim, question or difference’ to be
referred to arbitration – Landlords failing to serve counter-notice in time but seeking reference to arbitration – Whether action a ‘claim, question or
difference’ under model clauses – Whether tenant entitled to damages or specific performance in lieu of statutory remedy – Agricultural Holdings Act
1986, s 7 – Agriculture (Maintenance, Repair and Insurance of Fixed Equipment) Regulations 1973, Sch, paras 12, 15.
The defendant landlords let a farm, including a farmhouse in serious disrepair, to the plaintiff tenant under an oral agreement which by virtue of s 7 of the
Agricultural Holdings Act 1986 incorporated the clauses (the model clauses) set out in the Schedule to the Agriculture (Maintenance, Repair and
Insurance of Fixed Equipment) Regulations 1973. By virtue of para 1(1)a of the model clauses the landlords had become liable for extensive repairs and
replacements to the farmhouse. The tenant served notice under the model clauses requiring the landlords to make the repairs, but the landlords failed to
comply with the notice. The tenant, who could not afford to carry out the repairs, commenced proceedings for specific performance or damages. More
than nine months after service of the tenant’s notice the landlords served a counter-notice on the tenant pursuant to para 12(3)(a)b of the model clauses
Preamble
claiming that the works would be improvements for which they were not liable and seeking to have the matter referred to arbitration pursuant to para 15c
of the model clauses. The issues arose whether (i) the counter-notice was valid even though it had been served outside the one-month limitation period in
para 12(3)(a), (ii) whether para 12(1) and (2), which entitled the tenant to execute the repairs and replacements and then recover specified costs from the
landlords, precluded specific performance and damages and (iii) whether under para 15 there was a ‘claim, question or difference’ under the ‘foregoing
provisions’ of the model clauses requiring the dispute to be referred to arbitration.
________________________________________
a Paragraph 1, so far as material, is set out at p 309 d e, post
b Paragraph 12, so far as material, is set out at p 309 h to p 310 d, post
c Paragraph 15 is set out at p 313 j, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
307
Held – (1) In general, time was not of the essence in a contract unless strict compliance had been expressly stipulated by the parties or the subject matter
or surrounding circumstances showed that time was to be considered of the essence. It was therefore important to consider the purpose of the 1986 Act,
namely to protect the tenant by avoiding the law’s delays. Parliament could not have intended that the landlord could, after the expiry of the periods of
notice, divest the tenant of his rights under the model clauses. The landlords’ counter-notice was therefore invalid (see p 311 c to h, post); United
Scientific Holdings Ltd v Burnley BC [1977] 2 All ER 62 considered.
(2) Although the plaintiff tenant was obliged to follow the procedure set out in para 12 of the model clauses, the landlords came under a liability to
execute the repairs and replacements when they failed to serve a counter-notice in time. There was no reason why, the issue of liability having been thus
established, the tenant could not bring proceedings for the consequences of that liability. Moreover, since the model clauses enabled the tenant to
establish the landlords’ liability by default or arbitration, it followed that, as the landlords’ liability had already been established by default, no ‘claim,
question or difference’ arose under para 15 of the model clauses. The tenant was therefore entitled to enforce his rights by an action for damages or
specific performance (see p 313 d to h and p 314 b d to j, post); Tustian v Johnson [1993] 2 All ER 673 considered.
Notes
For the model clauses and obligation of parties in respect of fixed equipment under an agricultural tenancy, see 1(2) Halsbury’s Laws (4th edn) paras
319–320, and for a case on the subject, see 2 Digest (Reissue) 13, 28.
For the Agricultural Holdings Act 1986, s 7, see 1 Halsbury’s Statutes (4th edn) (1989 reissue) 741.
For the Agriculture (Maintenance, Repair and Insurance of Fixed Equipment) Regulations 1973, Sch, see 1 Halsbury’s Statutory Instruments (1992
reissue) 283.

Goldsack v Shore [1950] 1 All ER 276, [1950] 1 KB 708, CA.
Grayless v Watkinson [1990] 1 EGLR 6, CA.
Jeune v Queens Cross Properties Ltd [1973] 3 All ER 97, [1974] Ch 97, [1973] 3 WLR 378.
Tustian v Johnson [1993] 2 All ER 673.
United Scientific Holdings Ltd v Burnley BC [1977] 2 All ER 62, [1978] AC 904, [1977] 2 WLR 806, HL.
Action
By a writ issued by the plaintiff, Robert Keith Hammond, claimed as against the defendants, George Henry Allen, Graham Thomas Allen, George Allen
and Barbara Mary Allen, specific performance of repair and replacement works as required by notice served by the plaintiff on the defendant on 12
January 1990 and damages representing the costs of the repair and replacement works. The facts are set out in the judgment.
David Stockill (instructed by Cowlishaw & Mountford, Uttoxeter) for the plaintiff.
Joanne Moss (instructed by Hacking Ashton Jervis & Co, Newcastle under Lyme) for the defendants.
Cur adv vult

308
10 July 1992. The following judgment was delivered
OWEN J. The plaintiff is and has been for over 30 years the tenant of Little Eaves Farm at Cheadle in the county of Stafford. The defendants are his
landlord. The farm is an agricultural holding of some 23 acres. In addition the plaintiff farms another 40 acres. The plaintiff took and holds the tenancy
by an oral agreement. He lives in the farmhouse, which he holds under the tenancy. Over the years the farmhouse has fallen into serious disrepair. It is
estimated that the cost of doing essential repairs and making essential replacements will be about £35,000, that being the lowest tender obtained by the
tenant. The plaintiff does not have such a sum and cannot borrow that sum. He contends that the repairs and replacements are the defendants’ obligation.
It is common ground between the plaintiff and the defendants that by virtue of s 7 of the Agricultural Holdings Act 1986 the fixed equipment model
clauses set out in the schedule to the Agriculture (Maintenance, Repair and Insurance of Fixed Equipment) Regulations 1973, SI 1973/1473, are ‘deemed
to be incorporated’ in the plaintiff’s contract of tenancy.
By para 1(1) of that schedule, the landlord has the right and liability for ‘all repairs and replacement to the under-mentioned parts of the farmhouse
…’ The undermentioned parts are extensive and are extended still further by sub-paras (2) and (3). There is a proviso to sub-para (1):
‘that in the case of repairs and replacements to floorboards, interior staircases and fixed ladders (including banisters or handrails), doors and
windows and opening skylights (including frames), eaves-guttering and downpipes, the landlord may recover one-half of the reasonable cost thereof
from the tenant.’
In accordance with his contention, and in accordance with the model clauses, the plaintiff served a notice dated 12 January 1990, requesting the
defendants to make the specified necessary repairs or replacements. The defendants have not in any way complied with this notice. The only responses
Preamble
by the defendants have been to issue a notice requiring the tenant to comply with his obligations relating to hedges and fences, with which, I am told, the
tenant has complied, and eventually to issue a notice dated 1 November 1990 (ie after the issue and service of the writ in this action) claiming that the
works required by the tenant would constitute improvements for the cost of which the defendants are not liable and requiring ‘the question of our liability
to execute such items of repair or replacement to be determined by arbitration under the provisions of the above Acts’.
Paragraph 12(1) and (2) of the 1973 regulations provides:
‘(1) If the landlord fails to execute repairs which are his liability within three months of receiving from the tenant a written Notice specifying
the necessary repairs and calling on him to execute them, the tenant may execute such repairs and, except to the extent to which under the terms of
Part I hereof the tenant is liable to bear the cost, recover the reasonable cost from the landlord forthwith.
(2) If the landlord fails to execute any replacements which are his liability within three months of receiving from the tenant a written notice
specifying the necessary replacements and calling on him to execute them, the tenant may execute such replacements and, except to the extent to
which under the terms of Part I hereof the tenant is liable to bear the cost, 309 recover the reasonable cost from the landlord forthwith; provided
that the tenant shall not be entitled to recover in respect of the aggregate of the replacements so executed by him in any year of the tenancy any sum
in excess of whichever is the smaller of the two following sums, that is to say, a sum equal to the rent of the holding for that year or £500.’
This clause has been somewhat amended by later regulations. However, the amendment is of no materiality for present purposes. Paragraph 12(3)
provides:
‘(a) If the landlord wishes to contest his liability to execute any repairs or replacements specified in a notice served upon him by the tenant
under either of the last two foregoing sub-paragraphs he shall within one month serve a counter-notice in writing upon the tenant specifying the
grounds on which and the items of repair or replacement in respect of which he denies liability and requiring the question of liability in respect
thereof to be determined by arbitration under the Act. (b) Upon service of the counter-notice on the tenant, the operation of the notice (including
the running of time thereunder) shall be suspended, in so far as it relates to the items specified in the counter-notice, until the termination of an
arbitration determining the question of liability in respect of those items. (c) In this sub-paragraph, “termination”, in relation to an arbitration,
means the date on which the arbitrator’s award is delivered to the landlord.’
This must mean the date on which the determination of liability is made.
As has been stated, the landlords did not serve a counter-notice in time, nor did they carry out the repairs or replacements. Accordingly, the tenant,
after the three-month period became entitled to do the specified repairs and recover the reasonable costs from the landlord forthwith. Failing payment
forthwith, the tenant’s remedy would have been by an action in these courts for the amount expended by him.
Similarly, in respect of replacements, the tenant, after the three month period, became entitled to make the replacements and recover in these courts
in accordance with the model clauses which had become a part of the contract of tenancy.
Not being able to afford the cost of repairs and replacements, the plaintiff has brought this action. Before me there are three issues to be determined:
(1) whether this court has any jurisdiction to order specific performance against the defendants; (2) whether the court has any jurisdiction to order the
defendants to pay damages, representing the cost of such works as the plaintiff may prove to fall within the notice dated 12 January 1990 and also within
the defendants’ repairing and replacement obligations contained within the 1973 regulations; and (3) whether the counter-notice, served on behalf of the
defendant, dated 1 November 1990, is valid.
It will, I think, be convenient to deal with the last of these questions first.
The procedure contemplated by s 12(3)(a) is that if the landlord wishes to contest his liability to execute any of the repairs or replacements specified
in the tenant’s notice, he ‘shall’ within one month serve a counter-notice asking that that liability should be determined. This was not done. However, the
defendants argue that their notice, served in correct form but well out of time in November 1990, was an effective counter-notice. As I understand their
argument, they contend that time is not of the essence despite the use of the imperative ‘shall’. They argue that the status of the time limit is
quasi-contractual.
310
I have been referred to the decision of the House of Lords in United Scientific Holdings Ltd v Burnley BC [1977] 2 All ER 62, [1978] AC 904. The
House considered two appeals concerning leases containing rent review clauses. These rent review clauses indicated a timetable. Their Lordships were
unanimous in commending the modern law in the cases of contracts of all types, as correctly summarised in 9 Halsbury’s Laws (4th edn) para 481:
‘Time will not be considered to be of the essence unless: (1) the parties expressly stipulate that conditions as to time must be strictly complied
with; or (2) the nature of the subject matter of the contract or the surrounding circumstances show that time should be considered to be of the
essence …’
Although it would be misleading to consider the problem in the Burnley case to be that of this case, nevertheless, in my judgment, some guidance
may be found. The surrounding circumstances, and the purpose and wording of the 1986 Act, are all of some importance in considering whether time was
of the essence.
The model clauses place clear obligations on the landlord for the benefit of the tenant. It is the tenant who will be, to use the words of the
defendants’ counsel, ‘producing the nation’s food’. It is the tenant who needs protection. The model clauses place clear liabilities on the landlord to
repair and replace. Such repairs and replacements should take place without any formal notice. If they do not, the procedure provided is, in my
judgment, intended and designed to protect the tenant by avoiding the law’s delays and by providing a speedier process. As I read and understand the
procedure, the landlord is given, from receipt of the tenant’s notice, one month and one month only to serve his counter-notice, and is given three months
and three months only to do the necessary works himself. At the end of the one month period his liability is conclusively presumed or found against him.
At the end of the three month period, the landlord, who might be able to do the work more cheaply, nevertheless has no right to do the work himself. The
tenant’s entitlement to do the work himself and recover the cost forthwith then comes into existence. His right becomes vested. It is conceded by the
defendants that here the tenant became so entitled but, it is said, the defendants were entitled to terminate that entitlement or vested right. In my judgment
this cannot be so. The tenant might, and had he had the means would, have incurred substantial contractual liabilities at the end of the three month period.
In my judgment, Parliament cannot have intended that a recalcitrant landlord could have divested the tenant of his vested right even less, as could well
have been the case, could have involved the tenant in further liability. Accordingly, I answer the third preliminary issue by saying No.
Next, I turn to the first and secondary preliminary issues, which may be taken together. The defendants, having taken no steps to comply with their
obligations, even after receipt of the tenant’s notice, argue that, even assuming the counter-notice to be invalid, although the tenant may do the repairs and
then recoup from the landlord, in the event that the tenant is impecunious and unable to borrow the money to finance the repairs or replacements so that
Preamble
he is unable to do them, as is the case here, the tenant is without remedy and cannot enforce his rights. The only remedy available to the tenant, argues
Miss Moss for the defendants, is for the plaintiff to do the work himself and then claim the cost. This court, she argues, has no jurisdiction to award any
remedy now 311 claimed by the plaintiff, although presumably she would concede that if the plaintiff had done the works, claimed the cost of doing
them and had not been paid ‘forthwith’, he could then have sued for that cost in this court.
Principally, the defendants say that their argument in favour of this somewhat surprising contention, even more surprising in view of the legal truism
expressed by Evershed MR in Goldsack v Shore [1950] 1 All ER 276, [1950] 1 KB 708 that the jurisdiction of the King’s courts must not be taken to be
excluded unless there is clear language in the statute which is alleged to have that effect, is based on the decision and reasoning in Grayless v Watkinson
[1990] 1 EGLR 6. I see no reason to refer to the facts of this case in great detail.
There, at first instance, the recorder purported to hold that an agricultural tenant had remedies at common law in addition to his options conferred by
para 12, and so, the recorder held, the tenant having himself done the work, he could recover the reasonable cost from the landlord at common law,
without having to submit to the restrictions on the landlord’s liability in the final proviso in para 12(2). This approach was rejected. The reasoning for
the immediate decision in that case is apparent. Further help for this case may be obtained from a consideration of the judgments. Dillon LJ said (at 7):
‘The recorder gave judgment for the respondent for the full amount of £7,992·50 claimed, together with interest. He accepted an argument from
counsel for the respondent—foreshadowed, I apprehend in the reply—that, if the landlord has a liability to the tenant under the 1973 regulations to
replace the roof of the barn, the tenant has remedies at common law in addition to his option under para 12(2) and so, having himself done the work,
can recover the reasonable cost from the landlord at common law, without having to submit to the restriction on the landlord’s liability in the final
proviso in para 12(2). One of the troubles about that argument, however, is that it would deprive the final proviso in para 12(2) of all effect, except
where the tenant, being ill-advised, chose to agree to the landlord’s liability being limited by the proviso. The true position, as I see it, is that para
12(2) is the sole source of the tenant’s right to recover the cost of replacing the barn roof from the landlord, and the tenant must accept para 12(2) as
a whole, including the proviso. The only liability of the appellant as landlord which is available for the respondent as tenant to enforce where the
respondent has carried out works after the appellant had failed to do so is a liability qualified by the proviso.’
Ralph Gibson LJ said (at 8):
‘I agree that that part of the recorder’s judgment cannot be sustained. The Act and the regulations made under it did not imply into the contract
of tenancy a separate or independent term that the landlord should replace the roof, or any other part of the premises. The effect of the regulations
is as stated in regulation 3: “The provisions set forth in the Schedule … shall be deemed to be incorporated in every contract of tenancy … except
in so far as they would impose on one of the parties to an agreement in writing a liability which under the agreement is imposed on the other.” The
tenant, therefore, acquires no contractual right and the landlord is subjected to no contractual liability, by reason of incorporation of those
provisions, save as contained in the provisions in the Schedule. To the extent that the rights and liabilities there described are qualified or limited,
the tenant and the landlord can neither acquire nor be subjected to any 312 greater rights or liabilities by reason of incorporation of the
provisions. The provisions of the Schedule do not, of course, reduce any rights or liabilities given or imposed by the terms of the tenancy
agreement itself. If the tenancy agreement had contained an obligation under the landlord to replace the roof, the provisions in the Schedule would
not, as I understand the position, reduce the tenant’s rights in that regard: both rights and obligations, those under the tenancy agreement itself and
those incorporated therein by the regulations, would co-exist.’
Stuart-Smith LJ said (at 9):
‘Three questions arise for determination in this appeal. The first is whether the recorder was right in giving judgment for the whole amount
expended upon the replacement of the barn roof by the tenant, namely £7,992.50, without regard to the limitation or restriction of liability imposed
by the proviso to para 12(2) of the Schedule to the 1973 regulations. In my judgment he was not. I agree entirely with the reasons given by Dillon
LJ for holding that the tenant’s sole right derived from para 12(2), and he is bound by the restriction imposed by the proviso.’
It seems that the Court of Appeal at least held that, when a tenant relies on the model clauses, he must take those clauses for better or for worse. He
must accept all the clauses, since all of them, in the absence of agreement in writing to the contrary, are deemed to be incorporated into the contract. Here
there was no written agreement and the tenant had to rely on the model clauses. Accordingly, in my judgment, he was obliged to follow the procedure set
out in para 12 and implied into his contract of tenancy. In other words, it was incumbent upon him to serve his notice, and had the landlords served a
counter-notice in time, it would have been incumbent upon him to go to arbitration to determine liability. The position here, however, is that the
landlords did not exercise their right to contest liability and cannot now do so. The purported counter-notice may be seen as a notice the question in
which has been determined against the landlords by their failure to serve a counter-notice. In other words, the question of their liability to execute such
repairs or replacements has been found against them.
Subject to one further argument, I see no reason why that having been decided, as it happens by default, the tenant should not now bring proceedings
in these courts for the consequences of that liability, ie the cost of doing the works for which the landlords are liable. To do so, would seem to be similar
to the procedure in Grayless v Watkinson and in accordance with the decision and reasoning of Knox J in Tustian v Johnson [1993] 2 All ER 673.
The one argument which remains to be considered is based upon para 15 of the model clauses, which provides:
‘If any claim, question or difference shall arise between the landlord and the tenant under the foregoing provisions hereof, not being a matter
which, otherwise than under the provisions of this paragraph, is required by or by virtue of the Act or section 19 of the Agriculture (Miscellaneous
Provisions) Act 1963 (notice to remedy breach of tenancy agreement) or regulations or orders made thereunder or the foregoing provisions hereof to
be determined by arbitration under the Act, such claim, question or difference shall be determined, in default of agreement, by arbitration under the
Act.’
313
Miss Moss argues that there is here a claim, question or difference between the landlord and the tenant under the ‘foregoing provisions’. Clearly, she
says, that is so, since it is only as a result of those provisions and under the terms of them that this claim is made. In these circumstances, she argues,
there must be an arbitration.
Against this the plaintiff, on the other hand, argues that his claim is in contract, the model clauses having been incorporated into that contract and
forming the basis of his claim. Liability having been decided, he contends that he has the right to sue for the reasonable cost of the repairs, for a
declaration that he is entitled to the reasonable cost and even for an order for specific performance.
Preamble
The defendants argue that the sole source of the tenant’s right to recover the costs of replacing or repairing is para 12 of the regulations and not the
contract. For myself, I do not see the force of this argument, since clearly the whole of para 12 must be deemed to be incorporated into the contract, as
indeed must be the whole of para 15. As I see it, the question now is whether this present claim, presented to this court by writ and statement of claim, is
made under ‘the foregoing provisions’, and if so, what effect does para 15 have?
In my judgment, no ‘claim, question or difference’ now arises between the landlords and the tenant under ‘the foregoing provisions’. There could
have been a ‘claim, question or difference’ as to liability, but no more, but that has been decided by the defendants’ failure to serve a counter-notice. The
plaintiff now has a right, the existence of which was to be decided either by arbitration or by the defendants’ failure to act. The defendants not having
sought arbitration; that right has been established by default. Now, the plaintiff is merely seeking to enforce that right in a manner similar to that in which
Mr Grayless sought to enforce and was held entitled to enforce his right in Grayless v Watkinson. As I understand the purport of para 5 of the rejoinder,
the defendants do not argue to the contrary. Accordingly, and especially bearing in mind the words quoted from Evershed MR, I reject the defendants’
argument that this court has no jurisdiction to right a patent wrong.
Since the contrary was argued before me with some enthusiasm, I add that had it been necessary for me to consider whether the defendants had
conferred jurisdiction upon the courts by taking steps in the action, I would not have found in favour of the tenant’s contention.
In the circumstances, in my judgment, the plaintiff tenant, relying upon the terms of s 7 of the Act, in so far as it is necessary for him to do so, is
entitled to pursue his remedies in these courts.
As to specific performance, no separate argument has been addressed to me. However, I note that Knox J in Tustian v Johnson [1993] 2 All ER 673
at 681 cited Jeune v Queens Cross Properties Ltd [1973] 3 All ER 97, [1974] Ch 97, a decision of Pennycuick V-C, with approval. In these
circumstances, I answer the first question Yes. The court may grant such relief. I do not say it will, since it is said to be ‘a jurisdiction which should be
carefully exercised’.
In my judgment, the plaintiff is also entitled to pursue his claim for damages. The plaintiff shall have an order for costs and there will be leave to
appeal.
Order accordingly.

314
[1994] 1 All ER 315
R v Crown Court at Harrow, ex parte Dave

CRIMINAL; Criminal Evidence, Criminal Procedure

KENNEDY LJ AND PILL J
11, 12, 18 OCTOBER 1993
Criminal evidence – Impeaching credit of witness – Prosecution witness – Previous convictions – Whether previous convictions of prosecution witness
should be disclosed to defence.
Crown Court – Appeal to Crown Court – Decision of Crown Court – Reasons – Crown Court dismissing appeal without giving reasons – Whether
Whether Crown Court under duty to give reasons when hearing appeal from magistrates.
Following an argument in the applicant’s sub-post office during which the applicant was alleged to have struck the complainant in the face, the applicant
was convicted by justices of assault occasioning actual bodily harm. She appealed to the Crown Court. At the hearing of the appeal evidence was given
for the first time by the complainant’s husband, who had a recent conviction for dishonesty which was not disclosed to the defence. The court dismissed
the applicant’s appeal, the presiding judge simply stating that the court had ‘had ample opportunity to hear and to assess the witnesses [and it] is our
unanimous conclusion that this appeal must be dismissed’. The applicant applied for judicial review of the dismissal of her appeal on the grounds that the
complainant’s husband’s previous conviction should have been disclosed to the defence and that the court should have given reasons for dismissing the
appeal.
Held – The decision of the Crown Court would be quashed and the case remitted for rehearing for the following reasons—
(1) The existence of the complainant’s husband’s previous conviction should have been made known to the defence at the Crown Court hearing,
whether or not the defence asked for information about previous convictions, since it was a relevant consideration, there being a serious dispute of fact
between him and his wife on the one hand and several witness, including independent witnesses, on the other, and his credibility was very much in issue.
Had the court known of his recent conviction for dishonesty, it might well have taken a different view of his credibility, which in turn would have been
likely seriously to affect the credibility of the complainant (see p 318 c d and p 319 b to d, post).
(2) When dismissing an appeal against conviction by justices, the Crown Court had to give sufficient reasons, which did not need to be elaborate, to
demonstrate that it had identified the main contentious issues in the case and how it had resolved them. To do otherwise could amount to a denial of
natural justice since unless reasons were given a potential appellant against the court’s decision had no means of knowing whether the court had
misdirected itself. On the facts, the appellant was entitled to know why apparently compelling evidence called by the defence, which inevitably cast
doubt upon the truthfulness of the evidence of the complainant and her supporting witness, had been rejected and why the prosecution case had been
accepted by the court (see p 321 h j, p 323 b e g to j and p 324 a, post); dicta of Donaldson P in Alexander Machinery (Dudley) Ltd v Crabtree [1974]
ICR 120 at 122, of Buckley LJ in Capital and Suburban Properties Ltd v Swycher [1976] 1 All ER 881 at 884, of Griffiths LJ in R v Crown Court at
Preamble
Knightsbridge, ex p 315 International Sporting Club (London) Ltd [1981] 3 All ER 417 at 423, of Lord Lane CJ in R v Immigration Appeal Tribunal,
ex p Khan (Mahmud) [1983] 2 All ER 420 at 423 and of Griffiths LJ in Eagil Trust Ltd v Piggott-Brown [1985] 3 All ER 119 at 122 applied.
Notes
For appeals to the Crown Court, see 11(2) Halsbury’s Laws (4th edn reissue) para 1450–1473, and for cases on the subject, see 15(2) Digest (2nd reissue)
573–575, 24191–24199.

Alexander Machinery (Dudley) Ltd v Crabtree [1974] ICR 120, NIRC.
Capital and Suburban Properties Ltd v Swycher [1976] 1 All ER 881, [1976] Ch 319, [1976] 2 WLR 822, CA.
Eagil Trust Ltd v Piggott-Brown [1985] 3 All ER 119, CA.
Knight v Clifton [1971] 2 All ER 378, [1971] Ch 700, [1971] 2 WLR 564, CA.
Lloyd v McMahon [1987] 1 All ER 1118, [1987] AC 625, [1987] 2 WLR 821, HL.
Norton Tool Co Ltd v Tewson [1973] 1 All ER 183, [1973] 1 WLR 45, NIRC.
Public Service Board of New South Wales v Osmond (1986) 159 CLR 656, Aust HC.
R v Bradford Justices, ex p Wilkinson [1990] 2 All ER 833, [1990] 1 WLR 692, DC.
R v Civil Service Appeal Board, ex p Cunningham [1991] 4 All ER 310, CA.
R v Crown Court at Ipswich, ex p Baldwin (note) [1981] 1 All ER 596, DC.
R v Crown Court at Knightsbridge, ex p International Sporting Club (London) Ltd [1981] 3 All ER 417, [1982] QB 304, [1981] 3 WLR 640, DC.
R v Hennessey (1978) 68 Cr App R 419, CA.
R v Immigration Appeal Tribunal, ex p Khan (Mahmud) [1983] 2 All ER 420, [1983] QB 790, [1983] 2 WLR 759, CA.
Wilson v Police [1992] 2 NZLR 533, NZ CA.

A-G’s Guidelines (1981) 74 Cr App R 302.
Al-Mehdawi v Secretary of State for the Home Dept [1989] 3 All ER 843, [1990] 1 AC 876, HL.
Antaios Cia Naviera SA v Salen Rederierna AB [1984] 2 All ER 229, [1985] AC 191, HL.
Doody v Secretary of State for the Home Dept [1993] 3 All ER 92, [1993] 3 WLR 154, HL.
R v Board of Visitors, Nottingham Prison, ex p Moseley (1981) Times, 23 January.
R v Collister (1955) 39 Cr App R 100, CCA.
R v Crown Court at Croydon, ex p Smith (1983) 77 Cr App R 277, DC.
R v Hassan (1968) 52 Cr App R 291, CA.
R v Immigration Appeal Tribunal, ex p Mohd Amin [1992] Imm AR 367.
R v Immigration Appeal Tribunal, ex p Chang Shih Yang [1987] Imm AR 568.
R v Leyland Magistrates, ex p Hawthorn [1979] 1 All ER 209, [1979] QB 283, DC.
R v Morpeth Ward Justices, ex p Ward (1992) 95 Cr App R 215, DC.
R v Paraskeva (1982) 76 Cr App R 162, CA.
R v Ward [1993] 2 All ER 577, [1993] 1 WLR 619, CA.

Geeta Dave applied, with the leave of Otton J granted on 28 January 1992, for judicial review by way of (i) an order of certiorari to quash the decision of
Judge Gosschalk and two magistrates sitting at the Crown Court at Harrow on 7 October 1991, whereby they dismissed the applicant’s appeal from a
decision of 316 the Harrow magistrates dated 19 November 1990 and (ii) an order of mandamus advising the Crown Court at Harrow to rehear the
applicant’s appeal by a differently constituted court. The facts are set out in the judgment of the court.
Andrew Nicol (instructed by Sheridans) for the applicant.

Sally O’Neill (instructed by the Crown Prosecution Service, Harrow) for the respondent.
Cur adv vult
18 October 1993. The following judgment of the court was delivered.
PILL J. Mrs Geeta Dave seeks an order of certiorari to quash a decision of Judge Gosschalk and two lay justices sitting at the Crown Court at Harrow on
7 October 1991, whereby they dismissed an appeal from a decision of the Harrow justices made on 19 November 1990. The Harrow justices had
convicted her of an offence of assault occasioning actual bodily harm.
The applicant runs a sub-post office and newsagents at Harrow on the Hill. Mr and Mrs Martin O’Reilly lived in a nearby hotel. On the morning of
16 August 1990, when Mr O’Reilly was in the shop, he was told by the applicant that he needed a bath. When Mrs O’Reilly heard of this she visited the
shop with Miss Manek, who is the daughter of the hotel’s owner. According to Mrs O’Reilly, when the shop had emptied of customers, she asked the
applicant why her husband had been told he smelt and needed a bath and the applicant leant across the counter and struck Mrs O’Reilly on the face. Mrs
O’Reilly, who was heavily pregnant at the time, said as a result of the blow her face was all sore and swollen. She had an appointment at an ante-natal
clinic that afternoon and she said that she told the hospital staff what had happened at the post office. She said she was told that her blood pressure was
pretty high.
The applicant denied hitting Mrs O’Reilly. Other witnesses including two independent witnesses said that they were present in the shop at the time
of the alleged assault and gave evidence that although voices were raised there was nothing to suggest that the applicant had struck Mrs O’Reilly. A
character witness was also called, the applicant being of good character.
Mr O’Reilly and Miss Manek gave evidence at the magistrates’ court. Mr O’Reilly also gave evidence at the Crown Court. He was not a witness to
the alleged blow but he gave evidence that his wife was upset after her encounter with the applicant. At the Crown Court he also said that his wife had a
red mark on her face after the encounter. He entered the shop immediately after the incident and the applicant did not deny delivering the blow, he said.
At the Crown Court, an unsuccessful application was made to put Miss Manek’s statement in evidence in her absence. In support of the application
Preamble
her father, Mr Manek the hotel owner, was called to state that she was unavailable and indeed was abroad.
Medical evidence was called as to the interview and examination of Mrs O’Reilly at the hospital. There was no reference in the medical record to
any complaint by her of assault or of any marks upon her. Dr S Bhide said that her blood pressure was normal and that any injury observed or reported
by the patient would have been recorded.
The case was first listed before a Crown Court on 31 May 1991. It was relisted and the applicant was convicted following a three-day hearing on 7
October 1991. Between the two hearings prosecuting counsel advised in writing that ‘it would 317 seem to me that the CPS may wish to consider
whether, in all the circumstances, it would be in the public interest to continue’.
The first of the applicant’s two principal submissions is that she was not treated fairly because Mr O’Reilly had a conviction for dishonesty which
was not disclosed to the defence. Further, Mr Manek had previous convictions which were not disclosed. Mr O’Reilly had been convicted of theft in
October 1987 and fined £100. Mr Manek had a number of convictions, including a conviction for affray in March 1984.
Mr O’Reilly’s conviction was known to the prosecution but there is an issue as to whether it was disclosed to the defence. The defendant was
represented by counsel and solicitors, both of whom have sworn affidavits. The prosecution was also represented by counsel and he too has sworn an
affidavit.
Miss O’Neill, who has appeared for the Crown Prosecution Service before this court but who did not appear below, concedes that, in the
circumstances, the existence of Mr O’Reilly’s conviction should have been made known to the defence at the Crown Court hearing, whether or not they
asked for information about previous convictions. In our judgment, that concession is properly made in the circumstances of this case. We have been
referred to authorities, including the comprehensive review of them by Cooke P giving the judgment of the Court of Appeal of New Zealand in Wilson v
Police [1992] 2 NZLR 533, upon the extent of the duty of disclosure. We do not consider it necessary or appropriate to attempt any general statement of
principle in the present case, save to adopt the words of Lawton LJ in R v Hennessey (1978) 68 Cr App R 419 at 426 where he said that the courts must—
‘keep in mind that those who prepare and conduct prosecutions owe a duty to the Courts to ensure that all relevant evidence of help to an
accused is either led by them or made available to the defence.’
Miss O’Neill submits however that the defence have not established that the conviction was not disclosed. Prosecuting counsel has stated that his
recollection was that he had handed over lists of previous convictions at the May hearing. The applicant’s solicitor, on the other hand, has said that he
was not told of Mr O’Reilly’s conviction and there is no reference in his file to previous convictions having been disclosed. Counsel for the applicant at
the Crown Court also says that he had no recollection of being told of prosecution witnesses having any previous convictions.
There is no doubt that prosecuting counsel knew of Mr O’Reilly’s previous conviction and Miss O’Neill submits that he is likely to have disclosed it.
For the applicant, Mr Nicol submits that defence counsel at the Crown Court, having a client of good character, would in the circumstances of this case
inevitably have put the conviction to Mr O’Reilly had he been aware of it.
Having considered the detailed affidavits and the submissions of counsel before this court, we have come to the conclusion that the defence were not
informed of Mr O’Reilly’s previous conviction. In reaching that conclusion we in no way impugn prosecuting counsel’s good faith in swearing his
affidavit. A strong pointer that the conviction was not disclosed at the May hearing emerges from a letter written by the applicant’s solicitor to the
applicant’s insurers immediately after that hearing. In that letter he said that he was ‘pleased to report the following developments favourable to your
insureds case’. He referred, inter alia, to the disappearance of Miss Manek and to prosecuting counsel’s preparedness to advise that the case be dropped.
He concluded: ‘For all these reasons it is felt by the insured and by Counsel and indeed ourselves, that the appeal is more likely to 318 succeed than
before.’ If the solicitor had known of the conviction, its existence would almost certainly have been stated by the solicitor in that letter.
Miss O’Neill concedes that, since any failure to disclose a prosecution witness’s previous conviction goes to the fairness of the hearing at the Crown
Court, judicial review is the appropriate avenue by which to seek relief. We agree (see R v Bradford Justices, ex p Wilkinson [1990] 2 All ER 833, [1990]
1 WLR 692).
In the circumstances of this case, Mr O’Reilly’s previous conviction was a relevant consideration. It was he who, and for the first time in the Crown
Court, sought to corroborate his wife’s evidence by claiming that his wife had a red mark on her face. In a case in which there was a serious dispute of
fact between him and his wife on the one hand and several witness, including independent witnesses, on the other, his credibility was very much in issue.
He gave evidence additional to that given in the magistrates’ court. Had the court known of his recent conviction for dishonesty, its members may well
have taken a different view of his credibility and that would have been likely in turn seriously to affect the credibility of the complainant.
We would quash the decision of the Crown Court on this ground. That being so, it is not necessary to determine whether Mr Manek’s convictions
ought to have been disclosed. There is no doubt that they were known to the prosecution and were not disclosed. He however was called only on a
collateral issue, the non-availability of his daughter as a witness. It is quite possible that had they known of Mr Manek’s record, the defence would have
put a case of collusion between the O’Reillys and the Maneks, which they considered but did not put on the information then available to them. In the
circumstances, however, we do not need to resolve that issue.
Mr Nicol’s second principal submission is that the Crown Court judge was obliged to say more than he did as to why the court came to the
conclusion that the appeal must be dismissed. He said no more than the following two sentences:
‘Over the course of three days we have had ample opportunity to hear and to assess the witnesses. It is our unanimous conclusion that this
appeal must be dismissed.’
Mr Nicol began in relation to this part of the case by submitting that a court is generally obliged to give reasons. He accepts, as Miss O’Neill emphasised,
that there is no statutory obligation to do so, but he invited our attention to what was said by the National Industrial Relations Court about the duty of
industrial tribunals in Norton Tool Co Ltd v Tewson [1973] 1 All ER 183, [1973] 1 WLR 45 and in Alexander Machinery (Dudley) Ltd v Crabtree [1974]
ICR 120. Both cases were concerned with the assessment of compensation, and having regard to the statutory right of appeal on a point of law Donaldson
P in the latter case said (at 122):
‘… in the absence of reasons it is impossible to determine whether or not there has been an error of law. Failure to give reasons therefore
amounts to a denial of justice, and is itself an error of law.’
In R v Immigration Appeal Tribunal, ex p Khan (Mahmud) [1983] 2 All ER 420 at 423, [1983] QB 790 at 794 Lord Lane CJ said:
‘Speaking for myself, I would not go so far as to indorse the proposition set forth by Donaldson P that any failure to give reasons means a denial
of justice and is itself an error of law. The important matter which must be borne in mind by tribunals in the present type of circumstances is that it
must be 319 apparent from what they state by way of reasons first of all that they have considered the point which is at issue between the
parties, and they should indicate the evidence on which they have come to their conclusions. Where one gets a decision of a tribunal which either
Preamble
fails to set out the issue which the tribunal is determining either directly or by inference, or fails either directly or by inference to set out the basis
on which it has reached its determination on that issue, then that is a matter which will be very closely regarded by this court, and in normal
circumstances will result in the decision of the tribunal being quashed. The reason is this. A party appearing before a tribunal is entitled to know,
either expressly stated by it or inferentially stated, what it is to which the tribunal is addressing its mind. In some cases it may be perfectly obvious
without any express reference to it by the tribunal; in other cases it may not. Second, the appellant is entitled to know the basis of fact on which the
conclusion has been reached. Once again in many cases it may be quite obvious without the necessity of expressly stating it, in other cases it may
not.’
But the Crown Court is not a tribunal, and the question therefore arises as to whether the reasoning of Donaldson P and Lord Lane CJ can properly
be applied to the Crown Court, especially having regard to: (1) the fact that appeals to the Crown Court are normally from decisions of magistrates, who
do not have to give reasons; (2) the history of this appellate jurisdiction; even when courts of quarter sessions were presided over by legally qualified
chairmen they did not, in the experience of both members of this court, always give reasons for allowing or dismissing appeals, and when assigning this
jurisdiction to the Crown Court Parliament has not in s 48 of the Supreme Court Act 1981, in terms required that reasons be given; (3) the possibility that
the Crown Court judge and the justices may agree as to the result, but for differing reasons. It is, however, we believe, worth noting the powers of the
Crown Court, which are set out in s 48(2) of the 1981 Act, as amended by s 156 of the Criminal Justice Act 1988:
‘On the termination of the hearing of an appeal the Crown Court—(a) may confirm, reverse or vary any part of the decision appealed against,
including a determination not to impose a separate penalty in respect of an offence; or (b) may remit the matter with its opinion thereon to the
authority whose decision is appealed against; or (c) may make such other order in the matter as the court thinks just, and by such order exercise any
power which the said authority might have exercised.’
Clearly circumstances may arise in which the Crown Court as an appellate body has to express an opinion.
That brings us to Lloyd v McMahon [1987] 1 All ER 1118, [1987] AC 625 in which the House of Lords was considering whether a district auditor
should have offered an oral hearing to members of a local authority. Lord Bridge said ([1987] 1 All ER 1118 at 1161, [1987] AC 625 at 702–703):
‘My Lords, the so-called rules of natural justice are not engraved on tablets of stone. To use the phrase which better expresses the underlying
concept, what the requirements of fairness demands when any body, domestic, administrative or judicial, has to make a decision which will affect
the rights of individuals depends on the character of the decision-making body, the kind of decision it has to make and the statutory or other
framework in which it operates. In particular, it is well established that when a statute has conferred on any body the power to make decisions
affecting individuals, the 320 courts will not only require the procedure prescribed by the statute to be followed, but will readily imply so much
and no more to be introduced by way of additional procedural safeguards as will ensure the attainment of fairness.’
The Crown Court is a judicial body making decisions which affect the rights of individuals. As an appellate tribunal it is presided over by a judge. It has
to decide questions of fact and law, and it operates within the statutory framework of the 1981 Act, so the courts will readily imply such additional
procedural safeguards as will ensure the attainment of fairness.
Lord Donaldson MR cited that passage from the speech of Lord Bridge when giving judgment in R v Civil Service Appeal Board, ex p Cunningham
[1991] 4 All ER 310 at 318 in which a prison officer sought judicial review on the basis that the board had failed to give reasons for rejecting his appeal.
Lord Donaldson MR said:
‘I accept at once that some judicial decisions do not call for reasons, the commonest and most outstanding being those of magistrates. However,
they are distinguishable from decisions by the board for two reasons. First, there is a right of appeal to the Crown Court, which hears the matter de
novo and customarily does give reasons for its decisions. Second, there is a right to require the magistrates to state a case for the opinion of the
High Court on any question of law. This right would enable an aggrieved party to know whether he had grounds for raising any issue which would
found an application for judicial review, although his remedy would procedurally be different.’
Lord Donaldson MR clearly thought that when exercising its appellate jurisdiction the Crown Court ‘customarily does give reasons for its decisions’, but
even if that be right it begs the question whether the custom has to be followed in any given case. Furthermore, if the right to appeal by way of case
stated is sufficient to excuse magistrates from giving reasons, should it not also excuse the Crown Court?
We have regard to that right to question a conviction ‘on the ground that it is wrong in law or is in excess of jurisdiction’ by requesting the court to
state a case for the opinion of the High Court (s 28(1) of the Supreme Court Act 1981). We do not regard the existence of that right however as a
complete answer to the claim that reasons should be given for decisions of the Crown Court on appeal from the magistrates’ court.
As Mr Nicol pointed out, r 26(2) of the Crown Court Rules 1982, SI 1982/1109, provides that the application to state a case ‘shall state the ground on
which the decision of the Crown Court is questioned’. Unless reasons are given, the potential appellant has no means of knowing whether the court has
misdirected itself. Further, by r 26(11) the Crown Court is empowered, before stating a case, to order the applicant to enter into a recognisance, with or
without sureties, conditioned to prosecute the appeal without delay. In our judgment a potential appellant should not have to go through those procedures
or subject himself to that obligation in order to discover the reasons for a Crown Court decision against him.
We regard the content of those rules as at any rate pointing towards an obligation to give reasons.
That brings us back to the question whether the Crown Court, exercising its appellate jurisdiction and presided over by a judge, ought always to
follow the custom of giving reasons. Mr Nicol submits that it should because that is what, these days, is expected of such a body. In making that
submission he relies not 321 only on the English authorities to which we have referred but also to the Australian case of Public Service Board of New
South Wales v Osmond (1986) 159 CLR 656. The problem there was similar to that which was later considered by the English Court of Appeal in R v
Civil Service Appeal Board, ex p Cunningham, and the High Court of Australia held that the particular tribunal in question did not have to give reasons,
but Gibbs CJ said (at 666) that there was nothing new in saying that judges are under an obligation to give reasons where that is necessary to enable the
matter to be properly considered on appeal. He went on to say that it has long been the traditional practice of judges to express the reasons for their
conclusions by finding the facts and expounding the law. He accepted that a judge does not have to give his reasons in every case, but the requirement to
give reasons was, he said, a normal but not universal incident of the judicial process.
Mr Nicol accepted that for some procedural and interlocutory decisions no reasons are required, but in recent times the tendency has been for
appellate courts to expect a judge to give reasons. For example, in Capital and Suburban Properties Ltd v Swycher [1976] 1 All ER 881 at 884, [1976]
Ch 319 at 325–326 where the judge who dealt with the motion had given no reasons for his decision, Buckley LJ described that as ‘a most unsatisfactory
practice’ and continued:
Preamble
‘There are some sorts of interlocutory applications, mainly of a purely procedural kind, on which a judge exercising his discretion on some such
question as whether a matter should be expedited or adjourned or extra time should be allowed for a party to take some procedural step, or possibly
whether relief by way of injunction should have been granted or refused, can properly make an order without giving reasons. This, being an
application involving questions of law, is in my opinion clearly not such a case. Litigants are entitled to know on what grounds their cases are
decided. It is of importance that the legal profession should know on what grounds cases are decided, particularly when questions of law are
involved. And this court is entitled to the assistance of the judge at first instance by an explicit statement of his reasons for deciding as he did.’
That was a decision in relation to a point of law, but the reasoning seems to us to be of general application, and it was echoed by Griffiths LJ in Eagil
Trust Ltd v Piggott-Brown [1985] 3 All ER 119 at 122 where he said:
‘A professional judge should, as a rule, give reasons for his decision. I say “as a general rule” because in the field of discretion there are
well-established exceptions.’
Griffiths LJ then considered certain of those exceptions including the exercise of the judge’s discretion on costs. He then continued:
‘Apart from such exceptions, in the case of discretionary exercise, as in other decisions on facts or law, the judge should set out his reasons, but
the particularity with which he is required to set them out must depend on the circumstances of the case before him and the nature of the decision he
is giving. When dealing with an application in chambers to strike out for want of prosecution, a judge should give his reasons in sufficient detail to
show the Court of Appeal the principles on which he has acted and the reasons that have led him to his decision. They need not be elaborate. I
cannot stress too strongly that there is no duty on a judge, in giving his reasons, to deal with every argument presented by counsel in support of his
case. It is sufficient if what he says shows the parties and, if need be, the Court of Appeal the basis 322 on which he has acted, and if it be that
the judge has not dealt with some particular argument but it can be seen that there are grounds on which he would have been entitled to reject it, this
court should assume that he acted on those grounds unless the appellant can point to convincing reasons leading to a contrary conclusion (see Sachs
LJ in Knight v Clifton [1971] 2 All ER 378 at 392–393, [1971] Ch 700 at 721).’
So, in our judgment, the weight of authority is now in favour of the conclusion that when the Crown Court sits in an appellate capacity it must give
reasons for its decision. The custom has become, or ought to have become, universal. As long ago as 1981 Griffiths LJ in this court when considering the
failure of a Crown Court judge to give reasons when dismissing an appeal from a decision of a gaming licence committee said in R v Crown Court at
Knightsbridge, ex p International Sporting Club (London) Ltd [1981] 3 All ER 417 at 423, [1982] QB 304 at 314:
‘… it is the function of professional judges to give reasons for their decisions and the decisions to which they are a party. This court would look
askance at the refusal by a judge to give his reasons for a decision, particularly if requested to do so by one of the parties. It does not fall for
decision in this case but it may well be that, if such a case should arise, this court would find that it had power to order the judge to give his reasons
for his decision.’
Of course, as Griffiths LJ emphasised in the later case of Eagil Trust Ltd, the reasons need not be elaborate, but they must show the parties and if need be
this court the basis on which the Crown Court has acted. The Crown Court judge giving the decision of the court upon an appeal must say enough to
demonstrate that the court has identified the main contentious issues in the case and how it has resolved each of them.
In the present case the issues were of fact and not of law. Elaborate reasoning was not required. Miss O’Neill submits that what the judge said was
enough. Implicit in his statement was a finding that the evidence of the prosecution witnesses had been accepted. Incantations by the judge upon such
matters as the burden of proof are unnecessary, she submits as, in this case, was further reasoning.
The reasoning required will depend upon the circumstances. In some cases the bald statement that the evidence of a particular witness is accepted
may be sufficient. In the present case, however, apparently compelling evidence was called by the defence. It was independent evidence which
inevitably cast doubt upon the truthfulness of the evidence of the complainant and her supporting witness. Events at the hospital were relevant and, on the
face of it, adverse to her credibility. The prosecution case was in certain respects different from that in the magistrates’ court.
The appellant was entitled to know the basis upon which the prosecution case had been accepted by the court. In the present case, that involved
knowing the process by which the apparently powerful points in favour of the defence had been rejected.
A refusal to give reasons may amount to the denial of natural justice. The present case was rightly brought by way of judicial review because of the
separate issue upon disclosure. We should not be taken as encouraging applications by way of judicial review when it is clear from the decision of the
Crown Court, as it usually will be if reasons are given when the decision is announced, that the issue can be resolved upon a case stated (see R v Crown
Court at Ipswich, ex p Baldwin (note) [1981] 1 All ER 596).
323
We would quash the decision on the second ground also and remit the case to the Crown Court for the rehearing. We were told by counsel that, in
that event, the prosecution will not offer evidence at the Crown Court with the result that the appeal against conviction will be allowed. We regard that as
a sensible course for the prosecution to adopt having regard to the long history of the case and to matters, to which we need not refer, which have arisen
since the Crown Court hearing.
Application allowed. Case remitted to Crown Court for rehearing.

[1994] 1 All ER 324
Practice Note
(Insolvency: Administration order: Independent report)
PRACTICE DIRECTIONS
CHANCERY DIVISION
SIR DONALD NICHOLLS V-C
17 JANUARY 1994
Insolvency – Administration order – Independent report on company’s affairs – Content of report – Concise statement of company’s situation and
prospects of administration order achieving purpose – Availability of finance required during administration – Disproportionate investigation and
expense to be avoided in preparing report – Oral evidence to supplement report – Supplemental report covering matters in oral evidence for court file –
Appointment of administrator to report on whether administration should continue – Court may require administrator to hold meeting of creditors before
reporting back to court – Insolvency Act 1986, Pt II – Insolvency Rules 1986, r 2.2.
SIR DONALD NICHOLLS V-C gave the following direction at the sitting of the court. Administration orders under Pt II of the Insolvency Act 1986
are intended primarily to facilitate the rescue and rehabilitation of insolvent but potentially viable businesses. It is of the greatest importance that this aim
should not be frustrated by expense, and that the costs of obtaining an administration order should not operate as a disincentive or put the process out of
the reach of smaller companies.
Rule 2.2 of the Insolvency Rules 1986, SI 1986/1925, provides that an application for an administration order may be supported by a report by an
independent person to the effect that the appointment of an administrator for the company is expedient. It is the experience of the court that the contents
of the r 2.2 report are sometimes unnecessarily elaborate and detailed. Because a report of this character is thought to be necessary, the preliminary
investigation will often have been unduly protracted and extensive and, hence, expensive.
The extent of the necessary investigation and the amount of material to be provided to the court must be a matter for the judgment of the person who
prepares the report and will vary from case to case. However, in the normal case, what the court needs is a concise assessment of the company’s situation
and of the prospects of an administration order achieving one or more of the statutory purposes. The latter will normally include an explanation of the
availability of any finance required during the administration.
324
Every endeavour should be made to avoid disproportionate investigation and expense. In some cases a brief investigation and report will be all that
is required. Where the court has insufficient material on which to base its decision, but the proposed administrator is in court, he may offer to supplement
the material by giving oral evidence. In such a case he should subsequently provide a supplemental report covering the matters on which oral evidence
was given so that this can be placed on the court file.
In suitable cases the court may appoint an administrator but require him to report back to the court within a short period so that the court can
consider whether to allow the administration to continue or to discharge the order. In some cases the court may require the administrator to hold a
meeting of creditors before reporting back to the court, both within a relatively short period.
It is the experience of the judges who sit in the Companies Court that, in general, a r 2.2 report is valuable as a safeguard in assisting the court to see
whether the application has a sound basis. However, there may be straightforward cases in which such a report is not necessary because it would provide
little assistance. Practitioners are reminded that the 1986 rules do not require that a r 2.2 report must be provided in every case.
This statement is made after consultation with the other judges of the Chancery Division.

[1994] 1 All ER 325
R v Crown Court at Chelmsford, ex parte Chief Constable of the Essex Police

CRIMINAL; Criminal Procedure

GLIDEWELL LJ AND CRESSWELL J
24, 25 JUNE 1993
Crown Court – Supervisory jurisdiction of High Court – Trial on indictment – High Court having no supervisory jurisdiction in matters relating to trial
on indictment – Trial judge ordering disclosure to defence of statements made during informal complaints procedure – Chief constable seeking
declaration that judge’s ruling wrong in law – Whether High Court having jurisdiction to grant judicial review by way of declaration in matter relating to
trial on indictment – Supreme Court Act 1981, ss 28, 29(3), 31.
During the trial of several persons in the Crown Court on charges of violent disorder the judge ruled, pursuant to s 104(3)a of the Police and Criminal
Evidence Act 1984, that statements made by witnesses and police officers for the purposes of an investigation of complaints under the Police
(Complaints) (Informal Resolution) Regulations 1985 arising out of the arrest of the accused were inadmissible but should nevertheless be disclosed to the
defence. After the trial had concluded, the chief constable applied to the High Court for judicial review of the order that the statements be disclosed. The
chief constable 325 accepted that judicial review by way of certiorari was specifically precluded by ss 28b and 29(3)c of the Supreme Court Act 1981
since the judge’s decision was a matter relating to trial on indictment, but contended that, under its general power of judicial review contained in s 31(1)
and (2)d of the 1981 Act, the court had power to grant a declaration in relation to trial on indictment where it was appropriate to do so.
________________________________________
a Section 104, so far as material, is set out at p 328 b c, post
b Section 28, so far as material, is set out at p 329 j, post
Preamble
c Section 29 is set out at p 330 a b, post
d Section 31, so far as material, is set out at p 333 b to e, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – Since the Crown Court was a ‘superior court’ for the purposes of ss 1(1)e and 45f of the 1981 Act and the High Court could exercise supervision
by way of judicial review only over inferior courts and tribunals, not superior courts, it followed that the High Court had no power to review decisions of
the Crown Court except where such power had been expressly granted by ss 28 and 29(3) of the 1981 Act or another statute. Since it had been conceded
that ss 28 and 29(3) precluded judicial review of the Crown Court judge’s ruling, it followed that the High Court had no jurisdiction to grant the
declaration sought. The application would therefore be dismissed (see p 333 h, p 334 c to e, p 335 b and p 336 b to d, post).
________________________________________
e Section 1(1) is set out at p 333 j, post
f Section 45, so far as material, is set out at p 334 a b, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Notes
For the supervisory jurisdiction of the High Court over the Crown Court, see 10 Halsbury’s Laws (4th edn) paras 710, 870, and for cases on the subject,
see 16 Digest (Reissue) 229, 2273–2277.
For judicial review by way of declaration, see 1(1) Halsbury’s Laws (4th edn reissue) para 157.
For the Supreme Court Act 1981, ss 1, 28, 29, 31, 45, see 11 Halsbury’s Statutes (4th edn) (1991 reissue) 970, 988, 990, 991, 1011.
For the Police and Criminal Evidence Act 1984, s 104, see 33 Halsbury’s Statutes (4th edn) (1993 reissue) 774.
For the Police (Complaints) (Informal Resolution) Regulations 1985, see 15 Halsbury’s Statutory Instruments (1991 reissue) 209.

A-G’s Reference (No 1 of 1990) [1992] 3 All ER 169, [1992] QB 630, [1992] 3 WLR 9, CA.
Davy v Spelthorne BC [1983] 3 All ER 278, [1984] AC 262, [1983] 3 WLR 742, HL.
DPP v Crown Court at Manchester and Ashton [1993] 2 All ER 663, [1994] AC 9, [1993] 2 WLR 846, HL.
IRC v National Federation of Self-Employed and Small Businesses Ltd [1981] 2 All ER 93, [1982] AC 617, [1981] 2 WLR 722, HL.
R v Central Criminal Court, ex p Randle [1992] 1 All ER 370, [1991] 1 WLR 1087, DC.
R v Crown Court at Leicester, ex p DPP [1987] 3 All ER 654, [1987] 1 WLR 1371, DC.
R v Crown Court at Manchester, ex p Taylor [1988] 2 All ER 769, [1988] 1 WLR 705, DC.
R v Crown Court at Sheffield, ex p Brownlow [1980] 2 All ER 444, [1980] QB 530, [1980] 2 WLR 892, CA.
Sampson v Crown Court at Croydon [1987] 1 All ER 609, [1987] 1 WLR 194, HL.
326
Smalley v Crown Court at Warwick [1985] 1 All ER 769, [1985] AC 622, [1985] 2 WLR 538, HL.

The Chief Constable of the Essex Police applied, with leave of Macpherson J granted on 28 July 1992, for judicial review of the ruling made by Judge
Beaumont QC in the Crown Court at Chelmsford on 15 May 1992 in the trial of N D Carter and others by which he ruled that s 104(3) of the Police and
Criminal Evidence Act 1984 and public interest immunity did not apply to original complaints to the police and that s 104(3) applied to statements taken
from the police in the course of the informal resolution of complaints procedure under the Police (Complaints) (Informal Resolution) Regulations 1985, SI
1985/671, so that they were inadmissible in the trial, but should nevertheless be disclosed to the defence. The relief sought was (a) an order of certiorari
to quash the orders and (b) declarations that (i) s 104(3) of the Police and Criminal Evidence Act 1984 did not apply to original complaints made to the
police, (ii) that public interest immunity applied to the complaints, (iii) that public interest immunity applied to the statements taken from the police in the
course of the informal resolution of complaints procedure and (iv) that the statements were protected from disclosure in the public interest. The facts are
set out in the judgment of Glidewell LJ.
Bruce R Silvester (instructed by R W Adcock, Chelmsford) for the chief constable.

Paul Walker (instructed by the Treasury Solicitor) as amicus curiae.
Cur adv vult
25 June 1993. The following judgments were delivered.
GLIDEWELL LJ. This is an application for judicial review of a decision made by Judge Beaumont QC, on 15 May 1992, during the course of the trial
of Mr N D Carter and five other men in the Crown Court at Chelmsford.
I take the facts which led to this application from the judgment which the learned judge gave on 15 May 1992. In the early hours of the morning of 9
May 1991, a disturbance took place in Colchester which resulted in the six defendants who were before Judge Beaumont and the jury together with other
defendants, being charged with various offences of violent disorder.
During the course of the same night, or early the following morning, various people went to the Colchester police station saying that they wished to
complain about the behaviour of the police officers who were involved in seeking to control that disturbance. They were told to return the following day.
Four young ladies did return the following day. They spoke to a woman police inspector of the Essex police who recorded their complaints.
The responsible officers in the headquarters of the Essex police decided that the nature of the complaint made it appropriate for resolution under the
Police (Complaints) (Informal Resolution) Regulations 1985, SI 1985/671, and they set that procedure in train. That involved appointing an officer who
was required to seek the views of each of the complainants and to take such other steps as appeared to be appropriate. At that stage, two of the young
women withdrew their complaints. One of them was a Miss Brown, who herself became a defendant in the proceedings and eventually pleaded guilty.
The two young women who continued their complaints were a Miss Spurr and a Miss Symes. They indicated they were agreeable for their complaints to
be resolved under 327 the 1985 regulations and so the officer who had been appointed proceeded with his investigation under those regulations.
Having taken more detailed statements from the two young women he then interviewed some nine police officers who had been present at the
disturbance on 9 May 1991. Each of the officers was told the nature of the complaint that was being investigated and that s 104(3) of the Police and
Preamble
Criminal Evidence Act 1984 was applicable. That subsection provides:
‘Subject to subsection (4) below, no statement made by any person for the purpose of the informal resolution of a complaint shall be admissible
in any subsequent criminal, civil or disciplinary proceedings.’
Subsection (4) states:
‘A statement is not rendered inadmissible by subsection (3) above if it consists of or includes an admission relating to a matter which does not
fall to be resolved informally.’
On 21 June 1991 both Miss Spurr and Miss Symes were informed by the deputy chief constable for the plaintiff that their complaints had been
informally resolved. Each was asked to say whether she wanted a copy of the record of the complaint. Neither did and there, as far as they were
concerned, that the matter ended.
The trial of the six defendants started in the Crown Court, during April 1992, before Judge Beaumont. Counsel for the prosecution, following the
Attorney General’s guidelines on the disclosure of pre-trial information (see Practice Note [1982] 1 All ER 734), disclosed, in writing, the fact that the
four young women had made a complaint. He named them and he supplied their addresses. He also told defence counsel, orally, what he understood
each of them had said to the woman police inspector when each had made her original complaint. The trial then proceeded. The prosecution case
finished.
Then, when one of the defendant’s cases was reached, there was called, on his behalf, Miss Brown—one of the girls who had originally made a
complaint but who had withdrawn her complaint and become a defendant herself. As I have said, she had pleaded guilty. She was cross-examined on
behalf of another accused and she said that she had made a complaint. She was then cross-examined by counsel for the prosecution to establish that the
complaint she had made had no substance, because she had withdrawn it. He put to her, line by line, what he understood she had said to the woman
police inspector when she originally made the complaint.
When she completed her evidence, counsel for the defence applied for disclosure of all of the complaints made on 10 May and, moreover, disclosure
of the record of the investigation of those complaints. That, in effect, meant copies of the record of the statements made by all the witnesses, that is to
say, the two witnesses who made detailed statements and the nine police officers.
Counsel for the prosecution did not object to the disclosure of her statement. However, the Chief Constable of the Essex Police did object very
strongly. At this point the judge very sensibly and properly heard representations by counsel for the prosecution and for each of the defendants in the
trial, and by Mr Silvester who represented the chief constable as he has before us.
There were three issues for the judge’s determination. First, did s 104(3) of the 1984 Act apply to the complaints themselves? I reread sub-s (3):
328
‘… no statement made by any person for the purpose of the informal resolution of a complaint shall be admissible in any subsequent criminal,
civil or disciplinary proceedings.’
The judge decided that the subsection did not apply to the complaint itself, and the police were not entitled to claim public interest immunity in
respect of complaints made about the conduct of the police officers.
The second question was: did s 104(3) apply to the minute of an interview conducted during the informal complaints procedure so as to render such a
statement inadmissible in the criminal trial? The judge decided that the subsection did apply. Thus, he ruled that these statements were not admissible in
the trial. However—and this brings us to the issue which is sought to be raised before us—as a third matter, the judge decided that nevertheless those
statements should all be disclosed to counsel and solicitors representing the various defendants.
I should say that originally Mr Silvester was seeking to challenge the first decision as well, that is to say the decision that s 104(3) does not apply to
the complaints themselves. However, he no longer wishes to proceed with that argument. The chief constable, and Mr Silvester on his behalf, however,
still wish to challenge the third decision that these statements should be disclosed.
Although this application for judicial review was made very soon after the judge had given his ruling, the trial proceeded, very properly and the
documents were duly disclosed. Thus, the purpose of the challenge now is not, in any sense, to seek to go back over the course that was actually followed
in that trial or to reverse it in any way. The purpose is to establish guidance should such a situation arise in the future.
The chief constable’s approach, if I understand it correctly, is that it is a main characteristic of the procedure of the informal resolution of complaints
against the police that statements obtained from witnesses are obtained and investigating officers are told they are obtainable in confidence. Public
interest immunity therefore applies to such matters. There is an interest that the contents of such statements should normally not be disclosed to those
representing defendants in criminal trials or indeed otherwise. Section 104(3) renders such statements inadmissible in evidence in a subsequent trial. It is
illogical and undesirable that their disclosure should be ordered.
That argument may well be correct but we have not heard the argument as such; we have merely sought to summarise what it would be. We have
not heard it because, as soon as Mr Silvester sought to raise it, we appreciated and he appreciated that we must deal with an antecedent question, namely:
does this court have jurisdiction to grant the relief sought? I use the word ‘jurisdiction’ here in its proper or narrow sense, that is to say does this court
have the power, as a matter of law, to grant the relief sought?
The answer to the question depends largely upon the provisions of the Supreme Court Act 1981. Section 28 of the 1981 Act provides:
‘(1) Subject to subsection (2), any order, judgment or other decision of the Crown Court may be questioned by any party to the proceedings, on
the ground that it is wrong in law or is in excess of jurisdiction, by applying to the Crown Court to have a case stated by that court for the opinion
of the High Court.
(2) Subsection (1) shall not apply to—(a) a judgment or other decision of the Crown Court relating to trial on indictment; or (b) any decision of
that court under the Betting, Gaming and Lotteries Act 1963 …’
329
and various other similar provisions. By s 29:
‘(1) The High Court shall have jurisdiction to make orders of mandamus, prohibition and certiorari in those classes of cases in which it had
power to do so immediately before the commencement of this Act.
(2) Every such order shall be final, subject to any right of appeal therefrom.
Preamble
(3) In relation to the jurisdiction of the Crown Court, other than its jurisdiction in matters relating to trial on indictment, the High Court shall
have all such jurisdiction to make orders of mandamus, prohibition or certiorari as the High Court possesses in relation to the jurisdiction of an
inferior court.’
Those provisions, that is to say the provisions I have read from ss 28 and 29, derive from s 10(1), (2) and (5) of the Courts Act 1971, which, of
course, established the Crown Court.
There has been much consideration, by this court, and by the House of Lords, of the phrase ‘other than [the Crown Court’s] jurisdiction in matters
relating to trial on indictment’. The leading authorities are two decisions of the House of Lords, Smalley v Crown Court at Warwick [1985] 1 All ER 769,
[1985] AC 622 and DPP v Crown Court at Manchester and Ashton [1993] 2 All ER 663, [1994] AC 9. Smalley v Crown Court at Warwick was a case in
which a Crown Court judge had estreated the recognisance (in the sum of £100,000) of a surety for a defendant who had not answered to bail. He applied
to quash that decision by way of certiorari. This court, with what Lord Bridge accurately described as ‘undisguised reluctance’, felt bound by previous
authority to hold that it had no jurisdiction to grant the order he sought. But the House of Lords allowed an appeal against that decision. In his speech,
Lord Bridge of Harwich (with whom all others of their Lordships agreed) said ([1985] 1 All ER 769 at 779, [1985] AC 622 at 642–643):
‘It is, of course, obvious that the phrase “relating to trial on indictment” in ss 28(2)(a) and 29(3) is apt to exclude appeal or judicial review in
relation to the verdict given or sentence passed at the conclusion of a trial on indictment, both of which are subject to appeal as provided by the
Criminal Appeal Act 1968. I accept the submission of counsel for the respondents that in this context, as in ss 76 and 77 of the 1981 Act, the words
“trial on indictment” must include the “trial” of a defendant who pleads guilty on arraignment. Beyond this it is not difficult to discern a sensible
legislative purpose in excluding appeal or judicial review of any decision affecting the conduct of a trial on indictment, whether given in the course
of the trial or by way of pre-trial directions. In any such case to allow an appellate or review process might, as Shaw LJ pointed out in [R v Crown
Court at Sheffield, ex p Brownlow [1980] 2 All ER 444 at 445, [1980] QB 530 at 544–545], seriously delay the trial. If it is the prosecutor who is
aggrieved by such a decision, it is in no way surprising that he has no remedy, since prosecutors have never enjoyed rights of appeal or review
when unsuccessful in trials on indictment. If, on the other hand, the defendant is so aggrieved, he will have his remedy by way of appeal against
conviction under the Criminal Appeal Act 1968 if he has suffered an injustice in consequence of a material irregularity in the course of the trial,
which, I apprehend, may well result not only from a decision given during the trial, but equally from a decision given in advance of the trial which
affects the conduct of the trial, eg a 330 wrongful refusal to grant him legal aid. I can, however, discover no intelligible legislative purpose
which would be served by giving to the words “relating to trial on indictment” a wider operation than indicated in the foregoing paragraph.
An order estreating the recognisance of a surety for a defendant who fails to surrender his bail at the Crown Court to which he was committed
for trial cannot affect the conduct of any trial on indictment in any way. If such an order is wrongly made, for example by denying the surety the
right to be heard, I can see no sensible reason whatever why the aggrieved surety should not have a remedy by judicial review. Still less can I see
any reason for distinguishing in this respect between the position of a surety, on the one hand, for a defendant committed on bail to the Crown
Court for trial and a surety, on the other hand, for a defendant committed on bail to the Crown Court either for sentence after conviction by a
magistrates’ court, or on appeal to the Crown Court against conviction and sentence by a magistrates’ court. If, therefore, the phrase “relating to
trial on indictment” may be construed broadly or narrowly, a purposive approach points, to my mind, unmistakably to a construction sufficiently
narrow, at all events, to avoid the exclusion of judicial review in such a case as this.’
Then Lord Bridge said ([1985] 1 All ER 769 at 780, [1985] AC 622 at 643–644):
‘It must not be thought that in using the phrase “any decision affecting the conduct of a trial on indictment” I am offering a definition of a
phrase which Parliament has chosen not to define. If the statutory language is, as here, imprecise, it may well be impossible to prescribe in the
abstract a precise test to determine on which side of the line any case should fall and, therefore, necessary to proceed, as counsel for the appellant
submitted that we should, on a case by case basis. But it is obviously desirable that your Lordships’ House should give as clear guidance as the
statutory language permits, and I hope the criterion I have suggested may provide a helpful pointer to the right answer in most cases.’
Thereafter there was a series of decisions in this court on the question whether or not a Crown Court was right to impose a stay in order to prevent an
intended trial taking place on the ground that to continue with the trial would be an abuse of process.
This court had to consider whether the grant of such a stay or its refusal was a matter relating to trial on indictment so that this court had power to
intervene with a decision of the Crown Court on such a question. The first such decision was R v Central Criminal Court, ex p Randle [1992] 1 All ER
370, [1991] 1 WLR 1087, in which this court decided it had such jurisdiction. That was followed by this court in a number of subsequent cases of which
one was DPP v Crown Court at Manchester and Ashton [1993] 2 All ER 663, [1994] AC 9. On an appeal against the decision of this court in Ashton the
House of Lords allowed the appeal and held that Ex p Randle was wrongly decided. Lord Slynn, with whom their Lordships agreed, having quoted from
the speech of Lord Bridge the passage to which I have referred previously, said ([1993] 2 All ER 663 at 667, [1994] AC 9 at 18):
‘In Sampson v Crown Court at Croydon [1987] 1 All ER 609, [1987] 1 WLR 194 it was held by your Lordships’ House that a legal aid
contribution order made at the end of a trial on indictment was not subject to judicial review. Lord Bridge stressed, again, that the guidance or
“helpful pointer” which 331 he had indicated in Smalley was not a statutory definition. He repeated the phrase which he had used in Smalley
and said ([1987] 1 All ER 609 at 611, [1987] 1 WLR 194 at 196): “It is in any event clear, I apprehend, that certain orders made at the conclusion of
a trial on indictment are excluded from judicial review as ‘relating to trial on indictment’ not because they affect the conduct of the trial, but rather
because they are themselves an integral part of the trial process.” These two decisions of your Lordships’ House have been considered in a number
of subsequent cases.’
He then went on to consider those subsequent cases ([1993] 2 All ER 663 at 669, [1994] AC 9 at 20):
‘In my view it is not necessary to reconsider or to depart from the guidance given in Smalley and Sampson. Lord Bridge made it plain in both
cases that he was not seeking to substitute a new phrase for the phrase in the statute but was seeking to give “a helpful pointer” as to the way the
exclusion should be applied. His expression “affecting the conduct of a trial” is apposite to deal with the situation where an order is made before
trial and during the trial; the expression “an integral part of the trial process” [see Sampson [1987] 1 All ER 609 at 611, [1987] 1 WLR 194 at 196]
includes an order made at the very end of the trial, though it may equally apply to an order made during the trial and even before the trial. In
neither case did Lord Bridge draw a distinction between an order as to how and when a trial is to be held and an order which decides whether there
shall or shall not be a trial. In my opinion an order made on an application to stay proceedings for abuse of process is clearly “an order affecting the
Preamble
conduct of the trial” whether the order is that the proceedings shall or shall not be stayed. For that reason it is an order in a matter “relating to trial
on indictment” within the meaning of s 29(3). It does not in my opinion make any difference for this purpose whether the order is made, as here, on
the day the trial is due to start, or at the beginning of the trial, or at an earlier date on a special hearing.’
In the present case, Mr Silvester now concedes that Judge Beaumont’s decision was in the exercise of his jurisdiction and in a matter relating to trial
on indictment and, therefore he cannot pursue his application for an order of certiorari. However, he seeks to achieve the chief constable’s objective by
way of a declaration. I have not so far referred to the application for judicial review itself. The relief sought is an order of certiorari to move into this
honourable court and quash the said orders and declarations of which one is that public interest immunity applies to the statements taken by the police on
the informal resolution complaints procedure, or alternatively that the said statements are protected from disclosure in the public interest.
Mr Silvester submits that we do have jurisdiction to consider whether, and if we think it right, to grant declarations of that kind or in those terms.
It is apparent that in relation to many decisions made at some stage during the course of the trial on indictment the grant of a declaration would not
be an appropriate remedy. That would frequently be because it would be of no utility to the applicant. For instance, if the stay had not been granted and
the trial had proceeded it would be little to the point if at some subsequent stage a declaration would be made that the stay should have been granted. By
that time the trial would have proceeded and the defendant would have been found guilty or not. But here what is sought is guidance as to the future. Mr
Silvester urges 332 us that a declaration would be both appropriate and helpful. This argument, so far as he and we are aware, has not been the
subject of any previous authority. We therefore sought the assistance of an amicus curiae. The Attorney General appointed Mr Paul Walker and he, at
short notice, has provided that assistance in full measure.
Mr Silvester’s argument goes as follows. Section 31(1) and (2) of the Supreme Court Act 1981 provides:
‘(1) An application to the High Court for one or more of the following forms of relief, namely—(a) an order of mandamus, prohibition or
certiorari; (b) a declaration or injunction under subsection (2); or (c) an injunction under section 30 restraining a person not entitled to do so from
acting in an office to which that section applies, shall be made in accordance with rules of court by a procedure to be known as an application for
judicial review.
(2) A declaration may be made or an injunction granted under this subsection in any case where an application for judicial review, seeking that
relief, has been made and the High Court considers that, having regard to—(a) the nature of the matters in respect of which relief may be granted by
orders of mandamus, prohibition or certiorari; (b) the nature of the persons and bodies against whom relief may be granted by such orders; and (c)
all the circumstances of the case, it would be just and convenient for the declaration to be made or of the injunction to be granted, as the case may
be.’
Mr Silvester argues that if s 29(3) prevents this court from making orders of mandamus, prohibition or certiorari in relation to matters relating to trial
on indictment, nevertheless it does not remove or limit this court’s powers under s 31 to grant a declaration in relation to trial on indictment in the Crown
Court where it would appropriate to do so.
If that were not so, he argues, as indeed as I have said and Mr Walker has conceded, there may well be no means of challenging such a decision. A
defendant, if convicted, can appeal to the Court of Appeal, Criminal Division but the prosecution, or as here, the police, have no redress where the court
in the course of a trial makes a wrong decision in law.
In reply, Mr Walker advances a fundamental argument which again has not been the subject of any decided authority, though he tells us it was
advanced in argument in House of Lords in Ashton’s case. The argument is this: the power of this court to supervise by way of judicial review is
exercisable over inferior courts and tribunals but not over superior courts. The Crown Court is a superior court of record and therefore, as a general
proposition, this court has no supervisory power in relation to the Crown Court exercising its jurisdiction.
This proposition is derived from s 1 of the Supreme Court Act 1981, which repeats s 1(1) of the Courts Act 1971:
‘The Supreme Court of England and Wales shall consist of the Court of Appeal, the High Court of Justice and the Crown Court, each having
such jurisdiction as is conferred on it by or under this or any other Act.’
The 1981 Act, having thus defined what constitutes the Supreme Court, then contains in Pt II groups of sections dealing with the jurisdiction firstly
of the Court of Appeal, then of the High Court and thirdly of the Crown Court. The 333 first section dealing with the jurisdiction of the Crown Court
is s 45. That provides:
‘(1) The Crown Court shall be a superior court of record …

(4) Subject to section 8 of the Criminal Procedure (Attendance of Witnesses) Act 1965 (substitution in criminal cases of procedure in that Act
for procedure by way of subpoena) and to any provision contained in or having effect under this Act, the Crown Court shall, in relation to the
attendance and examination of witnesses, any contempt of court, the enforcement of its orders and all other matters incidental to its jurisdiction,
have the like powers, rights, privileges and authority as the High Court …’
It follows, submits Mr Walker, that broadly speaking the Crown Court is in exactly the same position as the High Court, being a superior court. Its
decisions are not open to challenge in the High Court. However, when the Crown Court was created by the Courts Act 1971 and took over the
jurisdiction formally exercised by courts of oyer and terminer and general gaol delivery sitting at assizes and quarter sessions, it was recognised by the
parliament that in some respects it was desirable to subject some of its decisions to the supervisory jurisdiction of this court.
Sections 28 and 29(3) of the Supreme Court Act 1981 therefore expressly granted to this court powers which it would not otherwise have to
supervise the decisions of the Crown Court in relation to matters there defined. Those powers were found originally in s 10 of the 1971 Act. It is wrong,
submits Mr Walker, to regard s 29(3) as imposing a limitation. On the contrary, what ss 28 and 29(3) did was to grant to this court jurisdiction and
powers which this court otherwise would not have had, for the reasons I have already explained.
Mr Walker accepts that if his argument be correct some earlier decisions in this court were made without jurisdiction since the point was not raised.
An example of that is R v Crown Court at Leicester, ex p DPP [1987] 3 All ER 654, [1987] 1 WLR 1371. In R v Crown Court at Manchester, ex p Taylor
[1988] 2 All ER 769, [1988] 1 WLR 705 the point was also not raised, but in that case relief was refused on other grounds.
Mr Walker also accepts that if he is correct, some decisions, such as that made here by Judge Beaumont, will often not be open to challenge by the
police or by the prosecution. However, as Lord Bridge said in the passage I read from his speech in Smalley, historically, if, at the time when convicted
the defendants were given the right to appeal by statute, a defendant would have been able to challenge by way of appealing decisions made during the
course of this trial if he were to be convicted. But if he were to be acquitted, until recently, the prosecution have had no such right.
However, now the prosecution has been given, by statute, such rights in relation to limited classes of decisions. Firstly, s 9(10) and (11) of the
Criminal Justice Act 1987 give a right to either the defence or the prosecution to appeal against rulings made in preparatory hearings for serious fraud
Preamble
prosecutions. Secondly, there is a right of appeal under s 159 of the Criminal Justice Act 1988 which is exercisable, amongst others, by the prosecution
against orders made by the Contempt of Court Act 1981. Thirdly, under s 36 of the Criminal Justice Act 1972, the Attorney General may refer a question
for the decision of the Court of Appeal, Criminal Division in a case where the defendant has been acquitted.
It is to be noted that since some of the defendants were acquitted in this case the Attorney General could, if he had thought proper, have sought to use
that as a vehicle for investing not this court but the Court of Appeal, Criminal 334 Division, with jurisdiction to consider the propriety of Judge
Beaumont’s order during the course of the trial. That was done in relation to an order of a different kind in A-G’s Reference (No 1 of 1990) [1992] 3 All
ER 169, [1992] QB 630. However, this is fortuitous because it depends upon whether a defendant or one of the defendants has been acquitted.
Apart from those rights given by statute to challenge decisions, Mr Walker submits, that the prosecution or the police have no right to challenge a
decision such as that here under consideration. It may very well (I think he would say) be desirable that those authorities should have that power provided
that the trial would be not delayed by their exercise of it, but nevertheless, it is a matter for Parliament to decide whether to grant that power.
Mr Walker also advances a second argument if his first argument be not held by this court to be correct. He cites passages from a number of
authorities which bear upon but with one exception do not deal effectively with the problem with which we were concerned. Some of those passages tend
to go one way, some the other. The only categorical one is a short passage from the speech of Lord Wilberforce in Davy v Spelthorne BC [1983] 3 All ER
278 at 286–287, [1984] AC 262 at 278 where he quoted Lord Scarman in IRC v National Federation of Self-Employed and Small Businesses [1981] 2 All
ER 93 at 109, [1982] AC 617 at 647–648 as saying:
‘The application for judicial review was introduced by rules of court in 1977. The new RSC Ord 53 is a procedural reform of great importance
in the field of public law, but it does not, indeed cannot, either extend or diminish the substantive law. Its function is limited to ensuring “ubi jus ibi
remedium”. The new procedure is more flexible than that which it supersedes. An applicant for relief will no longer be defeated merely because he
has chosen to apply for the wrong remedy. Not only has the court a complete discretion to select and grant the appropriate remedy, but it now may
grant remedies which were not previously available. Rule 1(2) enables the court to grant a declaration or injunction instead of, or in addition to, a
prerogative order where to do so would be just and convenient. This is a procedural innovation of great consequence, but it neither extends nor
diminishes the substantive law. For the two remedies (borrowed from private law) are put in harness with the prerogative remedies. They may be
granted only in circumstances in which one or other of the prerogative orders can issue. I so interpret Ord 53, r 1(2) because to do otherwise would
be to condemn the rule as ultra vires.’
I break off to remind myself that at the time when Lord Scarman was giving his decision it may well be that the 1981 Act was not in force. He refers
specifically to Ord 53. Lord Wilberforce then continued with this categorical statement ([1983] 3 All ER 278 at 287, [1984] AC 262 at 278):
‘So, since no prerogative writ, or order, in relation to the present claim could be sought, since, consequently, no declaration or injunction could
be asked for, no right to judicial review exists under r 1, and no consequential claim for damages can be made under r 7.’
If that is right, it is conclusive, whatever the fate of Mr Walker’s first point. However, that particular reasoning is not be found in Lord Fraser’s
speech in Davy v Spelthorne BC. It was with Lord Fraser that all others of their Lordships specifically agreed. It follows that while Lord Wilberforce’s
observation was clearly part of his reasoning and thus highly persuasive, it is not part of the 335 reasoning of the House as a whole and is thus not
binding upon us. I think I summarise Mr Walker’s conclusion as follows: if his first argument be wrong there is no binding authority which would
prevent this court from assuming jurisdiction to grant the declaration sought.
However, for my part, I am persuaded that Mr Walker’s first argument is correct. It provides a logical analysis of the structure of the Supreme Court
Act 1981, particularly of those parts of that Act which relate to the Crown Court. It reflects the proper position of the Crown Court in the hierarchy of the
courts established under the 1981 Act and earlier under the 1971 Act. It reflects the fact that, generally speaking, challenges to decisions of the Crown
Court, save those which derive from original decisions of the magistrates’ court, will normally find their way not to this court but to the Court of Appeal,
Criminal Division.
Therefore, in my view, this court does not have jurisdiction to grant the declaration sought. For those reasons I would refuse the application.
CRESSWELL J. I agree.

[1994] 1 All ER 336
Owens Bank Ltd v Bracco and others (No 2)

(Case C-129/92)
CONFLICT OF LAWS: EUROPEAN COMMUNITY; Other European Community
COURT OF JUSTICE OF THE EUROPEAN COMMUNITIES (SIXTH CHAMBER)

JUDGES MANCINI (PRESIDENT OF CHAMBER), DÍEZ DE VELASCO, KAKOURIS, SCHOCKWEILER AND KAPTEYN
ADVOCATE GENERAL LENZ
8 JULY, 16 SEPTEMBER 1993, 20 JANUARY 1994
Conflict of laws – Foreign judgment – Recognition and enforcement – European Economic Community – Judgments in civil and commercial matters –
Brussels convention – Judgment given in non-contracting state – Whether convention applying to proceedings for enforcement of judgments given in
non-contracting states – Whether convention applying to proceedings or issues arising in proceedings in contracting states concerning recognition and
Preamble
enforcement of judgments given in non-contracting states – Whether distinction to be made between order for enforcement and decision of court of
contracting state on issue arising in proceedings to enforce judgment given in non-contracting state – Civil Jurisdiction and Judgments Act 1982, Sch 1,
arts 21, 22, 23, 27, 28, 34.
The plaintiff bank, which was a company domiciled in St Vincent, claimed to have lent 9m Swiss francs in cash to the first defendant, an Italian who was
the chairman and managing director of the second defendant, a company domiciled in Italy. According to a clause in the documentation relating to the
loan, the High Court of St Vincent was to have jurisdiction to decide all disputes. In 1988 336 the bank obtained from that court a judgment ordering
the defendants to repay the loan. In the course of those proceedings the defendants denied that a loan had been made, and alleged that the documents
submitted by the bank were forgeries and that certain witnesses had given false testimony. In 1989 the bank applied in Italy for an order for the
enforcement of the St Vincent judgment, but in the course of those proceedings the defendants claimed that that judgment had been obtained by fraud. In
1990 the bank applied to the High Court in England for a declaration that the St Vincent judgment was enforceable in England. The defendants again
maintained that the bank had obtained that judgment by fraud and also requested the English court to decline jurisdiction or to stay proceedings pursuant
to arts 21a and 22b of the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (which had the force of law in
the United Kingdom by virtue of s 2(1) of the Civil Jurisdiction and Judgments Act 1982 and was set out in Sch 1 thereto) pending the conclusion of the
Italian enforcement proceedings. The defendants relied on the fact that the question whether the bank had obtained the St Vincent judgment by fraud had
to be examined in both the English and the Italian proceedings. The judge refused to stay the English proceedings and his decision was upheld by the
Court of Appeal. On further appeal by the defendants the House of Lords referred to the Court of Justice of the European Communities for a preliminary
ruling pursuant to the protocol on the interpretation of the 1968 convention the questions, inter alia, whether that convention had any application to
proceedings, or issues arising in proceedings, in states party to the convention (contracting states) concerning the recognition and enforcement of
judgments in civil and commercial matters of states not party to that convention (non-contracting states), and whether all or any of arts 21, 22 and 23c of
the convention applied to proceedings, or issues arising in proceedings, which were brought in more than one contracting state to enforce a judgment of a
non-contracting state.
________________________________________
a Article 21, so far as material, provides: ‘Where proceedings involving the same cause of action and between the same parties are brought in the courts of different
Contracting States, any court other than the court first seised shall of its own motion stay its proceedings …’
b Article 22, so far as material, provides: ‘Where related actions are brought in the courts of different Contracting States, any court other than the court first seised may …
stay its proceedings. A court other than the court first seised may also, on the application of one of the parties, decline jurisdiction if … the court first seised has
jurisdiction over both actions …’
c Article 23 provides: ‘Where actions come within the exclusive jurisdiction of several courts, any court other than the court first seised shall decline jurisdiction in
favour of that court.’
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – The 1968 convention did not apply to proceedings for the enforcement of judgments given in civil and commercial matters in non-contracting
states. Nor did that convention, in particular arts 21, 22 and 23, apply to proceedings, or issues arising in proceedings, in contracting states concerning the
recognition and enforcement of judgments given in civil and commercial matters in non-contracting states. The essential purpose of a decision given by a
court of a contracting state on an issue arising in proceedings for the enforcement of a judgment given in a non-contracting state, even where that issue
was tried inter partes, was to determine whether, under the law of the state in which recognition was sought or, as the case might be, under the rules of
any agreement applicable to that state’s relations with non-contracting states, there existed any ground for refusing recognition and enforcement of the
judgment in question, and that decision was not severable from the question of 337 recognition and enforcement. Furthermore, by virtue of arts 27d
and 28e of the convention, read in conjunction with art 34f, the question whether any such ground existed in the case of judgments given in another
contracting state fell to be determined in the proceedings in which recognition and enforcement of those judgments were sought. Nor was the position
any different where the same question arose in proceedings concerning the recognition and enforcement of judgments given in non-contracting states.
Accordingly, no distinction was to be made between an order for enforcement simpliciter and a decision of a court of a contracting state on an issue
arising in proceedings to enforce a judgment given in a non-contracting state, such as the question whether the judgment in question was obtained by
fraud (see p 373 g h, p 374 b to e j and p 375c d, post).
________________________________________
d Article 27, so far as material, provides: ‘A judgment shall not be recognized—1. If such recognition is contrary to public policy in the State in which recognition is
sought …’
e Article 28, so far as material, provides: ‘… In its examination of the grounds of jurisdiction … the court … applied to shall be bound by the findings of fact on which
the court of the State of origin based its jurisdiction …’
f Article 34, so far as material, provides: ‘… Under no circumstances may the foreign judgment be reviewed as to its substance.’
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Per curiam. If, by virtue of its subject matter, a dispute falls outside the scope of the 1968 convention, the existence of a preliminary issue which the
court must resolve in order to determine the dispute cannot, whatever that issue may be, justify application of the convention (see p 374 g, post); Marc
Rich & Co AG v Società Italiana Impianti PA Case C-190/89 [1991] ECR I-3855 applied.
Notes
For the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, see 1(1) Halsbury’s Laws (4th edn reissue) paras
358–361 and Supplement to 8 Halsbury’s Laws (4th edn) paras 768A–768F.
For the Civil Jurisdiction and Judgments Act 1982, s 2, Sch 1, arts 21, 22, 23, 27, 28, 34, see 11 Halsbury’s Statutes (4th edn) (1991 reissue) 1108,
1147, 1148, 1149 and 22 Halsbury’s Statutes (4th edn) (1991 reissue) 416, 419. 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.
Cases cited
Anon (4 June 1992) NJW 1992, 3096, Bundesgerichtshof.
AS-Autoteile Service GmbH v Malhé Case 220/84 [1985] ECR 2267.
de Wolf v Harry Cox BV Case 42/76 [1976] ECR 1759.
Decision 4U 187/75 (4 August 1977) RIW 1977 p 718 (Digest of case-law relating to the European Communities, D Series, I-5.3–B 8), Oberlandesgericht
Karlsruhe.
Preamble
Dumez France and Tracoba v Hessische Landesbank (Helaba) Case C-220/88 [1990] ECR I-49.
Effer SpA v Kanter Case 38/81 [1982] ECR 825.
Gubisch Maschinenfabrik KG v Palumbo Case 144/86 [1987] ECR 4861.
Jakob Handte GmbH v Traitements Mécano-chimiques des Surfaces Case C-26/91 [1992] ECR I-3967.
Kongress Agentur Hagen GmbH v Zeehaghe BV Case C-365/88 [1990] ECR I-1845.
Ladenimor SA v Intercomfinanz SA Case C-314/92 (pending), CJEC.
338
Overseas Union Insurance Ltd v New Hampshire Insurance Co Case C-351/89 [1992] 2 All ER 138, [1992] QB 434, [1992] 2 WLR 586, [1991] ECR
I-3317, CJEC.
Polish Shipping Co v Partrederiet for Elbe og Veser (5 September 1991), Sø-og Handelsretten; affd (1992) 126 Ugeskrift for Retsvæsen 403, Hojesteret.
Reichert and Kockler v Dresdner Bank AG Case C-261/90 [1992] ECR I-2149.
Rich (Marc) & Co AG v Società Italiana Impianti PA Case C-190/89 [1991] ECR I-3855.
Scherrens v Maenhout Case 158/87 [1988] ECR 3791.
Société Cooperative Sidmetal v Titan International Ltd [1965] 3 All ER 494, [1966] 1 QB 828, [1965] 3 WLR 847.
Société des Ciments Antillais SA v Hollandsche Aanneming Maatschappij BV (1 February 1985) Schip en Schade 1985 pp 251, 254 (Digest of case-law
relating to the European Communities, D Series, I-22–B 8), Arrondissementsrechtbank’s-Gravenhage.
UGHA Group v NV BSL (18 October 1979) Belgische Rechtspraak in Handelszaken 1980 pp 181 (Digest of case-law relating to the European
Communities, D Series, I-22–B 2), Hof van Beroep te Antwerpen.
Virgin Aviation Services Ltd v CAD Aviation Services [1991] IL Pr 79.
Reference
By an order dated 1 April 1992 the House of Lords (see [1992] 2 All ER 193 at 196, 204, [1992] 2 AC 443 at 480) referred to the Court of Justice of the
European Communities for a preliminary ruling under art 177 of the EEC Treaty three questions (set out at p 372 a to d, post) on the interpretation of the
Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters of 27 September 1968. The questions arose in
proceedings pending in the House of Lords whereby the House adjourned an appeal thereto by the defendants, Fulvio Bracco and Bracco Industria
Chimica SpA, an Italian company of which Mr Bracco was the president, from so much of the decision of the Court of Appeal (Parker, Balcombe and
Ralph Gibson LJJ) ([1991] 4 All ER 833, [1992] 2 AC 443) on 27 March 1991 as dismissed their appeal from the decision of Sir Peter Pain sitting as a
judge of the High Court in the Queen’s Bench Division ((1990) Times, 29 August) on 18 July 1990 refusing to set aside an order of Sheen J made on 7
March 1990 providing for the registration under the Administration of Justice Act 1920 of part of a judgment of the High Court of St Vincent and the
Grenadines (Singh J) awarding the plaintiff, Owens Bank Ltd, of Kingstown, St Vincent and the Grenadines, the sum of 10,543,372 Swiss francs on 29
January, on the ground that the court should either stay or decline jurisdiction in the enforcement proceedings under the 1920 Act pursuant to arts 21 and
22 of the 1968 convention since the defendants’ plea that the judgment had been obtained by fraud was pending in the Italian courts. By a separate order
dated 1 April 1992 the House of Lords ([1992] 2 All ER 193, [1992] 2 AC 443) dismissed an appeal by the bank from so much of the decision of the
Court of Appeal (Parker, Balcombe and Ralph Gibson LJJ) ([1991] 4 All ER 833, [1992] 2 AC 443) on 27 March 1991 as dismissed its appeal from a
second decision of Sir Peter Pain sitting as a judge of the High Court in the Queen’s Bench Division ((1991) Times, 8 January) on 9 November 1990
ordering that issues between the parties be tried whether the registration of the St Vincent judgment should be set aside under s 9(2)(d) of the 1920 Act on
the ground that it had been obtained by fraud. The following statement of facts accompanied the House of Lords’ request for a preliminary ruling.
339
The parties
1. The plaintiff in the action is a company called Owens Bank Ltd (the bank). The bank is, and has at all material times been, domiciled (for the
purposes of the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, hereafter called ‘the 1968 convention’)
and registered as a company and a bank, in an independent state in the Caribbean called St Vincent and the Grenadines (St Vincent).
2. The first defendant (Bracco SpA) is, and has at all material times been, a pharmaceutical company. It is incorporated, and is and has always been
domiciled (for the purposes of the 1968 convention), in Italy.
3. The second defendant (Dr Bracco) is, and was at all material times, president and managing director of Bracco SpA. He is and has always been
domiciled (for the purposes of the 1968 convention) in Italy.
The St Vincent proceedings

4. On 29 January 1988 the bank obtained judgment (the St Vincent judgment) in the High Court of Justice of St Vincent against the defendants in
respect of an alleged loan to the defendants by the bank. The defendants’ appeal to the Court of Appeal of St Vincent was rejected by the judgment of
that court dated 12 December 1989. The defendants were also ordered to pay certain costs.
The defendants allege that the St Vincent judgments were obtained by fraud
5. The bank alleged in the St Vincent proceedings that the bank, acting by Mr Armando Nano, the then managing director of the bank, had loaned the
defendants the sum of 9m Swiss francs in cash during a meeting with Dr Bracco at a hotel in Switzerland. The defendants deny that any such loan was
made. They assert that certain documents relied on by the bank in the St Vincent proceedings in support of its case were forged, and that oral evidence
given to the St Vincent court for the bank, particularly by Mr Nano, was false to the knowledge of the witness and the bank.
The Italian proceedings

6. On 11 July 1989 the bank commenced proceedings in Italy against the defendants to enforce the St Vincent judgment (the Italian enforcement
proceedings). In those proceedings the defendants contend, inter alia, that the St Vincent judgment was obtained by the fraud of the bank. Numerous
pleadings have been filed by the parties in the Italian enforcement proceedings, but the Italian civil court has not yet reached its decision.
7. Before July 1989 the defendants had already commenced civil proceedings in Italy against the bank seeking, inter alia, declarations that there was
no debt owed by the defendants to the bank.
8. Since 1983 there were also various criminal proceedings in Italy, in particular against Mr Nano and Mr Layne, who acted for the bank, which
involved, inter alia, the question of whether there had ever been a loan by the bank to the defendants. The defendants are civil parties to those criminal
proceeding.
Preamble
The English proceedings

9. On 7 March 1990 the bank started proceedings in England to enforce the St Vincent judgment (the English enforcement proceedings) under the
power contained in s 9 of the Administration of Justice Act 1920.
340
10. On 7 March 1990 a judge of the English High Court, Sheen J, on the ex parte application of the bank, made two orders.
10.1. The first order was for a Mareva injunction against Bracco SpA given upon the bank undertaking by counsel, inter alia, forthwith to issue an
originating summons in the form initialled by the judge. That summons sought registration of the St Vincent judgment and, in effect, the continuation of
the Mareva injunction. That summons was issued on behalf of the bank on 7 March 1990.
10.2. The second order (the registration order) ordered the St Vincent judgment to be registered pursuant to the 1920 Act, but gave liberty to the
defendants to apply to set aside the registration at the first hearing of the originating summons if they had ground for doing so, and ordered that execution
on the judgment should not issue until after such hearing or any extension granted by the judge or, if an application to set aside the registration were
made, until such application had been disposed of.
11. The defendants entered an appearance to the English enforcement proceedings on 29 March 1990.
12. By a summons dated 2 April 1990 the defendants sought various types of relief from the English court, including orders that the English courts
decline jurisdiction over the English enforcement proceedings in favour of the courts of Italy, or stay those proceedings until after the final determination
of the Italian enforcement proceedings.
13. These applications by the defendants for the English court to decline jurisdiction or stay the proceedings were made on the grounds that Italy was
the court first seised in relation to enforcement proceedings in respect of the St Vincent judgments and that the relief sought should be granted by reason
of art 21 or art 22 of the 1968 convention. The defendants maintain in both the Italian and the English enforcement proceedings that the St Vincent
judgment was obtained by the fraud of the bank. The issue of fraud is clearly raised in both sets of enforcement proceedings but has not yet been decided.
The defendants contend that the issue will have to be determined in the Italian enforcement proceedings. The plaintiff contends that it is not inevitable
that the issue will be decided in those proceedings, as the defendants assert other defences in those proceedings. It is common ground between the parties
that, if the 1968 convention applies, the Italian court was the court first seised of the enforcement proceedings in respect of the St Vincent judgments for
the purposes of that convention.
14. The English first instance judge, Sir Peter Pain, decided, on the hearing of the defendants’ applications, inter alia
14.1 that an issue should be ordered to be tried between the bank and the defendants as to whether the registration order and all proceedings in the
English enforcement proceedings subsequent thereto should be set aside on the grounds that the judgments proposed to be registered fell within one or
more of the cases in which a judgment may not be ordered to be registered under s 9 of the 1920 Act, that is to say they were obtained by fraud (s 9(2)(d))
or were in respect of a cause of action which for reasons of public policy could not have been entertained in the English court (s 9(2)(f)); and
14.2 that the defendants were unable to rely on art 21 or 22 of the 1968 convention. He decided, for the reasons set out in his judgment of 19 July
1990, that the 1968 convention did not apply to the English proceedings and that, in any event, arts 21 and 22 did not apply to enforcement proceedings.
341
15. The plaintiffs and the defendants appealed to the Court of Appeal. The bank appealed the decision referred to in para 14.1 above, and the
defendants appealed the decision referred to in para 14.2 above.
16. The Court of Appeal gave its decision on these two appeals on 27 March 1990 (see [1991] 4 All ER 833, [1992] 2 AC 443). The Court of
Appeal dismissed the appeals and decided, inter alia,
16.1 that there was clearly a prima facie case (according to English rules) that the St Vincent judgments had been obtained by fraud, and that an issue
should be tried as to this between the parties;
16.2 that the 1968 convention had no application to proceedings for the recognition and enforcement of the judgments of non-contracting states and
in particular to proceedings under the 1920 Act; and
16.3 that, even if the 1968 convention did in general apply, the court was not obliged to decline jurisdiction under art 21, and had no power to stay
the bank’s proceedings under the first paragraph of art 22 or to decline jurisdiction under the second paragraph of that article.
17. The bank and the defendants appealed to the House of Lords. The bank appealed the decision referred to in para 16.1 above. The defendants
appealed the decisions referred to in paras 16.2 and 16.3 above.
17.1 The House of Lords dismissed the bank’s appeal; and
17.2 decided to refer the questions of the interpretation of the 1968 convention to the Court of Justice of the European Communities for a preliminary
ruling (see [1992] 2 All ER 193, [1992] 2 AC 443).
The bank’s contentions in summary

18A. The bank has contended at first instance and in the Court of Appeal
18.1 that the 1968 convention has no application to proceedings for the recognition and enforcement of the judgments of non-contracting states and
in particular to proceedings under the 1920 Act, including issues raised in such proceedings; and
18.2 that, even if the 1968 convention does in general apply to such proceedings, the English court cannot decline jurisdiction over or stay such
proceedings pursuant to art 21 or art 22 of the 1968 convention.
18B. In the House of Lords the bank similarly contended that the 1968 convention has no application and reserved its position with respect to the
other issues concerning the 1968 convention raised in that appeal.
The defendants’ contentions in summary

19. The defendants contend
19.1 that the 1968 convention does apply to the English enforcement proceedings and to the Italian enforcement proceedings, or to issues arising in
those proceedings, all of which are civil and commercial matters, within the meaning and ambit of art 1 of the convention;
19.2 that art 21 or 22 of the 1968 convention applies to the English and Italian enforcement proceedings, and that the English court has the power to
and must, or should, stay the English enforcement proceedings or issues raised in those proceedings pending the decision in the Italian enforcement
proceedings of the fraud issue;
19.3 that it would be contrary to the principles and objectives of the EEC Treaty and the 1968 convention for such parallel proceedings to be
permitted to proceed at the same time in different contracting states;
342
Preamble
19.4 that there is a risk of conflicting decisions if the English and Italian enforcement proceedings continue in parallel; and
19.5 that the majority of the witnesses of fact, all the expert witnesses and the originals of the relevant documents are in Italy. Italian is the language
of most of the witnesses and of the majority of the documents. Courts, lawyers and experts in Italy have been seised with the issue of fraud raised by the
defendants for many years.
Written observations were submitted to the Court of Justice on behalf of Fulvio Bracco and Bracco Industria Chimica SpA, by Barbara Dohmann QC and
Thomas Beazley, barrister, the United Kingdom, by Lucinda Hudson, of the Treasury Solicitor’s Department, and the Commission of the European
Communities, by Xavier Lewis and Pieter van Nuffel, members of its Legal Service, acting as agents. Oral observations were presented to the court by
Fulvio Bracco and Bracco Industria Chimica SpA, represented by Barbara Dohmann QC, Thomas Beazley and Michelle Duncan, solicitor, by the United
Kingdom, represented by Lucinda Hudson, assisted by Sarah Lee, barrister, and by the Commission. The language of the case was English. The facts
are set out in the report for the hearing presented by the Judge Rapporteur.
I—FACTS AND WRITTEN PROCEDURE
1. Facts
Owens Bank Ltd (hereinafter referred to as ‘Owens Bank’) is a company domiciled in an independent state in the Caribbean called St Vincent and
the Grenadines (hereinafter referred to as ‘St Vincent’).
Bracco Industria Chimica SpA (hereinafter referred to as ‘Bracco SpA’) is a company domiciled in Italy. Its president and managing director is Mr
Bracco, an Italian national domiciled in Italy.
In 1979 Owens Bank allegedly loaned, through the intermediary of Mr Nano, its then managing director, 9m Swiss francs in cash to Mr Bracco. The
loan is said to have been granted in a hotel in Geneva. According to a clause in the documents relating to the loan, jurisdiction to determine any disputes
was conferred on the High Court of Justice of St Vincent. On 28 January 1988 Owens Bank obtained judgment in the said High Court in respect of the
loan (hereinafter referred to as ‘the St Vincent judgment’). An appeal by Mr Bracco and his company to the Court of Appeal of St Vincent was dismissed
by a judgment of 12 December 1989.
Mr Bracco and his company deny that the loan was made. They assert that certain documents relied on by the bank in the St Vincent proceedings in
support of its case were forged and that the oral evidence given to the St Vincent court for the bank by Mr Nano was false, to the knowledge of the
witness and Owens Bank.
For some years the parties have also been disputing this matter in civil and criminal proceedings in Switzerland, Italy, England and St Vincent.
On 11 July 1989 Owens Bank commenced proceedings in Italy against Mr Bracco and his company to enforce the St Vincent judgment. The Italian
courts have not yet given judgment.
On 7 March 1990 Owens Bank also started proceedings in England to enforce the St Vincent judgment under s 9 of the Administration of Justice Act
1920. On 343 the same day a judge of the English High Court made two orders. The first was for a Mareva injunction against Bracco SpA. The
second ordered, inter alia, the registration of the St Vincent judgment.
Mr Bracco and his company entered an appearance to the English enforcement proceedings on 29 March 1990. They applied, on the basis of arts 21
and 22 of the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters of 27 September 1968, for orders that the
English courts decline jurisdiction over the enforcement proceedings in favour of the courts of Italy, or for a stay of the English proceedings until after the
final determination of the Italian enforcement proceedings.
The English judge giving judgment at first instance rejected those arguments, ruling that the 1968 convention did not apply to the English
proceedings and that, in any event, arts 21 and 22 did not apply to enforcement proceedings.
The parties appealed from that judgment to the Court of Appeal. On 27 March 1991 the Court of Appeal dismissed the appeals and decided, inter
alia, (1) that the convention had no application to proceedings for the recognition and enforcement of the judgments of non-contracting states and (2) that,
even if the convention did in general apply, the Court of Appeal was not obliged to decline jurisdiction under art 21 of the convention and had no power
to stay Owens Bank’s proceedings under the first paragraph of art 22 or to decline jurisdiction under the second paragraph of that article (see [1991] 4 All
ER 833, [1992] 2 AC 443).
The parties appealed to the House of Lords.
2. The questions referred for a preliminary ruling

The House of Lords, considering that the dispute raised problems regarding the interpretation of the convention, decided by judgment of 1 April
1992, under the Protocol of 3 June 1971 on the interpretation of that convention by the Court of Justice of the European Communities, to stay the
proceedings until the Court of Justice had given a preliminary ruling on the following questions:
‘1. Does the 1968 Brussels Convention on Jurisdiction and the Enforcement of Foreign Judgments in Civil and Commercial Matters (“the 1968
Convention”) have any application to proceedings, or issues arising in proceedings, in contracting states concerning the recognition and
enforcement of the judgments in civil and commercial matters of non-contracting states?
2. Do Articles 21, 22 or 23 of the 1968 Convention, or any of them, apply to proceedings, or issues arising in proceedings, which are brought in
more than one contracting state to enforce the judgment of a non-contracting state?
3. If the court in a contracting state has the power to stay proceedings under the 1968 Convention on the grounds of lis pendens, what are the
communautaire principles which should be applied by a national court in determining whether there should be a stay of the proceedings in the
national court second seised?’
3. Written procedure
The judgment of the House of Lords was received at the court registry on 22 April 1992.
Pursuant to art 20 of the Protocol on the Statute of the Court of Justice of the European Communities, written observations were lodged on 31 July
1992 by 344 Mr Bracco and his company, represented by Barbara Dohmann QC and Thomas Beazley, barrister, on 18 August 1992 by the United
Kingdom, represented by Lucinda Hudson, of the Treasury Solicitor’s Department, acting as agent, and on 23 July 1992 by the Commission of the
European Communities, represented by Xavier Lewis and Pieter van Nuffel, members of its Legal Service, acting as agents.
Upon hearing the report of the Judge Rapporteur and the views of the Advocate General, the court decided to open the oral procedure without any
preparatory inquiry. By decision of 24 May 1993 the court assigned the case to the Sixth Chamber.
Preamble
II—SUMMARY OF WRITTEN OBSERVATIONS SUBMITTED TO THE COURT
First question
According to Mr Bracco and his company, the 1968 convention should be held to apply to proceedings in the courts of contracting states concerning
the recognition and enforcement of the civil or commercial judgments of non-contracting states, or to issues arising in those proceedings. That follows
from the wording of art 1 of the convention. In the present case, moreover, any other solution would run counter to important principles and objectives of
the EEC Treaty and the convention, as identified in the judgment of the Court of Justice in Gubisch Maschinenfabrik KG v Palumbo Case 144/86 [1987]
ECR 4861 at 4873 (paras 7–8). Those principles and objectives are: to facilitate the recognition and enforcement of judgments of courts or tribunals of
contracting states in civil and commercial matters, to strengthen in the Community the legal protection of persons therein established and to contribute to
the proper administration of justice within the Community.
According to Mr Bracco and his company, confirmation of that view is to be found in the Jenard and Schlosser Reports (OJ 1979 C59, pp 1, 71) and
in the judgment of the court in Overseas Union Insurance Ltd v New Hampshire Insurance Co Case C-351/89 [1992] 2 All ER 138 at 160, 161, [1992]
QB 434 at 456, 458 (paras 11, 18).
The existence and terms of arts 16(5) and 27(5) of the convention have no bearing on its scope. Article 16 is not directed to the scope of the
convention, but is concerned with the allocation of jurisdiction between contracting states of matters falling within that article. It is plain from art 16(5)
that ‘proceedings concerned with the enforcement of judgments’ are not outside the scope of the convention. As regards art 27, it simply provides an
exception to the general rule of recognition of contracting state judgments set out in art 26.
The United Kingdom observes that, according to the wording of art 220 of the EEC Treaty and arts 25, 26 and 31 of the convention, the objective of
the convention is the reciprocal recognition and enforcement of judgments of courts or tribunals. It refers to the Jenard and Schlosser Reports, cited
above, and to the court’s judgment in AS-Autoteile Service GmbH v Malhé Case 220/84 [1985] ECR 2267. In so far as the convention relates to the
determination of jurisdiction and the recognition and enforcement of the judgment in question, judgments of the courts of a non-contracting state fall
outside its scope. That conclusion is not affected by the wording of art 16(5). Article 25 provides, moreover, that for the purposes of the convention
‘judgment’ is to mean any judgment given by a court or tribunal of a contracting state. Had it been intended that art 16(5) should apply to judgments
given by courts of non-contracting states, express words would have had to be used (as they were in art 27(5), for example).
345
According to the Commission, the convention does not apply to proceedings in one or more contracting states concerning the recognition and
enforcement of judgments in civil and commercial matters given in non-contracting states. It is concerned solely with jurisdiction and the enforcement of
civil and commercial judgments as between the contracting states (see the judgment in Kongress Agentur Hagen GmbH v Zeehaghe BV Case C-365/88
[1990] ECR I-1845 at 1865 (para 17). Moreover, a reading of art 220 of the Treaty corroborates the idea that the convention does not deal with matters
having a connection with a non-contracting state but is solely concerned with matters arising as between contracting parties. Further arguments can be
founded on the text of the convention itself. The Commission refers in that regard to arts 2 and 3, and—by way of a contrario reasoning—to art 27(5) of
the convention, as well as to art 57 in conjunction with art 25(2) of the 1978 Accession Convention. As regards art 1, upon which Mr Bracco and his
company rely, that is merely concerned with defining the material scope of the convention.
Second question
According to Mr Bracco and his company, arts 21 and 22 of the convention exist primarily to give effect to the principles and objectives of the EEC
Treaty and the convention, and they should apply to proceedings in the courts of contracting states concerned with the enforcement of the judgments in
civil and commercial matters of non-contracting states, and to issues arising in those proceedings. Where the same or very similar issues arise in such
proceedings (or in those and other civil and commercial proceedings) in the courts of different contracting states, the courts seised in the second place
should decline jurisdiction over issues which are, or are in effect, being determined by the courts first seised, and should stay the proceedings before them
until after the determination of those issues by the courts first seised. Alternatively, the courts seised in the second place have the power to stay the
proceedings before them, or stay issues arising in those proceedings, pending the determination of the proceedings and issues before the courts first
seised.
Although it is the submission of the United Kingdom that the convention does not apply to determine jurisdiction in the case of a judgment of a
non-contracting state which is intended to be enforced in a contracting state, the question remains whether section 8 in Title II, comprising arts 21 to 23 of
the convention, on lis pendens, can nevertheless apply in such circumstances.
The United Kingdom observes, first, that the convention does not prevent more than one application for recognition or enforcement from being
made; indeed, partial enforcement is expressly permitted by art 42 of the convention.
It goes on to note that the purpose of section 8 was explained by the Court of Justice in its judgment in Overseas Union Insurance Ltd v New
Hampshire Insurance Co Case C-351/89 [1992] 2 All ER 138, [1992] QB 434, following the judgments given by it in Dumez France and Tracoba v
Hessische Landesbank (Helaba) Case C-220/88 [1990] ECR I-49 and in Gubisch Maschinenfabrik KG v Palumbo Case 144/86 [1987] ECR 4861. It is
clear that arts 21 to 23 are intended to apply to original proceedings, where a judgment has not yet been obtained. As is provided in art 16(5) of the
convention, each contracting state has exclusive jurisdiction over the question of enforcement of judgments within its own territory. It is certainly
possible to maintain, as an alternative argument, that it would accord with the purpose of section 8 if the section were to apply where there are identical or
related proceedings relating to judgments from non-contracting states.
346
Finally, in the submission of the United Kingdom, the argument that arts 21 to 23 do not apply to proceedings, or issues arising in proceedings,
which are brought in more than one contracting state to enforce a judgment of a non-contracting state is the preferred approach, because it is founded on
the requirements of art 220 of the EEC Treaty, the intentions of the six original member states and the wording of the convention itself. In any event, it
submits that art 23 does not apply.
The Commission observes that the second question asks in essence whether the rules on lis pendens apply in proceedings relating to the execution of
a judgment. Its view is that they do not, even assuming that the convention applies. This is the case regardless of whether the execution sought is of a
judgment given by a contracting state or not. The purpose of the rules in Title II is to avoid the possibility of two courts giving judgments in the same
case (see the judgments of the Court of Justice in de Wolf v Harry Cox BV Case 42/76 [1976] ECR 1759 at 1767 (para 12) and Gubisch Maschinenfabrik
KG v Palumbo Case 144/86 [1987] ECR 4861). To hold otherwise would lead to impractical results. Articles 21, 22 and 23 are concerned only with
jurisdiction in original proceedings (see, a contrario, the Jenard Report (OJ 1979 C59, p 1 at p 42)), and not with the conditions in which recognition and
enforcement are to be granted.
Preamble
Third question
According to Mr Bracco and his company, the court seised in the second place should stay its proceedings unless the party opposing the stay satisfies
the court that there are overwhelming reasons why it should not stay. It should ensure that its decision facilitates as far as possible the recognition and
enforcement of the final judgment to be given by the court first seised, avoids the need for the parties to litigate the same or substantially the same issues
in the courts of other contracting states, and achieves the proper administration of justice within the Community.
The United Kingdom observes that a national court, when determining whether it should stay its proceedings under the convention, should take into
account the degree of connection between its proceedings and those of the court first seised, the stage which each of the sets of proceedings has reached
and the likely nature and effect of the irreconcilable judgments.
If the first question should fall to be answered on the basis that the convention is held to apply, then the Commission submits that art 16(5) should
apply. That article grants exclusive jurisdiction, regardless of domicile, to the courts of the contracting state in which a judgment is to be enforced. The
fact that there may be parallel proceedings in courts each having exclusive jurisdiction according to art 16 is not paradoxical (see, with respect to art
16(1), the judgment in Scherrens v Maenhout Case 158/87 [1988] ECR 3791 at 3805 (para 16)).
However, even if the English court has jurisdiction under national law, it would have to decline jurisdiction over the Italian element as that would be
within the exclusive jurisdiction of the Italian court according to art 16(5) (see the Jenard Report (OJ 1979 C59, p 1 at p 41)). Were the Court of Justice
to hold that lis pendens can apply to enforcement proceedings, then the Commission would submit that the principles which should apply are those
contained in art 23 of the convention. In such an event, that provision should be interpreted in the light of art 21 and not art 22.
347
16 September 1993. The Advocate General (C O Lenz) delivered the following opiniong.
________________________________________
g Translated from the German
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Mr President, Members of the Court,
A. Introduction
1. The plaintiff in the proceedings before the national court, Owens Bank Ltd (hereinafter referred to as ‘the plaintiff’), is domiciled in St Vincent
and the Grenadines, where it is registered as a company and as a bank. (As is well known, St Vincent and the Grenadines, a member of the
Commonwealth, is situated in the eastern part of the Caribbean, the main island, St Vincent, lying approximately 160 km west of Barbados and about 130
km to the north east of Grenada. In 1990 its estimated population was 116,000, covering a total area of 388 square kilometres (see The New
Encyclopaedia Britannica Micropaedia vol 10 (15th edn, 1992)).)
Bracco Industria Chimica SpA is a pharmaceutical undertaking domiciled in Italy. The chairman and managing director of that undertaking is Dr
Fulvio Bracco, who is domiciled in Italy. I will refer hereinafter to Dr Bracco and to the undertaking managed by him as ‘the defendants’.
2. On 29 January 1988 the defendants were found liable by the High Court of Justice of St Vincent to repay a loan amounting to nine million Swiss
francs which had allegedly been granted by the plaintiff to the defendants at the end of January 1979. In those proceedings the plaintiff relied in
particular on certain documents showing the signature of Dr Bracco and on evidence given by one of its employees, who testified to the handing over of
the money. The documents contained, inter alia, a clause providing that the High Court of St Vincent should have jurisdiction to decide disputes arising
from the grant of the loan.
The defendants asserted in the course of those proceedings that the documents submitted by the plaintiff were forgeries and that witnesses had given
false evidence in the proceedings. However, the High Court of St Vincent held that the defendants had failed to raise that objection in good time, and
found for the plaintiff. The defendants’ appeal against that judgment was dismissed by the Court of Appeal of St Vincent on 12 December 1989.
3. On 11 July 1989 the plaintiff applied to a court in Milan for an order declaring the St Vincent judgment enforceable. The defendants pleaded
before the Italian court, inter alia, that the plaintiff had obtained the judgment at issued by fraud. Those proceedings (hereinafter referred to as ‘the Italian
enforcement proceedings’) had still not been concluded when the House of Lords ordered that the matter be referred for a preliminary ruling. (The
concept of ‘enforcement proceedings’ signifies, both here and hereafter, proceedings for a declaration that a judgment of a foreign court is enforceable,
not execution proceedings, that is to say proceedings for the compulsory enforcement of a judgment (for further details, see para 15, post).) According to
information provided by the defendants, the Italian court, in a decision which is not yet final, has in the meantime rejected the plaintiffqs application for a
declaration as to the enforceability of the St Vincent judgment, but without thereby deciding the question whether the plaintiff obtained that judgment by
fraud.
4. As long ago as November 1988 the defendants brought a civil action against the plaintiff in Italy (hereinafter referred to as ‘the Italian civil 348
proceedings’), in which they applied, inter alia, for a declaration that there was no debt owed by them to the plaintiff. At the time of the oral procedure
before the Court of Justice, no final decision had yet been given in those proceedings either.
5. In addition to those proceedings and the enforcement proceedings in England, to which I propose imminently to turn my attention, the dispute
between the defendants and the plaintiff has led to a series of further proceedings which do not need to be gone into further here. However, mention
should be made of the (not yet final) judgment of a Milan court of 21 June 1991 in criminal proceedings against Mr Nano and Mr Layne (Mr Nano is the
person who claims to have negotiated the alleged loan agreement with the defendants and to have handed over the money; Mr Layne is one of the
directors of the plaintiff). In a detailed and carefully reasoned decision, the Italian court concludes that the documents submitted by the plaintiff are
forgeries.
6. On 7 March 1990 the plaintiff applied for an order for the enforcement in England, pursuant to s 9 of the Administration of Justice Act 1920, of
the St Vincent judgment. In those proceedings (hereinafter referred to as ‘the English enforcement proceedings’) too, the defendants asserted that the
judgment to be enforced had been obtained by the plaintiff by fraud. At the same time, relying on arts 21 and 22 of the Convention on Jurisdiction and
the Enforcement of Judgments in Civil and Commercial Matters of 27 September 1968 (hereinafter referred to as ‘the Brussels convention’), they applied
for a declaration by the English court declining jurisdiction or an order staying the English enforcement proceedings pending the conclusion of the Italian
enforcement proceedings. The defendants based their application on the ground that the question whether the plaintiff had obtained the St Vincent
judgment by fraud needed to be examined in both the English and the Italian enforcement proceedings.
7. Under English law there are a number of ways in which foreign judgments (that is to say judgments not given in England or Wales) may be
recognised and enforced: (a) under s 9 of the Administration of Justice Act 1920, judgments of the courts of certain states (including St Vincent and the
Preamble
Grenadines) ordering the defendant to pay a sum of money may be recognised in England by means of entry in a register. The effect of such recognition
is that the foreign judgment can in principle be enforced in the same way as a judgment given by an English court. Similar provisions are contained in the
Foreign Judgments (Reciprocal Enforcement) Act 1933; (b) judgments of the courts of other contracting states which are parties to the Brussels
convention and judgments of the courts of other parts of the United Kingdom may be recognised and enforced under the provisions of the Civil
Jurisdiction and Judgments Act 1982; (c) at common law, proceedings may be brought in certain cases on the basis of a foreign judgment. These are
ordinary civil proceedings, the special characteristic of which is that the action is based not on the original claim (eg the claim for repayment of a loan)
but on the foreign judgment ordering the defendant to make payment (this represents a form of actio judicati, a familiar concept in Roman law and just
commune). (See the detailed account contained in Dicey and Morris on the Conflict of Laws (11th edn, 1987) vol 1, pp 425 et seq (Common Law), 477 et
seq (Administration of Justice Act 1920) and 490 et seq (Civil Jurisdiction and Judgments Act 1982); also Cheshire and North on Private International
Law (12th edn, 1992) pp 345 et seq.)
8. The registration and/or recognition of a foreign judgment pursuant to s 9 of the Administration of Justice Act 1920 is prohibited, inter alia, where
the judgment in question has been obtained by fraud (see s 9(2)(d) of the 1920 Act).
349
The same applies where the recognition of a judgment would be contrary to English public policy (see s 9(2)(f)). Where in such a case a judgment
has nevertheless been initially recognised, such recognition can be challenged (see s 9(4)(b), in conjunction with RSC Ord 71, r 9). The court seised of
the matter may order any issue arising in such proceedings to be tried (see Ord 71, r 9(2): ‘The Court hearing such application may order any issue
between the judgment creditor and the judgment debtor to be tried in any manner in which an issue in an action may be ordered to be tried.’).
The court also enjoys a certain measure of discretion with regard to the way in which such interlocutory proceedings are organised The Supreme
Court Practice 1993 vol 1 refers in para 71/9/2 to RSC Ord 33, rr 3 and 4(2). Order 33, r 3 provides:
‘The Court may order any question or issue arising in a cause or matter, whether of fact or law or partly of fact and partly of law, and whether
raised by the pleadings or otherwise, to be tried before, at or after the trial of the cause or matter, and may give directions as to the manner in which
the question or issue shall be stated.’
Order 33, r 4(2) is worded as follows:
‘In any such action different questions or issues may be ordered to be tried at different places or by different modes of trail and one or more
questions or issues may be ordered to be tried before the others.’
This is evident from the decision in Société Cooperative Sidmetal v Titan International Ltd [1965] 3 All ER 494, [1966] 1 QB 828 (that judgment was
given on the basis of the Foreign Judgments (Reciprocal Enforcement) Act 1933). That case concerned the registration in England of a Belgian judgment.
The Belgian undertaking, which had been unsuccessful in the initial proceedings, had served in those proceedings a third party notice on an English
company (its supplier). In the proceedings before the court in London the English company asserted that the Belgian court had not had jurisdiction in the
matter. The English court ordered a trial of that question, in which the English company should stand as plaintiff.
9. On 7 March 1990 the High Court (Sheen J) made two orders. The first order concerned a preventive measure (known as a Mareva injunction)
which was granted on the plaintiff’s undertaking to issue proceedings in the form approved by the High Court. Those proceedings, which sought the
registration in England of the judgment given in St Vincent (and at the same time the continuation of the injunction), were issued in the High Court by the
plaintiff on the same day.
The second order (hereinafter referred to as ‘the registration order’) ordered the St Vincent judgment to be registered immediately pursuant to the
Administration of Justice Act 1920, but also gave liberty to the defendants to apply to set aside the registration if they had grounds for doing so. The
High Court further ordered execution on the judgment thus recognised should not issue until after the first hearing of the main proceedings or, if an
application were made by the defendants to set aside the registration, until such application had been disposed of.
10. The defendants entered an appearance to those proceedings and made various applications, in which—as already mentioned—they relied in
particular on the Brussels convention. On 19 July 1990 the High Court (Sir Peter Pain sitting as a judge of the High Court) held that the Brussels
convention did not 350 apply to the English enforcement proceedings (see Owens Bank Ltd v Bracco (1990) Times, 29 August). On 9 November
1990 the High Court further ordered that there be a trial of the issue between the parties on the question whether the registration order and all subsequent
proceedings should be set aside on the ground that the St Vincent judgment fell within those cases in which, pursuant to s 9(2)(d) (fraud) or s 9(2)(f)
(infringement of public policy) of the Administration of Justice Act 1920, a judgment may not be registered in England. The passage from the order of
the High Court which is of interest here is worded as follows:
‘That issues be tried between the Plaintiff and the Defendants as to whether the Registration Order and all proceedings subsequent thereto
should be set aside on the grounds that the judgments proposed to be registered fall within one or more of the cases in which a judgment may not be
ordered to be registered under Section 9 of the Administration of Justice Act 1920, that is to say the cases set out in Section 9(2)(d) and 9(2)(f)
thereof.’
11. The plaintiff and the defendants appealed against those decisions (the defendants against the decision of 19 July and the plaintiff against the
decision of 9 November 1990). The Court of Appeal dismissed the appeals on 27 March 1991 (see [1991] 4 All ER 833, [1992] 2 AC 443). It held that
the Brussels convention had no application to proceedings for the recognition and enforcement of the judgments of non-contracting states and in particular
to proceedings under the Administration of Justice Act 1920. Even if the Brussels convention did apply, arts 21 and 22 were not applicable to the present
case.
The Court of Appeal further confirmed that there should be a trial of the question whether the St Vincent judgment had been obtained by the plaintiff
by fraud.
12. The plaintiff and the defendants appealed to the House of Lords against those parts of the decision of the Court of Appeal which were not in their
favour. The plaintiff’s appeal was dismissed by the House of Lords on 1 April 1991 (see [1992] 2 All ER 193, [1992] 2 AC 443). With regard to the
defendants’ appeal, the national court took the view that it was necessary to seek a ruling from the Court of Justice.
13. The House of Lords has consequently referred the following questions to the Court of Justice for a preliminary ruling pursuant to art 177 of the
EEC Treaty:
Preamble
communautaire principles which should be applied by a national court in 351 determining whether there should be a stay of the proceedings in
the national court second seised?’
B. Opinion
PRELIMINARY OBSERVATION
14. Before considering the questions referred by the House of Lords, I will attempt to define the problems needing to be dealt with in this case. This
appears to me all the more necessary since at the hearing before this court the defendants’ representative alleged that the Commission and the United
Kingdom were guilty of serious misunderstandings, and consequently denied that the arguments of those two parties were of relevance to these
proceedings. (Apart from the defendants, only the Commission and the United Kingdom have taken part in the proceedings before the Court of Justice.)
15. The defendants have rightly pointed out that this case concerns proceedings to establish the conditions in which a judgment given in a state
which is not a party to the Brussels convention (hereinafter referred to as a ‘non-contracting state’) may be enforced by execution (the version of the
Brussels convention which is applicable here is the version as amended by the Accession Conventions of 9 October 1978 and 25 October 1982; the text of
that version is printed in OJ 1983 C97, p 2, and set out in Sch 1 to the Civil Jurisdiction and Judgments Act 1982). In other words, these are proceedings
in which a judgment of a court of a non-contracting state is to be declared enforceable in one of the contracting states which are parties to the Brussels
convention (hereinafter referred to as ‘contracting states’). (Decisions in which the courts of one state declare a decision given in another state to be
enforceable are also termed ‘exequatur’ decisions.) The present case, however, does not concern execution consequent upon a declaration of
enforceability, that is to say the enforcement per se of the judgment.
16. The House of Lords seeks to know, first, whether the Brussels convention has any application to proceedings for a declaration as to the
enforceability in a state which is a party to the Brussels convention of a judgment given in a non-contracting state (see the first question referred for a
preliminary ruling). Following on from this is the further question whether—and, if so, how—the provisions of the Brussels convention concerning lis
pendens and related actions (arts 21 to 23) are to be applied where concurrent applications are made in more than one contracting state for a declaration as
to the enforceability of a judgment of a non-contracting state (see the second and third questions referred for a preliminary ruling).
17. However, the defendants have rightly asserted that the scope of the questions referred for a preliminary ruling is not limited to the foregoing.
The House of Lords further seeks from the court an answer to the question whether the provisions of the Brussels convention (or some of them) can apply
to ‘issues’ arising in proceedings for the recognition and enforcement of a judgment of a non-contracting state.
The significance of this in relation to the present case is as follows: the English courts have ordered that there should be a trial of the issue whether
the plaintiff obtained the St Vincent judgment by fraud (as we have seen, the High Court further ordered that the question whether it would be contrary to
English public policy to recognise the St Vincent judgments should be tried as a preliminary issued (see para 10, ante)). That question is also occupying
the Italian court, which has to decide whether to declare the judgment enforceable 352 in Italy. Does this mean that one of those courts must decline
jurisdiction in favour of the other court or stay the proceedings before it pursuant to the provisions of arts 21 to 23 of the Brussels convention until the
other court has decided the question needing to be resolved? In the following paragraphs I propose to deal with both aspects of the questions referred for
a preliminary ruling.
18. In their written observations, and particularly in the oral procedure before the court, the defendants have asserted that the question of possible
fraud was also raised in the Italian civil proceedings (see para 4, ante). It also appears to have been argued by the defendants in the proceedings before
the High Court and the Court of Appeal (see the summary of the defendants’ submissions contained in the judgment of the Court of Appeal ([1991] 4 All
ER 833 at 858, [1992] 2 AC 443 at 473 per Parker LJ)).
The judgment of the House of Lords referring the questions for a preliminary ruling refers throughout to ‘the English enforcement proceedings’ and
‘the Italian enforcement proceedings’ (those terms are respectively defined in paras 6 and 9 of the statement of facts accompanying the order making the
reference. According to those definitions, they signify the proceedings for a declaration as to the enforceability of the judgment in England, on the one
hand, and in Italy, on the other). Since the Italian civil proceedings are mentioned only once in the judgment (see para 7 of the statement of facts
accompanying the order making the reference) but are not otherwise referred to, it might be assumed that the House of Lords does not wish the court to
deal with that aspect in its answer to the questions referred for a preliminary ruling.
However, for the sake of completeness I propose briefly to consider that factor as well.
19. Finally, it should be borne in mind that the English enforcement proceedings are for a declaration as to the enforceability of a judgment pursuant
to the provisions of the Administration of Justice Act 1920. However, the questions referred for a preliminary ruling by the House of Lords relate
generally to proceedings concerning ‘the recognition and enforcement of the judgments in civil and commercial matters of non-contracting states’.
Consequently, I propose, in setting forth my arguments, to refer initially to the actual circumstances of this case but thereafter to suggest to the court an
answer to the preliminary questions which is applicable to all proceedings in which it is sought to enforce a judgment of a non-contracting state in
contracting states which are parties to the Brussels convention.
THE FIRST QUESTION: APPLICABILITY OF THE BRUSSELS CONVENTION
Permissibility of double execution

20. The parties which have taken part in the proceedings before this court are agreed that a decision by which a court in a contracting state recognises
and declares enforceable a decision given in another state cannot itself be recognised and declared enforceable pursuant to Title III of the Brussels
convention in another contracting state.
21. In so far as the original decision constitutes a decision of a court of a contracting state which falls under the Brussels convention, that position is
clear from the convention itself (see, for example, P Schlosser ‘Doppel-exequatur zu Schiedssprüchen und ausländischen Gerichtsentscheidungen?’ IPRax
1985, pp 141, 143; J Kropholler Europäisches Ziviliprozeßrecht (3rd edn, 1991) art 25, para 16). Thus it is possible, for example, for a judgment of a
Belgian court ordering the defendant to pay damages for breach of contract to 353 be enforced in France pursuant to art 31 of the Brussels convention
‘when … the order for its enforcement has been issued there’. The effects of that declaration of enforceability are restricted to the state in whose courts
that declaration has been made. Where the judgments is also to be enforced in Spain, it must first be declared enforceable by the Spanish courts.
This is apparent both from the wording of art 31 (‘there’) and from the nature of such proceedings. A declaration of enforceability enables the
enforcement of a foreign judgment to take place in a given contracting state. Consequently, it must of necessity be reserved to the organs of the state in
Preamble
which the judgment is to be enforced. According to the second paragraph of art 34 in conjunction with art 27(1) of the Brussels convention, an
application for a declaration of enforceability may be refused, inter alia, where recognition of the judgment would be ‘contrary to public policy in the
State in which recognition is sought’. Of course, that concept does not have exactly the same meaning in each contracting state. Consequently, in the
example given above, the French courts’ decision to declare that Belgian judgment enforceable in France cannot in any way bind the Spanish courts. If
the judgment is also to be enforced in Spain, the judgment creditor must apply to the competent Spanish court for a declaration of enforceability. That
court will then decide independently whether the judgment may be enforced in Spain.
22. The same applies in relation to the recognition and enforcement of judgments of the courts of non-contracting states. A decision by a contracting
state whereby a judgment of a non-contracting state is declared enforceable takes effect only in that contracting state. Where the judgment of the
non-contracting state is also to be enforced in another contracting state, the judgment creditor must apply to the courts of that contracting state for a
declaration that the judgment of the non-contracting state is enforceable in that contracting state. Both cases concern proceedings governed solely by the
law of the contracting state in question, including any conventions existing between that contracting state and the non-contracting state. On the other
hand, Title III of the Brussels convention does not apply to those proceedings. This means, in particular, that the decision of contracting state A by which
the judgment of the non-contracting state is declared enforceable in that contracting state cannot be enforced in contracting state B pursuant to arts 31ff of
the convention.
To permit such ‘double execution’ would—as the United Kingdom has rightly pointed out—create the danger that a judgment creditor could
circumvent the conditions laid down by a contracting state for the recognition of judgments of the courts of the non-contracting state in question. If, for
example, contracting state A makes the recognition and enforcement of a judgment of the courts of a non-contracting state conditional on certain criteria,
whereas judgments from the non-contracting state are declared enforceable unconditionally in contracting state B, the judgment creditor could first obtain
a declaration of enforceability in contracting state B and then (pursuant to art 31 of the Brussels convention) enforce the judgment without difficulty in
contracting state A by virtue of the decision obtained in contracting state B. I share the United Kingdom’s view that it is not the aim of the Brussels
convention to enable judgment creditors to engage in such ‘forum shopping’ (this view is indorsed in G Droz Competence judiciaire et effets des
jugements dans le marche commun (1972) p 270f (para 437)).
Support for the view that a decision given in a contracting state by which a judgment given in another state is declared enforceable cannot itself be
declared 354 enforceable in another contracting state is also to be found in the virtually unanimous opinions of legal writers (G Droz Competence
judiciaire et effets des jugements dans le marche commun (1972) p 270 (para 437); see also, by the same author, Pratique de la Convention de Bruxelles
du 27 Septembre 1968 (1973) p 62 (para 138); R Geimer ‘Anerkennung gerichtlicher Entscheidungen nach dem EWG-übereinkommen vom 27.9 1968’
RIW 1976 pp 139, 145; by the same author, ‘Das Anerkennungsverfahren gemäß Art 26 Abs 2 des EWG-übereinkommens vom 27 September 1968’ JZ
1977 p 145, 148; by the same author, Internationales Ziviloprozeßrecht (1987) p 472 (para 2310); R Geimer and R Schütze Internationale
Urteilsanerkennung vol 1 (1983) p 985; D Martiny in Handbuch des internationalen Zivilverfahrensrechts vol III/2 (1984) p 38 (para 64); P Gothot and D
Holleaux La Convention de Bruxelles du 27 September 1968 (1985) p 134f (para 238); S O’Malley and A Layton European Civil Practice (1989) p 678
(para 25.33); J Kropholler Europäisches Ziviliprozeßrecht (3rd edn, 1991) p 259 (para 19); H Schack Internationales Zivilverfahrensrecht (1991) p 339
(para 936); P Gottwald in Münchener Kommentar zur Zivilprozeßordung vol 3 (1992) art 25, para 10. For another view, see R Schutze ‘Die
Doppelexequierung ausländischer Zivilurteile’ ZZP 77 (1964) pp 287f; by the same author, RIW 1984 p 734f; for a doubting view, see F Jeunger ‘La
Convention de Bruzelles du 27 Septembre 1968 et la courtoisie internationale’ in Revue critique de droit international privé (1983) pp 37, 48).
23. In my view, this view also applies where the judgment of the non-contracting state is not declared enforceable as such in the contracting state but
is made the basis of civil proceedings (for confirmation of this, see P Gothot and D Holleaux La Convention de Bruxelles du 27 September 1968 (1985) p
135 (para 239); J Kropholler Europäisches Ziviliprozeßrecht (3rd edn, 1991) p 259 (para 16); H Schack Internationales Zivilverfahrensrecht (1991) p 340
(para 936). For a different view, see S O’Malley and A Layton European Civil Practice (1989) p 680 (para 25.36). A conciliatory view is expressed by
G Droz Competence judiciaire et effets des jugements dans le marche commun (1972) p 271 (para 437), footnote 1 (who submits that a decision regarding
an actio judicati may only be enforced in another contracting state if it has been given in compliance with the jurisdictional provisions of the Brussels
convention). The decision regarding such an actio judicati is also apt to facilitate the enforcement of the judgment of the non-contracting state in the
contracting state in question. If it were permissible for such a decision to be declared enforceable in another contracting state on the basis of the
provisions of Title III of the Brussels convention, this would not only provide the judgment creditor with the opportunities, described above, of
circumventing the rules applying to recognition but would also—as will be shown hereafter—throw into disarray the jurisdictional system laid down in
the convention (see paras 34–35 and 44, post).
Scope of the Brussels convention

24. The defendants essentially put forward two arguments in support of their view that the provisions of the Brussels convention apply to
‘proceedings, or issues arising in proceedings, in contracting states concerning the recognition and enforcement of the judgments in civil and commercial
matters of non-contracting states’. They maintain, first, that this is apparent from the wording of art 1 of the convention. In their view, art 16(5) also
shows that proceedings concerning the enforcement of judgments fall within the scope of the Brussels convention. Second, they submit that the principles
and objectives 355 of the convention necessitate such an interpretation: the convention is intended to facilitate the recognition and enforcement of
decisions of the courts of contracting states in civil and commercial matters and to strengthen the legal protection of persons established in the
Community; in addition, it is intended to contribute to the proper administration of justice in the Community by preventing parallel proceedings before
the courts of different contracting states and precluding, in so far as possible and from the outset, the possibility of a situation arising where a contracting
state refuses to recognise a decision of another contracting state on account of its irreconcilability with a decision given in a dispute between the same
parties in the state in which recognition is sought.
The defendants draw attention in this connection to the adverse consequences which would, in their view, arise if the provisions of the Brussels
convention were not to apply. In their defence in both the English and the Italian enforcement proceedings, they raised the objection that the plaintiff
obtained the St Vincent judgment by fraud. If the Brussels convention, and in particular the provisions of section 8 of Title II on lis pendens and related
actions, were inapplicable, the defendants would be faced with having to prove in both sets of enforcement proceedings that their arguments represented
the true facts. If the plaintiff were to apply for a declaration as to the enforceability of its judgment in yet another contracting state, the defendants would
have to prove yet again, in the enforcement proceedings before the courts of that state, that the plaintiff had obtained the St Vincent judgment by fraud.
Thus the same question would have to be resolved by several different courts. The defendants would consequently incur considerable additional costs in
the litigation.
(a) The wording of art 1

25. The first sentence of the first paragraph of art 1 of the Brussels convention provides that the convention ‘shall apply in civil and commercial
matters whatever the nature of the court or tribunal’. Article 1 goes on to list various areas of law which do not fall within the scope of the convention;
these are of no relevance to the present case.
Preamble
26. The defendants point out that the scope of the Brussels convention was intended to be as wide as possible. The Jenard Report states in that
connection:
‘The solution adopted implies that all litigation and all judgments relating to contractual or non-contractual obligations which do not involve the
status or legal capacity of natural persons, wills or succession, rights in property arising out of a matrimonial relationship, bankruptcy or social
security must fall within the scope of the Convention, and that in this respect the Convention should be interpreted as widely as possible.’ (See the
report by Mr P Jenard on the Brussels Convention, OJ 1979 C59, p 1 at p 10. This view is confirmed by the report of Professor P Schlosser on the
Convention on the Accession of Denmark, Ireland and the United Kingdom, OJ 1979 C59, p 71 at p 82 (para 23).)
27. The wording of the provision under consideration here and the statement quoted in the immediately preceding paragraph suggest that the
proceedings in civil and commercial matters referred to therein must concern claims in civil or commercial law (for example a claim for repayment of a
loan), but not proceedings for the recognition and enforcement of judgments (see the supporting view expressed by D Martiny in Handbuch des
internationalen Zivilverfahrensrechts vol III/2 (1984). That author accepts—but without stating 356 any detailed reasons—that decisions given in a
contracting state whereby a decision of a non-contracting state is recognised or declared enforceable do not constitute decisions in ‘civil or commercial
matters’). It is true, however, that the wording of art 1 does indeed admit of the interpretation advanced by the defendants. In that regard, it should be
noted in particular that art 1 forms Title 1 of the Brussels convention, which defines its scope. Since Title III of the convention governs the recognition
and enforcement of judgments, the view might be taken that analogous proceedings fall within the scope of the convention (see in this connection the
judgment of the Bundesgerichtshof of 4 June 1992 (NJW 1992, 3096). In that judgment, the highest German civil court states that proceedings for a
declaration that a foreign judgment is enforceable constitute an ‘ordinary civil action’ on the basis of para 722 of the German Code of Civil Procedure,
that is to say normal civil proceedings (at p 3097)).
(b) The scheme and objectives of the convention

28. It my view, however, it is apparent from the schematic context and objectives of the Brussels convention that it is not applicable to proceedings
of the kind with which we are here concerned. In that connection, I propose initially to deal below only with proceedings for the recognition and
enforcement of judgments of non-contracting states (as to the issues which may arise in such proceedings, see paras 47–53, post).
29. I am of the view that the question how a judgment of a court of a non-contracting state can be declared enforceable and enforced in the
Community is not dealt with, and should not be dealt with, by the Brussels convention.
30. It should be pointed out, first of all, that according to art 25 of the convention, ‘judgment’ means, for the purposes of the convention, any
judgment given by a ‘court or tribunal of a Contracting State’. As regards the relationship between such judgments and the judgments of non-contracting
states, art 27(5) contains an important indication. According to that provision, a judgment of a contracting state may not be recognised in another
contracting state—
‘if the judgment is irreconcilable with an earlier judgment given in a non-Contracting State involving the same cause of action and between the
same parties, provided that this latter judgment fulfils the conditions necessary for its recognition in the State addressed.’
That provision shows, first, that the convention itself is based on the assumption that there are cases in which recognition of a judgment given on the
basis of the convention may be refused in another contracting state on the ground that it is irreconcilable with a judgment given in a non-contracting state.
Second, the reference in that provision to the conditions necessary for its recognition in the state addressed shows that the question of the recognition of
judgments given in non-contracting states is intended to be reserved to the respective laws of the contracting states. The Brussels convention merely
governs the consequences arising from the existence of a recognised or recognisable judgment of a non-contracting state and a judgment of a contracting
state which is irreconcilable with it—and that conflict is decided in favour of the earlier judgment given in the non-contracting state (see also in this
regard G Droz Competence judiciaire et effets des jugements dans le marche commun (1972) p 334).
357
31. The Commission has in addition rightly pointed out that the Brussels convention does not affect the right of contracting states to conclude
agreements with non-contracting states concerning the recognition and enforcement of judgments. Whether this results from art 57 (which provides that
the Brussels convention is not to affect any recognition and enforcement conventions in relation to particular matters), to which the Commission refers, or
from other provisions and considerations is a question we need not go into here. (Given that art 57 of the convention refers to ‘particular matters’, it is
possible that that provision does not cover bilateral treaties of a general nature concluded between states. However, the previous version of art 58 shows
that the Brussels convention (apart from the exception described in art 58) does not affect such treaties either.) At all events, it is clear in the final
analysis that the recognition and enforcement of judgments of non-contracting states are matters reserved to the respective laws of the contracting states
(including any existing agreements with non-contracting states).
That interpretation also accords with the convention’s objective of simplifying the formalities governing the reciprocal recognition and enforcement
of judgments of courts or tribunals, as laid down in art 220 of the EEC Treaty (which is the legal basis for the Brussels convention) and in the preamble to
the convention. As I have already stated, decisions whereby a judgment is recognised and declared enforceable in one contracting state may not be
declared enforceable in another contracting state. Consequently, the application of the convention to such proceedings would be of no relevance in that
regard to the achievement of the aforesaid objective.
32. On the other hand, the reference by the Commission to the court’s judgment in Kongress Agentur Hagen GmbH v Zeehaghe BV Case C-365/88
[1990] ECR I-1845 seems to me to be less significant in the present context. In that judgment, the court stated, inter alia (at 1865 (para 17)):
‘It should be stressed that the object of the Convention is not to unify procedural rules but to determine which court has jurisdiction in disputes
relating to civil and commercial matters in intra-Community relations …’ (My emphasis.)
The Commission appears to be seeking to infer from that statement and from the wording of art 220 of the EEC Treaty that the convention is not
applicable to proceedings having a connection with non-contracting states. I have reservations about subscribing to that view. However, it does not
appear necessary to me to go further into that question here. First, it can hardly be denied that there exists in the present case the intra-Community link
which is necessary according to the view mentioned, since the recognition and enforcement of the St Vincent judgment is a matter with which the courts
of two contracting states are concerned. Second, the court will probably have an opportunity of considering this question in the ‘Harrods’ case now
pending before it (see Ladenimor SA v Intercomfinanz SA Case C-314/92; these proceedings also arise from a reference by the House of Lords for a
preliminary ruling).
Preamble
33. Furthermore, attention should be drawn to the connection between Title II (Jurisdiction) and Title III (Recognition and Enforcement) of the
Brussels convention. The simplified procedure laid down by the convention for the enforcement of the judgments of one contracting state in another
contracting state is ‘the counterpart of Title II’ (see the report by Mr P Jenard on the Brussels convention, OJ 1979 C59, p 1 at p 61; see also in this
connection my opinion in AS-Autoteile Service GmbH v Malhé Case 220/84 [1985] ECR 2267 at 2270). The 358 establishment of rules concerning
jurisdiction and of the procedural provisions consequent thereon (particularly arts 21 to 23) serves to facilitate the recognition and enforcement of the
decisions given in the respective proceedings. As I have already stated, however, a decision given in a contracting state whereby a judgment of a
non-contracting state is declared enforceable takes effect only in the territory of that contracting state. Such an enforcement decision cannot itself be
declared enforceable in another contracting state (see paras 20–23, ante). Consequently, no irreconcilability can ever arise between such decisions given
in more than one contracting state. If the judgment given in the non-contracting state is declared enforceable in contracting state A but enforcement is
refused in contracting state B, the result is merely that the judgment creditor can enforce in contracting state A but not in contracting state B.
However, irreconcilability could of course arise between judgments given in different contracting states with regard to the relationship between such
an enforcement decision and a decision given on the basis of the convention (in the Italian civil proceedings, for example) (see para 60, post).
34. Above all, however, it appears to me significant that Title II of the convention makes no reference to jurisdiction in proceedings of the type with
which we are here concerned. If the Brussels convention were applicable to proceedings for the recognition and enforcement of judgments given in
non-contracting states, it would also, in accordance with its inherent logic, have laid down rules specifying which courts should have jurisdiction to
decide such proceedings.
35. However, no such jurisdictional provisions exist. Article 2 of the convention provides that persons domiciled in the territory of a contracting
state are in principle to be sued in the courts of that state. Clearly, that jurisdictional rule is not framed to cover proceedings for the recognition and
enforcement of judgments given in non-contracting states. The adoption of a contrary view would mean that such a judgment could in principle be
enforced only in the state in which the debtor is domiciled. However, not even the defendants are in any doubt that a judgment creditor is entitled to
choose the state in which he wishes to enforce the judgment obtained by him, provided of course that the state in question recognises that judgment. The
United Kingdom rightly points out in that regard that there may certainly be cases in which a judgment is enforced in more than one state (where, for
example, enforcement in state A does not result in full satisfaction of the judgment creditor’s claim, because the debtor does not possess sufficient assets
in that state, the judgment creditor is of course quite at liberty, as regards the balance, to apply for enforcement in another state (in which the debtor
possesses other assets). As to art 4, see para 41, post).
36. The only other jurisdictional provision of the convention which could be taken into consideration here is art 16(5). (It goes without saying that
art 18 of the convention does not constitute a viable jurisdictional rule in cases such as this. According to that provision, a court of a contracting state
may in certain cases have jurisdiction if the defendant enters an appearance before that court. However, a judgment debtor finding himself in a position
similar to that of the defendants in the present case will almost invariably contest an application for a declaration of enforceability, since he would
otherwise have to reckon with the application being granted and the judgment being enforced.) According to art 16(5), exclusive jurisdiction, regardless
of domicile, is granted—
359
‘in proceedings concerned with the enforcement of judgments, [to] the courts of the Contracting State in which the judgment has been or is to be
enforced.’
37. In AS-Autoteile Service GmbH v Malhé Case 220/84 [1985] ECR 2267 the court had an opportunity for the first time to state its view on the
interpretation of that provision. The question at issue in that case was whether actions to oppose enforcement pursuant to para 767 of the German Code of
Civil Procedure fall within art 16(5). The court answered that question in principle in the affirmative.
38. The decision in Reichert and Kockler v Dresdner Bank AG Case C-261/90 [1992] ECR I-2149, concerning the French law concept of an actio
pauliana, is much more illuminating. In its judgment the court stated (para 26):
‘In that regard, it is necessary to take into account the fact that the main reason for giving exclusive jurisdiction to the courts of the place of
enforcement is that only the courts of the Member State in whose territory the enforcement is required may apply the rules concerning the action to
be taken within that territory by the authorities responsible for carrying out such enforcement.’ (My emphasis.)
The court went on to quote the Jenard Report, which states that the expression ‘proceedings concerned with the enforcement of judgments’ means
those proceedings which can arise from ‘recourse to force, constraint or distraint on movable or immovable property in order to ensure the effective
implementation of judgments and authentic instruments’ (para 27) (see the report by Mr P Jenard on the Brussels convention, OJ 1979 C59, p 1 at p 36.
The Jenard Report for its part relies at this point on A Braas Précis de procédure civile (3rd edn, 1944) vol 1, p 422 (para 808)).
As Mr Advocate General Gulmann stated in his opinion, proceedings to which art 16(5) of the convention apply are thus proceedings relating
directly to enforcement (see [1992] ECR I-2160 at 2164).
39. However, as the defendants’ representative again emphasised in the oral procedure before the court, proceedings for a declaration as to the
enforceability of judgments concern not the enforcement itself but the stage in the proceedings which precedes such enforcement. Consequently, such
proceedings do not fall within the ambit of art 16(5). (See also A Braas Précis de procédure civile, in which the author differentiates between execution
(‘exécution’) and a declaration of enforceability (‘exequatur’). A more cautious view is expressed by P Kaye in Civil jurisdiction and enforcement of
foreign judgments (1987) p 956 et seq.) This also accords with the principle that, where any doubt exists, provisions such as art 16(5) are—as an
exception to the general rule laid down in art 2—to be narrowly interpreted (see J Kropholler Europäisches Ziviliprozeßrecht (3rd edn, 1991) p 156 (para
3) and also the judgment of the court referred to in para 42, post).
40. Even if the foregoing is not accepted and it is sought instead to place a wide interpretation on the expression ‘proceedings concerned with the
enforcement of judgments’, art 16(5) could not be applied here. According to the definition contained in art 25, the term ‘judgment’ means, for the
purposes of the convention, only a judgment given by a court or tribunal of a contracting state (see para 30, ante), whereas the present case concerns the
enforcement of a judgment of a non-contracting state. (I acknowledge that a different view is taken by D Lasok and P Stone in Conflict of Laws in the
European Community 360 (1987) p 252; according to them, art 16(5) is also applicable where the judgment to be enforced has been given in a
non-contracting state.)
41. The defendants are wholly conscious of the fact that the jurisdictional system laid down in Title II of the convention is not appropriate to cases of
the type with which we are here concerned. In order nevertheless to achieve the desired result, and in particular to establish the applicability of arts 21 to
23 of the convention, they suggest that the jurisdiction of the courts of the contracting states in such cases is to be determined by analogy with arts 57 and
4 of the convention (art 4 provides that if the defendant is not domiciled in a contracting state the jurisdiction of the courts of each contracting state is in
Preamble
principle to be determined by the law of that state).
42. That construction cannot be accepted. In cases in which the Brussels convention is applicable, the convention itself lays down which court has
jurisdiction. The Jenard Report states in this regard (OJ 1979 C59, p 1 at p 15):
‘Moreover, the purpose of the Convention is also, by establishing common rules of jurisdiction, to achieve … in the field which it was required
to cover, a genuine legal systematization which will ensure the greatest possible degree of legal certainty. To this end, the rules of jurisdiction
codified in Title II determine which state’s courts are most appropriate to assume jurisdiction, taking into account all relevant matters …’
As the court has ruled, the convention contains a number of jurisdictional rules aimed at achieving that objective, which list exhaustively those cases
in which a person may be sued outside the state in which he is domiciled (see the judgment in Jakob Handte GmbH v Traitements Mécano-chimiques des
Surfaces Case C-26/91 [1992] ECR I-3967 (para 13)). According to those rules, the general principle is that a person is to be sued in the courts of the
state in which he is domiciled (art 2 of the convention); derogation from that principle is permissible only in the cases expressly referred to in the
convention (para 14):
‘Consequently, the jurisdictional rules derogating from that general principle may not give rise to an interpretation going beyond the hypotheses
envisaged by the Convention.’
43. The solution suggested by the defendants is therefore irreconcilable with the objectives which the Brussels convention aims to achieve, in
particular the objective of legal certainty. Consequently, it must follow that the convention does not contain any appropriate jurisdictional provisions in
respect of proceedings for the recognition and enforcement of the judgments of non-contracting states. (Such a jurisdictional rule would have to apply
generally to cases concerning declarations as to the enforceability of judgments given in non-contracting states. Consequently, it goes without saying that
art 4 of the convention—which applies only to defendants who are not domiciled in a contracting state—cannot fulfil that role.) This confirms that the
convention is not applicable to such proceedings.
44. The same applies in my view to cases in which the law of a contracting state provides that a judgment of a non-contracting state can be enforced
by means of an actio judicati. In respect of those cases also, the convention manifestly does not contain any appropriate jurisdictional rules.
45. The question whether at least arts 21, 22 or 23 of the convention may nevertheless be applied to proceedings of this kind, and the arguments
submitted in that regard, will be considered later (see paras 54–73, post).
361
46. The above considerations confirm my view that the jurisdictional rules contained in the convention, and its Title II as a whole, are framed so as
to cover only the ‘original’ proceedings in which no decision has yet been given, and not to proceedings for the enforcement of decisions which have
already been given (see the supporting view expressed by R Geimer in ‘EuGVü und Aufrechnung: Keine Erweiterung der internationalen
Entscheidungszuständigkeit—Aufrechnungsverbot bei Abweisung der Klage wegen internationaler Unzuständigkeit’ IPRax 1986 pp 208–209; D Lasok
and P Stone Conflict of Laws in the European Community (1987) p 197).
The only provision which could stand in the way of such an interpretation is art 16(5), the contents of which are discussed above. As the United
Kingdom has pointed out, that provision represents an extraneous element, which does not seem to fit in properly with the other provisions of Title II (see
para 9 of the observations of the United Kingdom (‘a somewhat anomalous provision’) and A Struycken ‘The rules of jurisdiction in the EEC convention
on jurisdiction and enforcement of judgments in civil and commercial matters’ [1978] Neth ILR 354, 360 (‘Its proper place in the Convention is rather, as
an Article 25A, at the beginning of Title III’)). Apart from the fact that that provision constitutes a basically self-evident rule (see the supporting view
expressed by I Schwander in ‘Die Gerichtszuständigkeiten im Lugano-übereinkommen’ in I Schwander (ed) Das Lugano-übereinkommen pp 61, 92 (on
art 16(5) of the Lugano Convention, the contents of which are the same)), its subject matter is such that its proper place is in Title III of the convention. It
only becomes applicable where a judgment which has already been given is to be enforced or has already been enforced. The only reason for the
incorporation of that provision in Title II appears to have been a wish to itemise exhaustively in that title all matters of jurisdiction (see G Droz
Competence judiciaire et effets des jugements dans le marche commun (1972) p 107 (para 162)). In my view, therefore, its existence does not alter the
fact that, with the exception of art 16(5), the matters of jurisdiction forming the substance of Title II of the convention concern jurisdiction in the
institution of original actions.
47. I now turn to the question whether the Brussels convention is applicable to individual issues arising in proceedings for the recognition and
enforcement of judgments given in non-contracting states. As mentioned above, in the proceedings in which the reference for a preliminary ruling was
made the High Court ordered that two aspects of the enforcement proceedings should be tried, namely the question whether the plaintiff obtained the St
Vincent judgment by fraud and the question whether it would be contrary to public policy to recognise that judgment in England.
48. On a purely formal view, it is indeed possible to conclude that those interlocutory proceedings concern proceedings in civil and commercial
matters within the meaning of art 1 of the Brussels convention, and that the rules laid down in the convention, including arts 21 to 23, may be applicable
to those proceedings.
That view was argued very eloquently by the defendants’ representative in the oral procedure before the court. However, it should not in my view be
followed.
49. It should be borne in mind, first, that the application of the jurisdictional provisions of the Brussels convention to individual issues or, more
precisely, to proceedings concerning individual issues would have inappropriate results.
50. Were those proceedings to constitute proceedings in civil and commercial matters within the meaning of art 1, the rules on jurisdiction 362
contained in the convention would also be applicable to those proceedings. As the defendants have quite rightly pointed out in their written observations,
consideration would only have to be given to the jurisdiction, laid down in art 2, of the courts of the state in which the defendant is domiciled. In the
present case, this would mean that the Italian courts would have jurisdiction to decide the question whether the plaintiff obtained the St Vincent judgment
by fraud. The English courts would then be entitled to decide that question only if they were competent to do so pursuant to a jurisdiction agreement (as
to art 18, see para 36). In normal circumstances, the result of this would be that, in the event of the judgment debtor being a person domiciled in a
contracting state, the courts of a contracting state in which it was sought to enforce a judgment of a non-contracting state would no longer be in a position
to decide the question of enforceability on their own.
This cannot, however, be right. The facts of the original case need be altered only slightly for the absurdity of this solution to become apparent: were
the defendants domiciled not in Italy but in France, for example, the French courts would have to decide the issue in question, although enforcement of
the judgment of the non-contracting state is to take place in Italy and in England.
51. Above all, however, it should be noted that the defendants are rather arbitrarily breaking down the proceedings brought by the plaintiff for a
declaration of enforceability into two or even more parts, and are suggesting that the trial ordered by the High Court constitutes completely separate
proceedings. I am doubtful that such an appropriate. The proceedings ordered by the High Court are intended to settle points of doubt which have arisen
Preamble
in the course of the proceedings for a declaration of enforceability and fit into the context of those proceedings. In my view, therefore, it is much more
natural to speak in that regard of interlocutory proceedings, as I have hitherto done. Consequently, the present case may be said to involve a single set of
proceedings which admittedly comprises several stages but which can hardly be divided up into several separate sets of proceedings. At all events, I
agree with the view, so expressively put by Sir Peter Pain, that the convention is not applicable to such proceedings (‘The answer to this, in my view, is
that no provision is made as to such a hybrid creature in the convention’).
52. The question whether these proceedings constitute under English law an integral part of the enforcement proceedings, or whether they amount
instead to separate proceedings, is of course a matter to be decided by the English courts alone. However, the question whether they constitute
proceedings within the meaning of the convention falls in my view to be decided solely on the basis of the convention itself. It should be particularly
borne in mind in that connection that otherwise the question whether the convention is applicable would depend to a large extent on national law. Is the
convention applicable where, as in English law, a separate trial is held to decide an issue, but inapplicable where under the law of a contracting state all
questions arising have to be settled in one and the same set of proceedings? Were it accepted that even in the latter cases the convention can be applied to
individual issues, difficult problems of demarcation would result. The Commission and the United Kingdom have rightly pointed out the threat to legal
certainty which those problems would present.
53. In my view, therefore, issues arising in proceedings for the recognition and enforcement of the judgments of non-contracting states are to be
treated no differently from those proceedings themselves: the Brussels convention is 363 applicable in neither case. This is also the view of the
United Kingdom and of the Commission.
THE SECOND QUESTION

54. In asking its second question, the House of Lords seeks to know whether arts 21, 22 or 23 are applicable to proceedings of the kind with which
we are here concerned. That question needs to be considered in the light of the decisions given in these proceedings in the courts below. Both the High
Court and the Court of Appeal were of the view that arts 21 to 23 of the convention were inapplicable, even if the convention itself were to apply.
The answer to the second question in itself results, therefore, from the arguments relating to the first question. If the convention itself is inapplicable,
then the same should also apply to the provisions relating to lis pendens and related actions which fall to be considered here.
55. The defendants assert, however, that the convention should be applicable even where its rules as to jurisdiction do not apply. In so saying, the
defendants appear to be arguing that arts 21 to 23 of the convention can be applied even where the jurisdiction of the courts seised derives not from the
provisions of the convention but from the national law of the state in question. They place particular reliance in that regard on the judgment of the court
in Overseas Union Insurance Ltd v New Hampshire Insurance Co Case C-351/89 [1992] 2 All ER 138, [1992] QB 434.
56. That case concerned a dispute between a number of reinsurance undertakings domiciled in the Community and an insurance undertaking
domiciled in the United States. The American undertaking brought an action against the reinsurers before the Paris Tribunal de Commerce for payment
pursuant to the reinsurance contracts. The reinsurers asserted that the French court did not have jurisdiction. They also applied to the High Court in
London for a declaration that they were not liable to perform any of the obligations contained in the reinsurance contracts. The High Court stayed the
proceedings pending before it pursuant to the second paragraph of art 21 of the convention until such time as the French court had decided whether it had
jurisdiction.
The reinsurers appealed against that decision. The Court of Appeal thereupon sought from the court a preliminary ruling, inter alia, on the question
whether art 21 applied irrespective of the domicile of the parties. The background to that question was the fact that the American undertaking was
domiciled outside the Community and that the jurisdiction of the English courts therefore fell to be determined by English law in accordance with art 4 of
the convention.
57. The court pointed out that art 21 contains no reference to the domicile of the parties to a dispute and concluded ([1992] 2 All ER 138 at 160,
[1992] QB 434 at 457 (para 14)):
‘Consequently, it appears from the wording of art 21 that it must be applied both where the jurisdiction of the court is determined by the
convention itself and where it is derived from the legislation of a contracting state in accordance with art 4 of the convention.’
58. In my view, however, that statement has no bearing on the present case. Contrary to the view advanced by the defendants, the decision in
Overseas Union Insurance Ltd v New Hampshire Insurance Co concerned a situation which is not comparable to that in this case. The court was
expressly concerned with proceedings in relation to which the jurisdiction of the courts in question 364 derives—by virtue of art 4—from the
convention itself. That is not the position in the present case.
59. It is however true that the court made a very general reference in that judgment to those provisions, and particularly art 21, on which the
defendants rely:
‘[Section 8 of Title II of the convention] is intended, in the interests of the proper administration of justice within the Community, to prevent
parallel proceedings before the courts of different contracting states and to avoid conflicts between decisions which might result therefrom. Those
rules are therefore designed to preclude, in so far as possible and from the outset, the possibility of a situation arising such as that referred to in art
27(3), that is to say the non-recognition of a judgment on account of its irreconcilability with a judgment given in proceedings between the same
parties in the state in which recognition is sought. It follows that, in order to achieve those aims, art 21 must be interpreted broadly so as to cover,
in principle, all situations of lis pendens before courts in contracting states, irrespective of the parties’ domicile.’ (See [1992] 2 All ER 138 at 160,
[1992] QB 434 at 457 (para 16). A similar statement is to be found in the judgment in Gubisch Maschinenfabrik KG v Palumbo Case 144/86
[1987] ECR 4861 at 4874 (para 8). See also the judgment in Dumez France and Tracoba v Hessische Landesbank (Helaba) Case C-220/88 [1990]
ECR I-49 at 80 (para 18).)
60. It therefore comes as no surprise to learn of the view expressed by legal writers that art 21 of the convention is generally applicable where the
same dispute is pending before the courts of different contracting states, irrespective of whether the courts seised derive their jurisdiction from the
provisions of the convention or from any other provisions (see P Gothot and D Holleaux La Convention de Bruxelles du 27 September 1968 (1985) p 123
(para 217); G Müller in Der internationale Rechtsverkehr in Zivil- und Handelssachen by A Bülow, K-H Bockstiegel, R Geimer and R Schutze (as at
1991) p 606/169; H Gaudemet- Tallon Revue critique de droit international privé (1991) pp 769, 774). Articles 21 to 23 of the Brussels convention could
therefore be thought to apply to cases of the kind with which we are here concerned, either directly or analogously (this also appears to be the view
expressed by A Briggs in ‘Foreign judgments, fraud and the Brussels convention’ (1991) 107 LQR 531 at 534; he calls for a ‘purposive construction’ of
the convention). Let us suppose that one of the Italian courts (either the court required to decide on the declaration of enforceability in Italy or the court
before which the Italian civil proceedings are pending) comes to the conclusion that the plaintiff committed a fraud, and let us further assume that the
decision can in principle be recognised in England. (Since the Italian enforcement decision cannot itself be recognised and enforced in other contracting
states, the decision in question could—according to the view advanced here—only be that of the court seised of the Italian civil proceedings.) If the
Preamble
English courts have decided in the meantime that the St Vincent judgment can be enforced in England, one might expect that the Italian decision just
referred to could no longer be recognised, since it would be irreconcilable with the English enforcement decision. A situation would then arise such as the
Brussels convention seeks to prevent. In order to avoid this risk, the (direct or analogous) application of arts 21 to 23 is indeed conceivable.
61. There appears to me to be no doubt that arts 21 to 23 constitute general rules which may in principle be applied even in cases where their
application is not expressly laid down by the convention. As evidence of this, it is necessary 365 only to refer to the genesis of art 25(2) of the 1978
Accession Convention (that provision was added to art 57 of the convention, becoming para 2 thereof, pursuant to the Accession Convention of 26 May
1989). The aim of that provision was to ensure the uniform interpretation of art 57 (as to that article, see para 31 ante). To that end, art 25(2)(a) of the
Accession Convention provides that a court which founds its jurisdiction on a special convention pursuant to art 57 must in any event apply art 20 of the
Brussels convention (which provides that, where a defendant domiciled in a contracting state does not enter an appearance to the proceedings and the
court’s jurisdiction is not derived from any other provision of the convention, the court must declare of its own motion that it has no jurisdiction). It is to
be inferred from the Schlosser Report that the question of the applicability of art 21 was deliberately left open, in order to leave the solution ‘to legal
literature and case law’ (see Report on the Convention on the Accession of Denmark, Ireland and the United Kingdom, OJ 1979 C59, p 71 at p 140 (para
240)).
62. In my view, however, it is not necessary in the present case to consider further the construction advanced by the defendants. In order for arts 21
to 23 to be applicable at all, it is in my view necessary for the proceedings in question to be covered by the convention, at least as regards their subject
matter. As I have already stated, this is not the case where enforcement proceedings are concerned. The convention is framed to cover ordinary ‘original’
actions. It does not cover proceedings for the recognition and enforcement of judgments given in non-contracting states. As regards individual issues
requiring to be settled in such proceedings, these may be regarded as proceedings for the purposes of the convention only where they are severed from
their connection with the enforcement proceedings. For the reasons stated above, this does not appear to me to be appropriate.
63. Consequently, it is only in the alternative that I propose to consider below which of the provisions of arts 21 to 23 might be relevant if it were
assumed, contrary to the view put forward here, that those provisions were applicable to cases of this kind. It will also be shown in that connection that
the argument advanced by the defendants in the oral procedure, to the effect that a refusal to apply those provisions would result in a ‘gaping hole’ in the
legal protection enjoyed by them, is not persuasive. Admittedly, the defendants are correct in saying that it would be inconvenient for them to have to
prove in each contracting state in which the plaintiff sought to enforce the St Vincent judgment that the plaintiff obtained that judgment by fraud.
However, the United Kingdom has rightly pointed out that the resulting disadvantages can in many cases be offset by the application of national rules of
procedure, without there being any need to apply the provisions of the convention in respect of lis pendens and related actions. In my view, the present
case illustrates this.
64. As regards the enforcement proceedings themselves, only art 22 might then be relevant. The English enforcement proceedings are concerned
solely with the question whether the St Vincent judgment can be enforced in England. Similarly, the Italian enforcement proceedings concern the
question whether the judgment can be enforced in Italy. Consequently, even on a wide interpretation of art 21, as indorsed by the court in Gubisch
Maschinenfabrik KG v Palumbo Case 144/86 [1987] ECR 4861, the subject matter of the dispute is not the same, as it is required to be by that article.
The same is true of the relationship between the English enforcement proceedings and the Italian civil proceedings. Here, too, the subject matter of the
dispute might not be the same, within the meaning of art 21.
366
65. Article 23 is inapplicable for the same reason. Admittedly, it is in the nature of things for the English courts to have exclusive jurisdiction to
decide whether to allow enforcement to take place in England, just as the Italian courts should have exclusive jurisdiction with regard to the question
whether the judgment may be declared enforceable in Italy. To that extent it is understandable, given the circumstances, that the Commission should rely
in its alternative submissions on art 16(5). (However, contrary to the view expressed by the Commission, I remain of the view, in these alternative
submissions, that art 16(5) is not applicable to enforcement proceedings (see para 39, ante).) However, art 23 appears to concern those cases (surely not
very numerous) where the courts of different contracting states have exclusive jurisdiction to decide the same dispute. Because the effects of an
enforcement decision are restricted to the individual contracting state, that is not the case here. It would clearly be inappropriate to apply art 23: if the
English courts subsequently seised in this case had to decline jurisdiction in favour of the Italian courts, the plaintiff would be unable, temporarily at any
rate, to obtain a declaration in England that the judgment given in its favour was enforceable.
66. According to the first paragraph of art 22, where related actions are brought before the courts of different contracting states, any court other than
the court first seised ‘may, while the actions are pending at first instance, stay its proceedings’. (The second paragraph of art 22 provides that a court
other than the court first seised may also, on the application of one of the parties, decline jurisdiction ‘if the law of that court permits the consolidation of
related actions and the court first seised has jurisdiction over both actions’. That provision (which is not wholly easy to comprehend) plays no part in the
present proceedings (see the wording of the third preliminary question) and does not therefore need to be discussed further here.) For the purposes of that
provision, actions are deemed to be related ‘where they are so closely connected that it is expedient to hear and determine them together to avoid the risk
of irreconcilable judgments resulting from separate proceedings’ (para 3 of art 22).
67. Consequently, art 22 gives the court other than the court first seised the possibility of staying its proceedings, but does not oblige it to stay them
(with regard to the points of view to be taken into account here, see the considerations in respect of the third preliminary question). The result would be
the same if the national rules of procedure were applied instead of art 22 of the convention.
Parker L J, who delivered the unanimous judgment of the Court of Appeal in this case, pointed out that under English law a finding by the Italian
courts that the plaintiff had committed a fraud could affect the English enforcement proceedings by creating an issue estoppel (see [1991] 4 All ER 833 at
853–857, [1992] 2 AC 443 at 468–472. An issue estoppel means that a matter of fact or law determined by a foreign court may not be further contested
before the English courts. See generally in this regard Dicey and Morris on the Conflict of Laws (11th edn, 1987) vol 1, p 432 et seq). It followed, in the
Court of Appeal’s view, that the English courts were empowered to stay the English proceedings on the question of fraud until that issue had been
determined in Italy (see [1991] 4 All ER 833 at 857, [1992] 2 AC 443 at 472):
‘Accordingly, in our judgment there must be a power in the English court to stay the trial in England of the issue whether the St Vincent
judgment was obtained by fraud pending the trial of the same issue in Italy. It could be productive of great injustice to allow the issue to go ahead
in England when the same issue could be better tried in Italy and the Italian decision 367 could be determinative of the issue for the purposes of
the English proceedings.’
Following careful reflection, the High Court had decided not to stay the English enforcement proceedings, since, first, there was in its opinion no certainty
that the Italian courts would decide the question of fraud at all and, second, it took the view that no such decision could be expected in the foreseeable
future. Although the Court of Appeal was quite prepared to acknowledge the arguments in favour of having that issue decided by the Italian courts, and
attached considerable weight to them (see [1991] 4 All ER 833 at 856–857, [1992] 2 AC 443 at 471–472), it upheld that decision ([1991] 4 All ER 833 at
858, [1992] 2 AC 443 at 473):
Preamble
‘In our judgment the English courts should adopt a communautaire, and not a national and chauvinistic, approach to the determination of this
question …’
The application of art 22 of the Brussels convention could very well have led to precisely the same result (see paras 76–79, post).
68. Within the context of these alternative observations, let us now turn to the question of which provisions could be applied to individual issues
arising in proceedings for the recognition and enforcement of the judgments of non-contracting states. In principle, both arts 21 and 22 would fall to be
considered here (clearly, there does not exist the requisite concurrent exclusive jurisdiction to decide such issues which is needed in order for art 23 to
apply). I will be brief in this regard, since otherwise I would have to enter the realm of speculation. It is true that the defendants have repeatedly asserted
that the question whether the plaintiff obtained the St Vincent judgment by fraud has arisen both in the Italian enforcement proceedings and in the Italian
civil proceedings. However, as the High Court and the Court of Appeal have already stated, there is not even any certainty that the Italian courts will
decide that question at all. Consequently, it is not possible to determine whether art 21 or art 22 might be applicable in the present case. It can only be
stated in general terms, therefore, that art 21 would apply if the proceedings involved ‘the same cause of action’, whilst art 22 would be applicable if the
proceedings concerned only related actions.
69. If it is assumed that only art 22 could be at all applicable in the present case (which seems likely to me), the result must be that the court second
seised would have to decide in its discretion whether to stay its proceedings. It should be pointed out in that regard that the same result could very well be
achieved on the basis of the respective national rules of procedure.
The position would of course be different if art 21 of the convention could be applied. It should be noted in that regard that, as is well known, the
court interprets that provision very widely. In particular, the judgment in Gubisch Maschinenfabrik KG v Palumbo Case 144/86 [1987] ECR 4861 should
be borne in mind here.
In that case the court second seised would have to decline jurisdiction of its own motion in favour of the court first seised.
70. In the present case, that would mean that in this respect—I am referring in this connection only to the issue of fraud—the English courts would
have to decline jurisdiction in favour of the Italian courts, since there is no dispute that the latter were seised first. There can hardly be any doubt that this
would produce a sensible result. The issue would be decided by the Italian courts, 368 which are probably in the best position to determine it: the
native tongue of the most important persons involved is Italian, as is that of most of the witnesses. The domicile or seat of the defendants and of most of
the witnesses is in Italy. Almost all of the relevant documents are in Italian. Of those documents, the most important ones are in the custody of the Italian
courts and apparently cannot be released until the conclusion of the criminal proceedings. In addition, the experts appointed by the Italian courts and by
the parties are Italian and have produced their reports in their native language.
71. It is clear, though, that this result would be due only to the fact that the Italian courts were seised first. However, had the plaintiff applied to have
its judgment declared enforceable in England or another contracting state before those questions came before the Italian courts, then under art 21 those
courts would have had jurisdiction, and not the Italian courts, although the latter are much closer to the facts of the case which are to be determined. The
application of the Brussels convention would thus result in the issue in question being indeed decided by the courts of a single contracting state, but they
would not be the courts of the contracting state which, in terms of proximity to the subject matter, appears almost predestined to deal with the matter.
72. As we have already seen, Title II of the Brussels convention lays down rules of jurisdiction to determine which courts should most appropriately
decide the dispute, taking all relevant matters into account (see para 42, ante). For that reason, the conflict arising from the fact that pursuant to Title II
two competent courts are seised of the same matter can be resolved quite simply by the convention by conferring jurisdiction under art 21 on the court
first engaged. However, where, as in the present case, the jurisdiction of one (or both) of those courts derives not from the provisions of arts 2 to 18 of the
convention but directly from national law, that relatedness will be lacking. In those circumstances, the application of art 21 may produce appropriate
results, but will not necessarily do so.
Here too, therefore, we find confirmation that arts 21 to 23—and the convention as a whole—are based on original jurisdiction and are not suited to
proceedings for the recognition and enforcement of judgments given in non-contracting states or to issues arising in such proceedings.
73. Like the Commission, I am not convinced by the defendants’ submission, upon which they place particular emphasis, that this could result in
high costs for them because of the possible multiplicity of proceedings. The very reason for the fact that there could be many sets of proceedings lies in
the fact that a judgment creditor can enforce, or can at least attempt to enforce, his judgment in more than one state.
THE THIRD QUESTION

74. The national court’s third question seeks to ascertain the principles of Community law which are applicable where a court other than the court
first seised is deciding whether to stay its proceedings. This is therefore a reference to the criteria to be observed in the context of art 22 of the
convention. In the light of my proposed answer to the first preliminary question, I will deal only in the alternative with the problems addressed here.
75. The decision required in the context of art 22 of the convention is a discretionary decision. It goes without saying that the circumstances of each
individual case are particularly important here. The national courts must bear in mind that the aim of this provision is ‘to prevent parallel proceedings
before the courts of different contracting states and to avoid conflicts between 369 decisions which might result therefrom’, as the court stated in its
judgment in Overseas Union Insurance Ltd v New Hampshire Insurance Co Case C-351/89 [1992] 2 All ER 138 at 160, [1992] QB 434 at 457 (para 16).
It would therefore be appropriate in case of doubt for a national court to decide to stay its proceedings under art 22 (see in this regard the judgment of the
High Court (Ognall J) in Virgin Aviation Services Ltd v CAD Aviation Services [1991] IL Pr 79 at 88, in which the court held that there was a strong
presumption in favour of allowing an application for a stay (‘… signifies that the strong presumption where an application is made for a stay, lies in
favour of the applicant’)).
76. Furthermore, there are three factors which may be relevant to the exercise of the discretion vested in national courts by virtue of art 22, but this
does not mean other considerations may not also be important: the extent of the relatedness and the risk of mutually irreconcilable decisions; the stage
reached in each set of proceedings; and the proximity of the courts to the subject matter of the case.
77. Clearly, the closer the connection between the proceedings in question, the more necessary it would appear for the court second seised to stay its
proceedings. If other factors are of some relevance to the proceedings pending before the court first seised, it may be appropriate for the court second
seised not to stay its proceedings (see in this regard the judgment of the Oberlandesgericht Karlsruhe of 4 August 1977 in Decision 4U 187/75 RIW 1977
p 718 et seq (Digest of case-law relating to the European Communities, D Series, I-5.3–B 8)). It would appear sensible, for example, for a court to
decline to stay its proceedings on the grounds that only an interim measure can be taken in those proceedings and that there is therefore no risk of
irreconcilable decisions (see the judgment of the Hof van Beroep te Antwerpen of 18 October 1979 in UGHA Group v NV BSL Belgische Rechtspraak in
Handelszaken 1980 pp 181 (Digest of case-law relating to the European Communities, D Series, I-22–B 2)). The more the proceedings are related,
however, and the greater the risk of the courts arriving at irreconcilable decisions, the more likely it will be that the court second seised should stay its
proceedings in accordance with art 22.
78. Contrary to the defendants’ view, it is also legitimate for the court second seised to have regard, when reaching its decision regarding a possible
Preamble
stay, to the stage reached in the parallel proceedings. The proceedings before the court first seised should of course have reached a more advanced stage
than the proceedings before the court subsequently seised of a related action. Where this is not the case, however, and where there is no prospect of a
decision in the first set of proceedings, there is nothing to prevent the court subsequently seised from taking account of this when arriving at its
discretionary decision.
79. Finally, it goes without saying that in the exercise of such discretion regard may be had to the question of which court is in the best position to
decide a given question (see the judgment of the Arrondissementsrechtbank’s -Gravenhage of 1 February 1985 in Société des Ciments Antillais SA v
Hollandsche Aanneming Maatschappij BV Schip en Schade 1985 pp 251, 254 (Digest of case-law relating to the European Communities, D Series,
I-22–B 8) and the judgment of the Danish Sø-og Handelsretten of 5 September 1991 in Polish Shipping Co v Partrederiet for Elbe og Veser, upheld by
the judgment of the Højesteret of 19 February 1992 (126 Ugeskrift for Retsvæsen 403)).
C. Conclusion
80. I therefore propose that the court should answer the questions submitted by the House of Lords for a preliminary ruling as follows:
370
‘The Brussels Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters is not
applicable to proceedings concerning the recognition and enforcement of judgments in civil and commercial matters given in non-contracting states,
nor to issues arising in such proceedings.’
20 January 1994. THE COURT OF JUSTICE delivered the following judgment.
1. By order of 1 April 1992, received at the court on 22 April 1992, the House of Lords referred to the court for a preliminary ruling pursuant to the
Protocol of 3 June 1971 on the interpretation by the Court of Justice of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of
Judgments in Civil and Commercial Matters three questions on the interpretation of that convention, as amended by the convention of 9 October 1978 on
the accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland and by the convention of 25 October
1982 on the accession of the Hellenic Republic (hereinafter referred to as ‘the convention’), in particular arts 21, 22 and 23, relating to lis pendens and
related actions.
2. Those questions arose in proceedings between Owens Bank Ltd (hereinafter referred to as ‘Owens Bank’), a company domiciled in the
independent Caribbean state known as St Vincent and the Grenadines (hereinafter referred to as ‘St Vincent’) and Bracco Industria Chimica SpA, a
company domiciled in Italy (hereinafter referred to as ‘Bracco SpA’), and its chairman and managing director, Fulvio Bracco, domiciled in Italy.
3. Owens Bank claims to have lent 9m Swiss francs in cash to Fulvio Bracco in 1979. According to a clause in the documentation relating to the
loan, the High Court of Justice of Saint Vincent was to have jurisdiction to decide all disputes. On 29 January 1988 Owens Bank obtained from that court
a judgment (hereinafter referred to as ‘the St Vincent judgment’) ordering Fulvio Bracco and Bracco SpA to repay the loan. An appeal lodged by the last
named parties was dismissed by the Court of Appeal of St Vincent on 12 December 1989.
4. In the course of those proceedings Fulvio Bracco and Bracco SpA denied that a loan was made. They alleged that the documents submitted by
Owens Bank were forgeries and that certain witnesses had given false testimony.
5. On 11 July 1989 Owens Bank applied in Italy for an order for the enforcement of the St Vincent judgment. Before the Italian court Fulvio Bracco
and Bracco SpA claimed, inter alia, that Owens Bank had obtained that decision by fraud.
6. On 7 March 1990 Owens Bank applied to an English court, pursuant to s 9 of the Administration of Justice Act 1920, for a declaration that the St
Vincent judgment was enforceable in England. Fulvio Bracco and Bracco SpA maintained, as they had done in the Italian proceedings, that Owens Bank
had obtained by fraud the judgment it was seeking to enforce. Relying on arts 21 and 22 of the Brussels convention, they also requested the English court
to decline jurisdiction or to stay proceedings pending the conclusion of the Italian enforcement proceedings.
7. In support of their application the defendants relied on the fact that the question whether the plaintiff had obtained the St Vincent judgment by
fraud had to be examined in both the English and the Italian enforcement proceedings.
8. The House of Lords, as court of last instance, considered that the case raised issues concerning the interpretation of the convention and decided to
371 stay the proceedings until the Court of Justice had given a preliminary ruling on the following questions:
communautaire principles which should be applied by a national court in determining whether there should be a stay of the proceedings in the
national court second seised?’
The first and second questions

9. Since the first and second questions are closely linked, they will be examined together.
10. Before answering them, the nature of the procedure before the national court needs to be described.
11. As the Advocate General explained in paras 7 and 8 of his opinion, there are a number of ways in which foreign judgments may be recognised
and enforced under English law. The procedure followed in this case consisted in having the foreign judgment registered pursuant to s 9 of the
Administration of Justice Act 1920 so that it could be enforced in the same way as a judgment given by an English court.
12. That section provides, inter alia, that a judgment shall not be registered if it was obtained by fraud or it was in respect of a cause of action which,
for reasons of public policy, could not have been entertained by the registering court. Any such judgment, if registered, is open to challenge in legal
proceedings. The court seised of the matter may then order the issue to be determined following a trial inter partes.
13. The first and second questions referred to the court have therefore arisen in proceedings which are intended to pave the way in one of the states
parties to the convention (hereinafter referred to as ‘contracting states’) to the execution of a judgment given in a civil and commercial matter in a state
other than a contracting state (hereinafter referred to as ‘a non-contracting state’).
14. In view of the purpose of such proceedings, the national court asks whether the convention, in particular arts 21, 22 or 23, applies to proceedings,
or issues arising in proceedings, in contracting states concerning the recognition and enforcement of judgments given in civil and commercial matters in
Preamble
non-contracting states.
15. Fulvio Bracco and Bracco SpA maintain that such proceedings involve civil and commercial matters as defined in art 1 of the convention and
that consequently they fall within the scope of the convention.
16. That view cannot be accepted.
17. First, it follows from the wording of arts 26 and 31 of the convention, which must be read in conjunction with art 25, that the procedures
envisaged 372 by Title III of the convention, concerning recognition and enforcement, apply only in the case of decisions given by the courts of a
contracting state.
18. Articles 26 and 31 refer only to ‘A judgment given in a Contracting State’ whilst art 25 provides that, for the purposes of the convention,
‘judgment’ means any judgment given by a court or tribunal of a contracting state, whatever the judgment may be called.
19. Next, as regards the rules on jurisdiction contained in Title II of the convention, the convention is, according to its preamble, intended to
implement provisions in art 220 of the EEC Treaty by which the member states of the Community undertook to simplify formalities governing the
reciprocal recognition and enforcement of judgments of courts or tribunals.
20. Moreover, according to its preamble, one of the objectives of the convention is to strengthen in the Community the legal protection of persons
therein established.
21. The experts’ report drawn up at the time when the convention was drafted states in this regard (OJ 1979 C59, p 1 at 15):
‘… the purpose of the Convention is … by establishing common rules of jurisdiction, to achieve … in the field which it was required to cover, a
genuine legal systematization which will ensure the greatest possible degree of legal certainty. To this end, the rules of jurisdiction codified in Title
II determine which State’s courts are most appropriate to assume jurisdiction, taking into account all relevant matters …’
22. To that end, Title II of the convention establishes certain rules of jurisdiction which, after laying down the principle that persons domiciled in a
contracting state are to be sued in the courts of that state, go on to determine restrictively the cases in which that principle is not to apply.
23. So it is clear that Title II of the convention lays down no rules determining the forum for proceedings for the recognition and enforcement of
judgments given in non-contracting states.
24. Contrary to the arguments advanced by Fulvio Bracco and Bracco SpA, art 16(5), which provides that in proceedings concerned with the
enforcement of judgments the courts of the contracting state in which the judgment has been or is to be enforced are to have exclusive jurisdiction, must
indeed be read in conjunction with art 25, which, it will be recalled, applies only to judgments given by a court or tribunal of a contracting state.
25. The conclusion must therefore be that the convention does not apply to proceedings for the enforcement of judgments given in civil and
commercial matters in non-contracting states.
26. Fulvio Bracco and Bracco SpA argue that a distinction should be made between an order for enforcement simpliciter and a decision of a court of
a contracting state on an issue arising in proceedings to enforce a judgment given in a non-contracting state, such as the question whether the judgment in
question was obtained by fraud. Decisions of the second type are, they argue, independent of the enforcement proceedings and should be recognised in
the other contracting states in accordance with art 26 of the convention.
27. According to the defendants, that interpretation follows from the principles and objectives of the EEC Treaty and of the convention, as identified
by the court. It is therefore necessary, in the interests of the proper administration of justice, to prevent parallel proceedings before the courts of different
contracting states and the conflicting decisions which might result from them, and, similarly, to preclude as far as possible a situation where a 373
contracting state refuses to recognise a decision of another contracting state on the ground that it is irreconcilable with a decision given between the same
parties in the state in which recognition is sought. They refer in this regard to the judgments in Gubisch Maschinenfabrik KG v Palumbo Case 144/86
[1987] ECR 4861, Dumez France and Tracoba v Hessische Landesbank (Helaba) Case C-220/88 [1990] ECR I-49 and Overseas Union Insurance Ltd v
New Hampshire Insurance Co Case C-351/89 [1992] 2 All ER 138, [1992] QB 434.
28. That interpretation cannot be accepted.
29. First, the essential purpose of a decision given by a court of a contracting state on an issue arising in proceedings for the enforcement of a
judgment given in a non-contracting state, even where that issue is tried inter partes, is to determine whether, under the law of the state in which
recognition is sought or, as the case may be, under the rules of any agreement applicable to that state’s relations with non-contracting states, there exists
any ground for refusing recognition and enforcement of the judgment in question. That decision is not severable from the question of recognition and
enforcement.
30. Secondly, according to arts 27 and 28 of the convention, read in conjunction with art 34, the question whether any such ground exists in the case
of judgments given in another contracting state falls to be determined in the proceedings in which recognition and enforcement of those judgments are
sought.
31. There is no reason to consider that the position is any different where the same question arises in proceedings concerning the recognition and
enforcement of judgments given in non-contracting states.
32. On the contrary, the principle of legal certainty, which is one of the objectives of the convention (see the judgment in Effer SpA v Kanter Case
38/81 [1982] ECR 825 at 834 (para 6)), militates against making the distinction advocated by Fulvio Bracco and Bracco SpA.
33. The rules of procedure governing the recognition and enforcement of judgments given in a non-contracting state differ according to the
contracting state in which recognition and enforcement are sought.
34. Lastly, it is clear from the judgment in Marc Rich & Co AG v Società Italiana Impianti PA Case C-190/89 [1991] ECR I-3855 at 3902 (para 26)
that if, by virtue of its subject matter, a dispute falls outside the scope of the convention, the existence of a preliminary issue which the court must resolve
in order to determine the dispute cannot, whatever that issue may be, justify application of the convention.
35. Fulvio Bracco and Bracco SpA also argue that, even assuming that the jurisdiction of the courts seised is not conferred by the convention, the
judgment in the Overseas Union Insurance case shows that arts 21, 22 and 23 of the convention apply even where the courts seised derive their
jurisdiction, not from the provisions of the convention, but from the applicable national law.
36. In response to that argument, it is sufficient to state that the judgment in the Overseas Union Insurance case relates to proceedings which, unlike
those with which the present dispute is concerned, fell, by virtue of their subject matter, within the scope of the convention.
37. The answer to the first and second questions must therefore be that the convention, in particular arts 21, 22 and 23, does not apply to
proceedings, or issues arising in proceedings, in contracting states concerning the recognition and enforcement of judgments given in civil and
commercial matters in non-contracting states.
374
The third question

38. In view of the answer given to the first and second questions, the third question does not call for a reply.
Preamble
Costs
39. The costs incurred by the United Kingdom and the Commission of the European Communities, which have submitted observations to the court,
are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the
decision on costs is a matter for that court.
On those grounds, the court (Sixth Chamber), in answer to the questions referred to it by the House of Lords by order of 1 April 1992, hereby rules:
the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, in particular arts 21, 22 and
23, does not apply to proceedings, or issues arising in proceedings, in contracting states concerning the recognition and enforcement of judgments given
in civil and commercial matters in non-contracting states.

[1994] 1 All ER 375
R v Parliamentary Commissioner for Administration, ex parte Dyer

ADMINISTRATIVE

SIMON BROWN LJ AND BUCKLEY J
11, 19 OCTOBER 1993
Judicial review – Parliamentary Commissioner for Administration – Judicial review of commissioner’s decision and report – Complainant dissatisfied
with result of commissioner’s investigation into her complaints – Whether court having jurisdiction to review commissioner’s exercise of discretion –
Whether court’s power of review restricted to exceptional cases of abuse of discretion – Whether commissioner required to investigate all complaints
made by complainant – Whether commissioner required to show draft report to complainant – Whether commissioner having power to reopen
investigation without further referral by member of Parliament – Parliamentary Commissioner Act 1967, ss 5, 7, 10.
The applicant made complaints through a member of Parliament to the Parliamentary Commissioner for Administration that the Department of Social
Security had mishandled her claims for invalidity benefit, supplementary benefit and income support. The commissioner investigated her complaints and
found that they were justified. The department made an ex gratia payment of £500 to the applicant to reimburse her expenses in pursuing her claim and
apologised for its shortcomings. The commissioner sent a detailed 18-page report of the results of his investigation to the member of Parliament and the
department as required by s 10a of the Parliamentary Commissioner Act 1967, 375 stating that he regarded the ex gratia payment and apology as a
satisfactory outcome. The applicant was dissatisfied with the report and applied for judicial review of the commissioner’s decision not to reopen his
investigation on the grounds (i) that the commissioner had only investigated some of her complaints, (ii) that although he had given the department an
opportunity to comment on the report in draft he had not given the applicant that opportunity, (iii) that he had refused to reopen the investigation when the
applicant had pointed out his failure to consider a number of her complaints, and (iv) that he had wrongly regarded himself as precluded from reopening
the investigation. The commissioner contended that the court had no jurisdiction to review his exercise of his discretion under the 1967 Act because he
was answerable to Parliament alone for the way he performed his functions, as evidenced by the fact that under s 5b of that Act a complaint had to be
referred to the commissioner by a member of Parliament before he could exercise his powers of investigation and he had to report back to that member,
and furthermore he was answerable to the select committee appointed to examine the functions of the commissioner. The commissioner further
contended in the alternative that the court’s power of review was restricted to very exceptional cases of abuse of his discretion if and when such abuse
occurred.
________________________________________
a Section 10, so far as material, is set out at p 379 g to p 380 a, post
b Section 5, so far as material, is set out at p 379 b to d, post
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Held – (1) The commissioner’s decisions were susceptible to judicial review since there was nothing singular about his role or the statutory framework
within which he operated which took him wholly outside the purview of judicial review. Nor was the court’s power of review restricted to very
exceptional cases of abuse of discretion by the commissioner. However, given the width of the commissioner’s powers under s 5(5) of the 1967 Act to
‘act in accordance with his own discretion’ when determining whether to initiate, continue or discontinue an investigation and under s 7(2)c of that Act to
adopt such procedure for conducting an investigation as he considered ‘appropriate in the circumstances of the case’ and the high degree of subjective
judgment involved in exercising those particular discretions, the court would not readily be persuaded to interfere with the exercise of the commissioner’s
discretion (see p 380 e f, p 381 b to h, and p 384 g, post); Nottinghamshire CC v Secretary of State for the Environment [1986] 1 All ER 199
distinguished.
________________________________________
c Section 7(2) is set out at p 379 d to f, post
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(2) Accordingly, the commissioner was entitled in the exercise of his discretion to limit the scope of his investigation and to select which of the
applicant’s many detailed complaints he proposed to investigate. Furthermore, the commissioner’s long-standing practice to send a copy of his draft
report to the department concerned for comment but not to the complainant was not contrary to natural justice, since the department, rather than the
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complainant, was being investigated and had to justify its actions before the select committee and was liable to face public criticism. In those
circumstances fairness did not require that the complainant also be shown the draft report. The commissioner, despite his wide discretion, had no power
to reopen an investigation once his report had been sent to the member of Parliament who had referred the complaint to him and to the department since
he was then functus officio and unable to reopen the investigation without a further referral under s 5(1) of the 1967 Act. The application for judicial
review would therefore 376 be dismissed (see p 383 c to j and p 384 b to g, post); dictum of Lord Bridge in Lloyd v McMahon [1987] 1 All ER 1118
at 1161 applied.
Notes
For investigation of complaints by Parliamentary Commissioner for Administration, see 1(1) Halsbury’s Laws (4th edn reissue) paras 41–42.
For the Parliamentary Commissioner Act 1967, ss 5, 7, 10, see 10 Halsbury’s Statutes (4th edn) 352, 354, 356.

Hammersmith and Fulham London BC v Secretary of State for the Environment [1990] 3 All ER 589, [1991] 1 AC 521, [1990] 3 WLR 898, HL.
Nottinghamshire CC v Secretary of State for the Environment [1986] 1 All ER 199, [1986] AC 240, [1986] 2 WLR 1, HL.
R v Comr for Local Administration, ex p Croydon London BC [1989] 1 All ER 1033.
R v Comr for Local Administration, ex p Eastleigh BC [1988] 3 All ER 151, [1988] QB 855, [1988] 3 WLR 113, CA.
Cases also cited

Jones v Dept of Employment [1988] 1 All ER 725, [1989] QB 1, CA.
R v Parliamentary Comr for Administration, ex p Lithgow (26 January 1990, unreported), QBD.

Monica Dyer applied, with the leave of Popplewell J given on 2 September 1992, for judicial review of the decision by the Parliamentary Commissioner
for Administration (the PCA) dated 20 December 1991 not to reopen his investigation into complaints made by the applicant against the Department of
Social Security. The relief sought was (i) certiorari to quash the decision, (ii) mandamus requiring the commissioner to determine the matter according to
law and (iii) declarations that the commissioner was susceptible to judicial review and that his decision not to reopen the case was unreasonable. The
facts are set out in the judgment of Simon Brown LJ.
Miss Dyer appeared in person.

Stephen Richards (instructed by the Treasury Solicitor) for the PCA.
Cur adv vult
19 October 1993. The following judgments were delivered.
The Judge Rapporteur (P J G Kapteyn) presented the following report for the hearing.
SIMON BROWN LJ. This is an application by Miss Monica Dyer for judicial review of a decision of the Parliamentary Commissioner for
Administration (hereafter the ‘PCA’) dated 20 December 1991 not to reopen his investigation into her complaints against the Department of Social
Security. Those complaints were many and various with regard to the department’s mishandling of her claims for invalidity benefit, supplementary
benefit and income support during the late 1980s. The PCA for his part regards the investigation as at an end, completed when on 18 September 1991 he
sent a 377 detailed 18-page report of its results to the Rt Hon Roy Hattersley MP (who had referred the complaint to him on 13 March 1990) and to
the department, those being its required recipients under the legislation.
The report, let it be said at once, found Miss Dyer’s complaint to be justified. Time and again it criticised the department for maladministration and
in particular the local office for mishandling various aspects of the applicant’s benefit claims. In several instances where the report identifies matters of
justified complaint it notes that the Permanent Secretary offers his apologies to the applicant. The PCA says:
‘… my investigation has shown that the local office have tried to improve their service to Miss Dyer, including bringing problems which she
perceives in the regulations for those in her position to the attention of the department’s policymakers. They have also been willing to apologise for
their shortcomings.’
In his final conclusion he states:
‘I regard the Permanent Secretary’s apologies, which I pass on to Miss Dyer, and the ex gratia payment of £500 [sent to her by the department
on 28 March 1991 by way of reimbursement for a proportion of her claim for the expenses incurred in pursuing her claim] as a satisfactory outcome
to my investigation.’
The report did not, however, satisfy Miss Dyer. Far from it. Although, as stated, her challenge in form is directed to the PCA’s refusal to reopen his
investigation, that is but one of her complaints: in substance she challenges the manner in which the PCA carried out the original investigation. Put
shortly, the main criticisms which she directs at the PCA are these: first, that he investigated some only of her original complaints, omitting several which
she regarded as of importance (and in one instance investigating an earlier problem about which she was no longer complaining); second, that although he
gave the department an opportunity to comment upon the report in draft, he gave her no such opportunity; third, that he refused to reopen the investigation
when, after reading the final report, she pointed out his failure to consider a number of her complaints, and, indeed, wrongly regarded himself as
precluded from reopening it.
This is the first substantive application for judicial review of the PCA to come before the courts (an application for leave in an earlier case having
been refused). The first question raised for decision upon it concerns the proper ambit of this court’s supervisory jurisdiction over the PCA. Mr Stephen
Richards on his behalf submits to us that, certainly so far as the PCA’s discretionary powers are concerned, this court has no review jurisdiction whatever
Preamble
over their exercise. In the alternative he submits that the court should intervene only in the most exceptional cases of abuse of discretion, essentially on
the same limited basis held by the House of Lords in Nottinghamshire CC v Secretary of State for the Environment [1986] 1 All ER 199, [1986] AC 240
and Hammersmith and Fulham London BC v Secretary of State for the Environment [1990] 3 All ER 589, [1991] 1 AC 521 to be appropriate in the
particular area of decision-making there in question.
The resolution of this initial jurisdictional issue clearly depends essentially on the legislation which created the PCA’s office and governs the
discharge of his functions. To these provisions I now turn. They are to be found in the 378 Parliamentary Commissioner Act 1967. Most relevant for
present purposes are these sections:
‘5.—(1) Subject to the provisions of this section, the Commissioner may investigate any action taken by or on behalf of a government
department or other authority to which this Act applies, being action taken in the exercise of administrative functions of that department or
authority, in any case where—(a) a written complaint is duly made to a member of the House of Commons by a member of the public who claims
to have sustained injustice in consequence of maladministration in connection with the action so taken; and (b) the complaint is referred to the
Commissioner, with the consent of the person who made it, by a member of that House with a request to conduct an investigation thereon …
(5) In determining whether to initiate, continue or discontinue an investigation under this Act, the Commissioner shall, subject to the foregoing
provisions of this section, act in accordance with his own discretion; and any question whether a complaint is duly made under this Act shall be
determined by the Commissioner …
7.—(1) Where the Commissioner proposes to conduct an investigation pursuant to a complaint under this Act, he shall afford to the principal
officer of the department or authority concerned, and to any person who is alleged in the complaint to have taken or authorised the action
complained of, an opportunity to comment on any allegations contained in the complaint.
(2) Every such investigation shall be conducted in private, but except as aforesaid the procedure for conducting an investigation shall be such as
the Commissioner considers appropriate in the circumstances of the case; and without prejudice to the generality of the foregoing provision the
Commissioner may obtain information from such persons and in such manner, and make such inquiries, as he thinks fit, and may determine whether
any person may be represented, by counsel or solicitor or otherwise, in the investigation …
10.—(1) In any case where the Commissioner conducts an investigation under this Act or decides not to conduct such an investigation, he shall
send to the member of the House of Commons by whom the request for investigation was made (or if he is no longer a member of that House, to
such member of that House as the Commissioner thinks appropriate) a report of the results of the investigation or, as the case may be, a statement of
his reasons for not conducting an investigation.
(2) In any case where the Commissioner conducts an investigation under this Act, he shall also send a report of the results of the investigation to
the principal officer of the department or authority concerned and to any other person who is alleged in the relevant complaint to have taken or
authorised the action complained of.
(3) If, after conducting an investigation under this Act, it appears to the Commissioner that injustice has been caused to the person aggrieved in
consequence of maladministration and that the injustice has not been, or will not be, remedied, he may, if he thinks fit, lay before each House of
Parliament a special report upon the case.
(4) The Commissioner shall annually lay before each House of Parliament a general report on the performance of his functions under this
379 Act and may from time to time lay before each House of Parliament such other reports with respect to those functions as he thinks fit …’
Shortly after the 1967 Act came into force, we are told, a select committee was appointed specifically with regard to the PCA, to examine his reports
and consider any matters in connection with them.
As to his wider proposition—that this court has literally no right to review the PCA’s exercise of his discretion under the 1967 Act (not even, to give
the classic illustration, if he refused to investigate complaints by red-headed complainants)—Mr Richards submits that the legislation is enacted in such
terms as to indicate an intention that the PCA should be answerable to Parliament alone for the way he performs his functions. The PCA is, he suggests,
an officer of the House of Commons, and, the argument runs, the parliamentary control provided for by the statute displaces any supervisory control by
the courts. Mr Richards relies in particular on these considerations: first, the stipulation under s 5 that a complaint must be referred to the PCA by a
member of Parliament before even his powers of investigation are engaged; second, the requirement under s 10(1) to report back to the member of
Parliament (and, in certain circumstances, to each House of Parliament—see s 10(3)); third, the requirement under s 10(4) annually to lay a general report
before Parliament; fourth, the provision under s 1(3) of the Act for the PCA’s removal from office only in the event of addresses from both Houses of
Parliament. Mr Richards points also to the PCA being always answerable to the select committee.
Despite these considerations I, for my part, would unhesitatingly reject this argument. Many in government are answerable to Parliament and yet
answerable also to the supervisory jurisdiction of this court. I see nothing about the PCA’s role or the statutory framework within which he operates so
singular as to take him wholly outside the purview of judicial review.
I turn next, therefore, to Mr Richards’s alternative and narrower submission that, by analogy with the two House of Lords cases already mentioned,
the courts should regard their powers as restricted with regard to reviewing the PCA’s exercise of the discretions conferred upon him by this legislation.
I need cite one passage only from the speeches in those two cases, this from Lord Bridge’s speech in Hammersmith and Fulham London BC v
Secretary of State for the Environment [1990] 3 All ER 589 at 637, [1991] 1 AC 521 at 597:
‘The restriction which the Nottinghamshire case [1986] 1 All ER 199, [1986] AC 240 imposes on the scope of judicial review operates only
when the court has first determined that the ministerial action in question does not contravene the requirements of the statute, whether express or
implied, and only then declares that, since the statute has conferred a power on the Secretary of State which involves the formulation and the
implementation of national economic policy and which can only take effect with the approval of the House of Commons, it is not open to challenge
on the grounds of irrationality short of the extremes of bad faith, improper motive or manifest absurdity. Both the constitutional propriety and the
good sense of this restriction seem to me to be clear enough. The formulation and the implementation of national economic policy are matters
depending essentially on political judgment. The decisions which shape them are for politicians to take and it is in the political forum of the House
of Commons that they are properly to be debated and approved or disapproved on their 380 merits. If the decisions have been taken in good
faith within the four corners of the Act, the merits of the policy underlying the decisions are not susceptible to review by the courts and the courts
would be exceeding their proper function if they presumed to condemn the policy as unreasonable.’
Mr Richards concedes that the analogy between the position considered there and that arising here is not a very close one. He submits, however, that
the underlying rationale for restricting the scope of judicial review in those cases applies also here. Although, as counsel recognises, the PCA’s functions
are manifestly not political, nevertheless, he submits, the provisions here for parliamentary control afford this case a comparable dimension.
This submission too I would reject. There seems to me no parallel whatever between, on the one hand, decisions regarding the formulation and
implementation of national economic policy—decisions ‘depending essentially on political judgment … for politicians to take … in the political forum of
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the House of Commons’—and, on the other hand, decisions of the PCA regarding the matters appropriate for investigation and the proper manner of their
investigation.
All that said, however, and despite my rejection of both Mr Richards’s submissions on the question of jurisdiction, it does not follow that this court
will readily be persuaded to interfere with the exercise of the PCA’s discretion. Quite the contrary. The intended width of these discretions is made
strikingly clear by the legislature: under s 5(5), when determining whether to initiate, continue or discontinue an investigation, the commissioner shall ‘act
in accordance with his own discretion’; under s 7(2), ‘the procedure for conducting an investigation shall be such as the commissioner considers
appropriate in the circumstances of the case’. Bearing in mind too that the exercise of these particular discretions inevitably involves a high degree of
subjective judgment, it follows that it will always be difficult to mount an effective challenge on what may be called the conventional ground of
Wednesbury unreasonableness (see Associated Provincial Picture Houses Ltd v Wednesbury Corp [1947] 2 All ER 680, [1948] 1 KB 223).
Recognising this, indeed, one may pause to wonder whether in reality the end result is much different from that arrived at by the House of Lords in
the two cases referred to, where the decisions in question were held ‘not open to challenge on the grounds of irrationality short of the extremes of bad
faith, improper motive or manifest absurdity’. True, in the present case ‘manifest absurdity’ does not have to be shown; but inevitably it will be almost as
difficult to demonstrate that the PCA has exercised one or other of his discretions unreasonably in the public law sense.
Before passing from this part of the case I should mention briefly two authorities with regard to the exercise of the courts’ review jurisdiction over
local commissioners’ reports—R v Comr for Local Administration, ex p Eastleigh BC [1988] 3 All ER 151, [1988] QB 855, and R v Comr for Local
Administration, ex p Croydon London BC [1989] 1 All ER 1033. Only in Ex p Eastleigh BC [1988] 3 All ER 131 at 157–158, [1988] QB 855 at 866 was
the jurisdictional issue raised, Lord Donaldson MR stating:
‘Let me start with the fact that Parliament has not created a right of appeal against the findings in an ombudsman’s report. It is this very fact,
coupled with the public law character of the ombudsman’s office and 381 powers which is the foundation of the right to relief by way of
judicial review.’
Mr Richards accepts that the scheme, and indeed language, of the Local Government Act 1974, which created local commissioners, is very similar to
that of the 1967 Act (on which it was clearly based), but he draws our attention to certain particular differences which he suggests are possibly material,
and he submits that merely because local commissioners have been held reviewable by the courts it does not follow that Parliament intended the PCA’s
powers under the original legislation to be reviewable. For my part I find it unnecessary to consider this submission in any depth. For this reason: both
these local commissioner cases appear to have been concerned not with reviewing the exercise of the local commissioner’s discretion but rather with the
examination of his powers; what was being alleged was that he had contravened the requirements of the statute. There can surely be no possible question
but that the court’s supervisory jurisdiction exists for this purpose and, indeed, Mr Richards has not submitted to the contrary. To my mind, therefore,
these local commissioner cases do not advance the argument one way or the other with respect to the court’s jurisdiction to review the exercise of the
PCA’s discretionary powers. But of course it follows from my already expressed conclusion upon that point that I would regard the exercise of the local
commissioner’s discretion as reviewable too. Again, however, only with inevitable difficulty. As Lord Donaldson MR said in Ex p Eastleigh BC [1988]
3 All ER 151 at 158, [1988] QB 855 at 867:
‘… I am very far from encouraging councils to seek judicial review of an ombudsman’s report, which, bearing in mind the nature of his office
and duties and the qualifications of those who hold that office, is inherently unlikely to succeed …’
Both those cases were, of course, concerned with judicial review applications by local authorities against whom the local commissioner had reported
adversely. Certainly no greater encouragement should be afforded to those whose complaints the commissioner has investigated; their prospects of
success are clearly no higher.
Recognising the full width of our jurisdiction but with those considerations in mind I turn to Miss Dyer’s grounds of challenge.
As to her contention that the PCA investigated some only of her original grounds of complaint, that is undoubtedly the case. But is she entitled to
criticise the PCA for taking that course? More particularly, was the PCA acting outside the proper ambit of his discretion under s 5(5) of the 1967 Act in
doing so?
The following two passages in his report are relevant: first from para 14:
‘In her letter of complaint [Miss Dyer] gave examples of what she considered maladministration by the local and regional offices. I decided to
investigate six main aspects—(i) an inaccurate letter, (ii) an unnecessary appeal, (iii) the withdrawal of her benefit without a decision, (iv) the
failure to issue decisions, (v) inaccurate information and (vi) unanswered correspondence.’
And from para 17:
382
‘The papers supplied to me by both Miss Dyer and the DSS contained much correspondence, minutes, notes of interviews and notes of
telephone conversations. I have not found it either necessary or expedient to set them all out in detail in my report; but they have all been
scrutinised and taken into account in reaching these findings. It is clear that Miss Dyer received a very poor service from the local office. There
were problems in the handling of her correspondence, which was often unanswered, in making, or purporting to make, decisions on her claims and
in the general relationship between the local office and Miss Dyer. I do not propose to address each and every shortcoming in the local office’s
conduct of the case but the following are my findings on the six main elements of her complaint.’
He then set out his findings in some considerable detail.

In my judgment, the PCA was entitled in the exercise of his discretion to limit the scope of his investigation, to be selective as to just which of Miss
Dyer’s many detailed complaints he addressed, to identify certain broad categories of complaint (the six main aspects as he called them) and investigate
only those. Inevitably such an approach carried the risk that some of the problems which Miss Dyer complained of having experienced with the local
office would continue, and that indeed is what Miss Dyer says has occurred. But no investigation should be expected to solve all problems for all time
and it cannot in my judgment be said that the approach adopted here by the PCA was not one properly open to him.
Turning to Miss Dyer’s complaint that the draft report was sent to the department for comment on the facts but not to her, the respondent’s evidence
indicates that this is a practice which has existed for 25 years, and is known to and acquiesced in by the select committee. The reasons for it are explained
as follows. First, that it is the department rather than the complainant who may subsequently be called upon to justify its actions before the select
committee and, if it is shown the draft report and does not point out any inaccuracy, it will then be unable to dispute the facts stated in it. Second, the
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practice affords the department an opportunity to give notice in writing to the PCA, as expressly provided for by s 11(3) of the 1967 Act, of any document
or information the disclosure of which, in the opinion of the relevant minister, would be prejudicial to the safety of the state or otherwise contrary to the
public interest. Third, sight of the draft report gives the department the opportunity to propose the remedy it is prepared to offer in the light of any
findings of maladministration and injustice contained in it. The commissioner can then include in his final report what that proposed remedy is and
indicate whether he finds that it satisfactorily meets the need.
Miss Dyer recognises, I think, that the same reasons do not exist for sending the draft report to her. Indeed, having regard to s 11(3), it could not be
sent to her unless and until it had already been cleared by the department. Therefore, to graft on to the existing practice a need to show the draft report to
complainants too would introduce a further stage into the process. Does natural justice require this? I do not think so. As Lord Bridge said in Lloyd v
McMahon [1987] 1 All ER 1118 at 1161, [1987] AC 625 at 702:
concept, what the requirements of fairness demand when any body, 383 domestic, administrative or judicial, has to make a decision which will
affect the rights of individuals depends on the character of the decision-making body, the kind of decision it has to make and the statutory or other
framework in which it operates.’
Assuming, as I do, and indeed as Mr Richards concedes, that the PCA makes ‘a decision which will affect the rights of’ Miss Dyer, it should
nevertheless be borne in mind that it is the department and not her who is being investigated and who is liable to face public criticism for its acts. I cannot
conclude that fairness here demanded that she too be shown the draft report. Rather it seems to me that the PCA, in determining the procedure for
conducting his investigation as provided for by s 7(2), was amply entitled to consider it appropriate to follow his long-established practice.
I come finally to Miss Dyer’s complaint about the PCA’s refusal to reopen this investigation. This I can deal with altogether more shortly. It seems
to me that the PCA is clearly correct in his view that, once his report had been sent to Mr Hattersley and the DSS (as required by s 10(1) and (2)), he was
functus officio and unable to reopen the investigation without a further referral under s 5(1). Section 5(5), as already indicated, confers a wide discretion
indeed; it does not, however, purport to empower the PCA to reopen an investigation once his report is submitted. It would seem to me unfair to the
department and outside the scheme of this legislation to suppose that the PCA could do as Miss Dyer wished.
That apart, however, it is plain that even if the PCA had had the power to reopen his investigation he would inevitably have refused to do so: he had
long since decided not to investigate Miss Dyer’s further complaints and I have already held that he was entitled to limit his investigations in that way.
It follows that, in my judgment, none of Miss Dyer’s grounds of challenge can be made good and this application accordingly fails.
I would not wish to end this judgment without expressing my appreciation to Miss Dyer for the skill, courtesy and moderation with which she has
presented her case. She will, I have no doubt, be disappointed at its result. She must certainly not suppose, however, that her own powers of advocacy
have in any way let her down. On the contrary, we are indebted to her for her great assistance.
BUCKLEY J. I agree.

384
[1994] 1 All ER 385
Walpole and another v Partridge & Wilson (a firm)

CIVIL PROCEDURE

RALPH GIBSON, BELDAM AND PETER GIBSON LJJ
27 MAY, 1 JULY 1993
Action – Dismissal – Abuse of process of court – Collateral attack on final decision of court of competent jurisdiction in previous proceedings – Intending
plaintiff having had full opportunity of contesting decision in previous proceedings – Plaintiff’s solicitors failing to prosecute appeal against conviction –
Plaintiff suing solicitors for negligence and breach of duty in failing to prosecute appeal – Plaintiff claiming that appeal would have been successful –
Whether plaintiff’s action against solicitors collateral attack on final decision of court of competent jurisdiction – Whether plaintiff’s claim against
solicitors should be allowed to proceed.
The plaintiff, a pig farmer, was convicted by justices of obstructing a veterinary officer in the execution of his duty in that he tried to prevent blood
samples being taken from pigs at his farm, contrary to s 66 of the Animal Health Act 1981. He was fined £250 and ordered to pay £500 costs. He
appealed to the Crown Court, which dismissed his appeal. He retained the defendant solicitors to advise on an appeal against the Crown Court’s decision.
The plaintiff claimed that he had grounds for contending that the Crown Court’s decision was wrong in law because the veterinary officer had had no
grounds for believing that the plaintiff’s pigs were diseased. The defendants failed to lodge or prosecute the appeal, allegedly because counsel had
advised that it would be impossible to secure a reversal of the Crown Court’s decision. The plaintiff issued a writ against the defendants alleging that in
breach of their contract of retainer or negligently they had failed to act with due care and skill or to carry out their instructions with due expedition in
failing to lodge the appeal. He claimed that by reason of the defendants’ breaches of duty he had suffered loss and damage since if the appeal had been
lodged and pursued it would have been successful, the conviction would have been quashed, the fine and costs would have been returned, the plaintiff’s
reputation as a pig farmer and breeder would have been restored and he would have been able to sue the veterinary officer, or his employer, the Ministry
of Agriculture, Fisheries and Food, for damages for trespass and malicious prosecution and thereby to recover substantial damages. The defendants
Preamble
applied for an order that the proceedings be struck out as being an abuse of the process of the court, contending that the claim made by the plaintiff
amounted to a collateral attack on a final decision of a court of competent jurisdiction, namely the decision of the Crown Court. The master dismissed the
application. The defendants appealed to the judge, who allowed their appeal on the ground that the plaintiff’s action would necessarily involve the court
of trial in an inquiry as to whether the Crown Court came to a correct decision in the plaintiff’s appeal against conviction and that it would be an abuse of
process to allow the plaintiff to reopen the issue which had been decided by the Crown Court. The plaintiff appealed to the Court of Appeal.
Held – The initiation of proceedings in which a final decision against the intending plaintiff made by another court of competent jurisdiction in previous
385 proceedings would be questioned was not necessarily an abuse of process, although it might well be. There were exceptions to the principle that
a collateral attack on a final decision made by another court of competent jurisdiction in previous proceedings in which the intending plaintiff had a full
opportunity of contesting the decision was an abuse of process and against public policy, eg if the plaintiff relied on fresh evidence obtained since the
previous proceedings. A failure by a plaintiff’s solicitors, when acting for him in earlier proceedings, in breach of duty to advance an appeal on a point of
law which would have caused a decision against the plaintiff to be set aside was also such an exception to the principle, since a collateral attack based on
the failure to advance a point of law on appeal would, if it succeeded, demonstrate no more than that a court might go wrong in law and would not bring
the administration of justice into disrepute. On the facts, the plaintiff’s claim had not been shown to be manifestly unfair to the defendants; on the
contrary it would be manifestly unfair to the plaintiff to deny him the right to pursue a claim for damages resulting from the defendants’ breach of duty
and of having his case tried on the merits. The appeal would therefore be allowed and the plaintiff’s claim reinstated (see p 391 j to p 392 d, p 393 a to g,
p 394 e j, p 395 d e and p 400 a to e j, post).
Hunter v Chief Constable of West Midlands [1981] 3 All ER 727 considered.
Somasundaram v M Julius Melchior & Co (a firm) [1989] 1 All ER 129 distinguished.
Palmer v Durnford Ford (a firm) [1992] 2 All ER 122 doubted.
Notes
For striking out proceedings for abuse of process, see 37 Halsbury’s Laws (4th edn) 434, and for a case on the subject, see 37(3) Digest (Reissue) 52,
3245.
For the Animal Health Act 1981, s 66, see 2 Halsbury’s Statutes (4th edn) (1992 reissue) 431.

Basébé v Matthews (1867) LR 2 CP 684.
Birch v Birch [1902] P 130, CA.
Bragg v Oceanus Mutual Underwriting Association (Bermuda) Ltd [1982] 2 Lloyd’s Rep 132, CA.
Bynoe v Bank of England [1902] 1 KB 467, [1900–3] All ER Rep 65, CA.
Collyer v Dring [1952] 2 All ER 1004, DC.
Cook v S [1967] 1 All ER 299, [1967] 1 WLR 457, CA.
DPP v Humphrys [1976] 2 All ER 497, [1977] AC 1, [1976] 2 WLR 857, HL.
Everett v Ribbands [1952] 1 All ER 823, [1952] 2 QB 198.
Groom v Crocker [1938] 2 All ER 394, [1939] 1 KB 194, CA.
Heywood v Wellers (a firm) [1976] 1 All ER 300, [1976] QB 446, [1976] 2 WLR 101, CA.
Hunter v Chief Constable of West Midlands [1981] 3 All ER 727, [1982] AC 529, [1981] 3 WLR 906, HL; affg sub nom McIlkenny v Chief Constable of
West Midlands Police Force [1980] 2 All ER 227, [1980] QB 283, [1980] 2 WLR 689, CA.
Ketteman v Hansel Properties Ltd [1988] 1 All ER 38, [1987] AC 189, [1987] 2 WLR 312, HL.
Palmer v Durnford Ford (a firm) [1992] 2 All ER 122, [1992] QB 483, [1992] 2 WLR 407.
386
Phosphate Sewage Co Ltd v Molleson (1879) 4 App Cas 801, HL.
Rondel v Worsley [1967] 3 All ER 993, [1969] 1 AC 191, [1967] 3 WLR 1666, HL.
Saif Ali v Sydney Mitchell & Co (a firm) (P, third party) [1978] 3 All ER 1033, [1980] AC 198, [1978] 3 WLR 849, HL; rvsg [1977] 3 All ER 744, [1978]
QB 95, [1977] 3 WLR 421, CA.
Sinanan v Innes Pitassi & Co [1991] CA Transcript 125.
Somasundaram v M Julius Melchior & Co (a firm) [1989] 1 All ER 129, [1988] 1 WLR 1394, CA.
Stephenson v Garnett [1898] 1 QB 677, CA.
Stupple (J W) v Royal Insurance Co Ltd [1970] 3 All ER 230, [1971] 1 QB 50, [1970] 3 WLR 217, CA.

Brady v Chief Constable, Royal Ulster Constabulary [1988] NI 32, NI HC.
Carl-Zeiss-Stiftung v Rayner & Keeler Ltd (No 3) [1969] 3 All ER 897, [1970] Ch 506.
Gleeson v J Wippell & Co Ltd [1977] 3 All ER 54, [1977] 1 WLR 510.
Kyle v P & J Stormonth Darling WS 1992 SLT 264, Ct of Sess (OH); affd 1993 SCLR 18, Ct of Sess (IH).
Murphy v Abrahams (1889) Times, 3 April.
Reichel v Magrath (1889) 14 App Cas 665, HL.
Appeal
The plaintiffs, Brian Walpole and J J Walpole & Sons (a firm), appealed from the decision of Mantell J made on 3 July 1992 whereby he allowed the
appeal of the defendants, Partridge & Wilson (a firm), from the order of Master Prebble dated 18 May 1992 and ordered that paras 11 and 12 of the
plaintiffs’ statement of claim be struck out under RSC Ord 18, r 19 and/or under the inherent jurisdiction of the court as being scandalous, frivolous or
vexatious and/or an abuse of the process of the court. The facts are set out in the judgment of Ralph Gibson LJ.
Paul Norris (instructed by Barda & Co, Ruislip) for the plaintiffs.
Kenneth Parker QC (instructed by Mills & Reeve, Norwich) for the defendants.
Cur adv vult

Preamble
RALPH GIBSON LJ. This is an appeal by plaintiffs from the decision of Mantell J of 3 July 1992 whereby he struck out the plaintiffs’ action as an
abuse of the process of the court. The plaintiffs, who are Mr Brian Walpole and J J Walpole & Sons (a firm), are pig breeders in Norfolk. The defendants
are Messrs Partridge & Wilson, a firm of solicitors. It is not clear what basis of claim is available to the firm as distinguished from Mr Walpole but no
point has been taken between them on this appeal and I shall refer hereafter to Mr Walpole as ‘the plaintiff’ and Mr Walpole and the firm as ‘the
plaintiffs’ where appropriate. The plaintiffs’ action was begun by writ in September 1990. The complaint against the defendants is based on the
following facts as alleged in the statement of claim.
(i) On 9 September 1985 information was laid before the justices in Beccles alleging that the plaintiff on 15 May 1985 in Old Hall Farm obstructed a
veterinary officer, Mr J B Carter, in the execution of his duty of ascertaining 387 whether pigs at the plaintiff’s farm had Aujeszky’s disease in that he
tried to prevent blood samples being taken from the pigs, contrary to s 66 of the Animal Health Act 1981. On 18 December 1985 the plaintiff, acting in
person, pleaded not guilty to the information but was convicted. He was fined £250 and ordered to pay £500 by way of costs.
(ii) In January 1986 the plaintiff instructed a firm of solicitors (not the defendants) to act for him on appeal to the Crown Court. On 26 March 1986
the plaintiff’s appeal was heard and dismissed by the Crown Court at Ipswich, presided over by Judge Bertrand Richards.
(iii) On or about 4 July 1986 the plaintiff retained the defendants to advise him on the merits of an appeal from the decision of the Crown Court and
on the procedures for such appeal. In instructing the defendants it is alleged that the plaintiff acted on his own behalf and on behalf of the firm.
(iv) In breach of the contract of retainer or negligently the defendants failed to act with due care and skill and to carry out their instructions with due
expedition. In particular (a) between July 1986 and April 1987 they failed to lodge an appeal against the decision of the Crown Court, (b) they failed to
heed the plaintiff’s instructions that he had never supplied pigs to any other person on whose premises Aujeszky’s disease had been found and that the
veterinary officer had no or no reasonable grounds for supposing that Aujeszky’s disease existed or had ever existed on their premises, (c) although
counsel prepared a draft case, for the purposes of appeal by way of case stated, and advised that the questions raised in the draft case were valid, the
defendants failed to take steps to prosecute the appeal.
(v) By reason of the breaches of duty of the defendants the plaintiffs suffered loss and damage on the ground that, if the appeal had been lodged and
pursued, the appeal would have been successful and the conviction would have been quashed and the fine and costs would have been returned. The
claims of the plaintiffs included various items of costs and, in addition, the assertion that, if the appeal had succeeded, the plaintiffs’ reputation as pig
farmers and breeders would have been restored. They would have been able to sue the veterinary officer, or his employer, the Ministry of Agriculture, for
damages for trespass and malicious prosecution and thereby to recover substantial sums.
The defendants pleaded that the claims made by the plaintiffs amounted to a collateral attack upon a final decision of a court of competent
jurisdiction, namely the decision of the Crown Court on 26 March 1986, and, accordingly, the claims are contrary to public policy and an abuse of the
process of the court. The defendants further dispute the breaches of duty alleged against them. They contend that counsel in an advice dated 6 January
1988 had advised that it would be impossible for the plaintiffs to secure a reversal of the decision. A copy of that further advice was sent by the
defendants to the plaintiff on 7 January 1988.
The defendants applied for an order that the proceedings be struck out as being an abuse of the process of the court. On 18 May 1992 Master Prebble
dismissed their application. On 3 July 1992 Mantell J allowed the appeal of the defendants. After reference to the allegations in paras 11 and 12 of the
statement of claim, which I have summarised above, and which allege the loss and damage which the plaintiffs suffered as a result of the conviction not
being quashed, the judge continued:
‘If pursued, the allegations in these paragraphs would necessarily involve the court of trial in an inquiry as to whether or not the Crown Court at
Ipswich came to a correct decision in the plaintiff’s appeal against 388 conviction. The principle upon which Mr Parker for the appellants relies
found early expression in Stephenson v Garnett [1898] 1 QB 677 ... A L Smith LJ put it thus (at 680–681): “The judge heard evidence upon the
question and decided it. The issue now sought to be raised in this action has been determined by a court of competent jurisdiction, and the cases …
shew that it would be an abuse of the process of the Court to allow a suitor to litigate over again the same question which has been already decided
against him. Though the Court ought to be slow to strike out a statement of claim or defence, and to dismiss an action as frivolous and vexatious,
yet it ought to do so when, as here, it has been shewn that the identical question sought to be raised has been already decided by a competent
court.”’
After reference to Rondel v Worsley [1967] 3 All ER 993, [1969] 1 AC 191 the judge cited the well-known passage from the speech of Lord Diplock in
Hunter v Chief Constable of West Midlands [1981] 3 All ER 727 at 733, [1982] AC 529 at 541:
‘The abuse of process which the instant case exemplifies is the initiation of proceedings in a court of justice for the purpose of mounting a
collateral attack on a final decision against the intending plaintiff which has been made by another court of competent jurisdiction in previous
proceedings in which the intending plaintiff had a full opportunity of contesting the decision in the court by which it was made.’
Then, after reference to Sinanan v Innes Pitassi & Co [1991] CA Transcript 125, the judge noted cases in which solicitors have been successfully sued for
breach of retainer on the ground that their negligence had caused either the loss of an opportunity to litigate or a result in the litigation which was less
advantageous than ought to have been achieved. He referred to Ketteman v Hansel Properties Ltd [1988] 1 All ER 38, [1987] AC 189, Cook v S [1967] 1
All ER 299, [1967] 1 WLR 457, Groom v Crocker [1938] 2 All ER 394, [1939] 1 KB 194 and Heywood v Wellers (a firm) [1976] 1 All ER 300, [1976]
QB 446. The judge then expressed his conclusion as follows:
‘At first blush all these might be seen as departures from the principle that, save by appeal, one cannot seek to impugn the decision of a court of
competent jurisdiction. No doubt they are cited as exceptions. However, looked at more closely, it becomes apparent that not one of them involves
an attack on a decision by another court which has been reached after consideration of the merits. It is for that reason, I believe, that Lord Diplock
limited the application of principle to cases in which the attack was made upon a decision in previous proceedings in which the intending plaintiff
had a full opportunity of contesting the decision. For my part, I am satisfied that what is intended here does involve mounting a collateral attack
upon a final decision against the plaintiff made by another court of competent jurisdiction in previous proceedings in which the intending plaintiff
had a full opportunity of contesting the decision. For that reason I shall allow the appeal and strike out paras 11 and 12 of the statement of claim.’
Preamble
An arguable point of law

Before stating the arguments advanced in this court it is to be noted that the plaintiff does not assert that the decision of the Crown Court, which was
a rehearing, can be shown to have been wrong by reference to fresh evidence 389 which was not put before that court. His case is that the decision of
the Crown Court was wrong in law and that the error would have been corrected, and the decision of the Crown Court set aside, if the appeal by case
stated had been pursued. It has been conceded in this court by the defendants that the plaintiff has advanced arguable grounds for his assertion that the
decision of the Crown Court was wrong in law.
The arguments
Mr Norris for the plaintiffs contended that the principle stated by Lord Diplock in Hunter’s case, and cited by Mantell J, is not, when correctly
understood in the context in which it was formulated, applicable to the facts of this case. In summary, Mr Norris advanced the following submissions.
(i) The main issue in the action is not the rightness of the decision of the Crown Court at Ipswich but the merits of the plaintiff’s appeal to the High
Court of which he was deprived by the fault of the defendants. The object of the plaintiffs’ action is not to attack the decision of the Crown Court but to
show that the defendants were in breach of duty and to recover damages for the consequences of that breach.
(ii) The decision of the Crown Court was not a final decision within the meaning of the principle stated in McIlkenny v Chief Constable of West
Midlands Police Force [1980] 2 All ER 227 at 238, [1980] QB 283 at 321–322 by Lord Denning MR because the plaintiff was deprived of the right of
appeal and it would not be unfair or unjust to allow him to reopen the issue of his guilt of the offence.
(iii) It is not necessary, and it would be unjust, to establish a rule of law which would prevent an action for damages against a solicitor for negligence
in connection with any piece of contested litigation or in connection with an appeal. Reference was made to Ketteman v Hansel Properties Ltd [1988] 1
All ER 38 at 61, [1987] AC 189 at 219 where Lord Griffiths said:
‘… if a defence of limitation is not pleaded because the defendant’s lawyers have overlooked the defence the defendant should ordinarily expect
to bear the consequences of that carelessness and look to his lawyers for compensation if he is so minded.’
(iv) There is no absolute rule that a disappointed litigant cannot relitigate the issues involved in the first action. The same issues may be relitigated:
(a) where the decision in the first action was obtained by fraud, collusion or perjury: see DPP v Humphrys [1976] 2 All ER 497 at 506, [1977] AC 1 at 21,
cited by Goff LJ in McIlkenny’s case [1980] 2 All ER 227 at 247, [1980] QB 283 at 333; (b) where the plaintiff is able to adduce fresh evidence of
sufficient probative force and relevance; and (c) where the court is of opinion that the dominant purpose of the second proceedings is not an illegitimate
and collateral purpose, such as to secure the plaintiff’s release from prison, as in Hunter’s case, but the legitimate purpose of recovering damages for a
wrong done to him: reference was made to Bragg v Oceanus Mutual Underwriting Association (Bermuda) Ltd [1982] 2 Lloyd’s Rep 132. The present
case should be held to be not within the principle stated in Hunter’s case.
(v) The decisions, and dicta, in Somasundaram v M Julius Melchior & Co (a firm) [1989] 1 All ER 129, [1988] 1 WLR 1394 and in Sinanan v Innes
Pitassi & Co are distinguishable.
(vi) The court should in its discretion refuse to strike out the plaintiffs action for trial.
390
For the defendants Mr Parker QC submitted that Mantell J was right for the reasons which he gave. The plaintiffs’ action was rightly held to be an
abuse of the process of the court and contrary to public policy because it is plainly within the principle as stated by Lord Diplock in Hunter’s case. That
principle has been applied in two similar cases concerning solicitors’ negligence, Somasundaram v M Julius Melchior & Co (a firm) and Sinanan v Innes
Pitassi & Co. These cases were followed in Palmer v Durnford Ford (a firm) [1992] 2 All ER 122, [1992] QB 483 by Mr Simon Tuckey QC sitting as a
deputy judge of the High Court .
As to the hardship caused to the intending plaintiff by the application of this principle, this was expressly recognised as a possible, but unavoidable,
consequence by the Court of Appeal in Somasundaram’s case where, if the plaintiff’s allegations were true, he had been deprived of a fair trial and may
have been unjustly convicted because of his solicitor’s negligence. In the present case, no attack is made upon the fairness of the hearing in the Crown
Court and the only complaint is that the judgment was wrong in law. If this were allowed as a ground of indirect attack upon the decision, by means of a
claim against solicitors for negligence, other cases will follow, it was said, in which the time for appealing will have expired, before the alleged
negligence, failing to raise the point of law on appeal, was discovered. It would not be appropriate for arguable points of law to be contested with
reference to previous decisions of the court, whether in civil or criminal proceedings, in subsequent civil actions for damages against the lawyers
previously advising the aggrieved plaintiff. In particular, to allow collateral attacks, after failure for any reason to obtain the reversal of a conviction on
appeal, would subvert the established system of criminal appeals: reference was made to Bynoe v Bank of England [1902] 1 KB 467, [1900–3] All ER
Rep 65.
Mr Parker, of course, acknowledged the existence of exceptions to the principle, which forbids a collateral attack upon a previous final decision,
made by another court of competent jurisdiction, in which the plaintiff had a full opportunity of contesting the decision in the court by which it was made.
If the plaintiff introduces fresh evidence, that is evidence which was not available, or could not by reasonable diligence have been obtained at the first
trial, which ‘entirely changes the aspect of the case’ (see Hunter v Chief Constable of West Midlands [1981] 3 All ER 727 at 736, [1982] AC 529 at 545
per Lord Diplock quoting from Phosphate Sewage Co Ltd v Molleson (1879) 4 App Cas 801 at 814) he may pursue his claim, but the plaintiff does not in
this case invoke that exception. A plaintiff who seeks to pursue a claim within this exception should be required to identify the fresh evidence relied upon
and to show that such evidence, not available to him at the trial, is reasonably likely to establish that the first judgment was wrong in fact or in law. When
a plaintiff seeks to rely upon a point of law, which is said to have been open to him on appeal, he should be required to show that an appeal could not
have been pursued at some time before the collateral attack was commenced. The plaintiff had not applied for an extension of time for submission of a
draft case: see r 26(14) of the Crown Court Rules 1982, SI 1982/1109, and Collyer v Dring [1952] 2 All ER 1004.
Conclusion
In my judgment, for the reasons which follow, this appeal should be allowed and the plaintiffs’ claim should proceed to trial.
391
(i) The judge reached his conclusion by holding that the plaintiffs’ claim is an abuse of process within the principles stated by Lord Diplock in
Hunter’s case [1981] 3 All ER 727 at 733, [1982] AC 529 at 541 as being—
‘the initiation of proceedings in a court of justice for the purpose of mounting a collateral attack on a final decision against the intending
plaintiff which has been made by another court of competent jurisdiction in previous proceedings in which the intending plaintiff had a full
Preamble
opportunity of contesting the decision in the court by which it was made.’
The decision of their Lordships in Hunter’s case, however, was, in my judgment, not that the initiation of such proceedings is necessarily an abuse of
process but that it may be. The question whether it is so clearly an abuse of process that the court must, or may, strike out the proceedings before trial
must be answered having regard to the evidence before the court on the application to strike out. There are, in short, and at least, exceptions to the
principle.
(ii) Thus, in Hunter’s case itself, it was recognised that the initiation of proceedings, in which such a final decision will be questioned, will not be so
clearly an abuse of process that the proceedings may be struck out, if the plaintiff relies upon fresh evidence. If the plaintiff is challenged, the fresh
evidence on which he relies will have to be shown to meet the necessary standard of credibility and of probitive effect. In Hunter’s case [1981] 3 All ER
727 at 736, [1982] AC 529 at 545 Lord Diplock considered the circumstances in which the existence of fresh evidence, obtained since the criminal trial,
and the probative weight of such evidence, justify making an exception to the general rule of public policy. He was in full agreement with the judgment
of Goff LJ in that case (sub nom McIlkenny v Chief Constable of West Midlands Police Force [1980] 2 All ER 227, [1980] QB 283), who had examined
the two suggested tests as to the character of fresh evidence which would justify departing from the general policy by permitting the plaintiff to challenge
a previous final decision against him, and had adopted as the proper test that laid down by Earl Cairns LC in Phosphate Sewage Co Ltd v Molleson (1879)
4 App Cas 801 at 814, namely that the new evidence must be such as ‘entirely changes the aspect of the case’. Lord Diplock agreed with Goff LJ that, in
the case of collateral attack in a court of co-ordinate jurisdiction the more rigorous test laid down by Earl Cairns LC is appropriate.
Goff LJ, whose judgment was thus approved, considered the relevant exceptions to the principle including allegations of perjury and fraud ([1980] 2
All ER 227 at 247, [1980] QB 283 at 333):
‘In my judgment, however, where the issue at the first trial was which of two parties or their witnesses was committing perjury, it is not
sufficient merely to aver that the judgment was obtained by perjury since that is no more than to say the decision ought to have gone the other way.
There must be sufficient fresh evidence to support the allegation.’
Goff LJ also referred to Birch v Birch [1902] P 130, which was a case of true estoppel. Vaughan Williams LJ there said (at 136–137):
‘And I think that the Court ought to treat as frivolous and vexatious any cause of action in support of which the plaintiff does not produce
evidence of facts discovered since the former judgment which raise a reasonable probability of the action succeeding … But in each case it is a
question of degree. Is the fact alleged to have been discovered so evidenced and so 392 material as to make it reasonably probable that the
action will succeed? If it is, I think the action ought not to be stayed.’
(iii) Since new proceedings are not necessarily an abuse of the process of the court, merely because the court will be required to consider whether a
decision against the plaintiff in earlier proceedings would have been made, or made in the same terms and to the same effect, having regard to the new
matters and factors to be proved or established by the fresh evidence, it is necessary to consider whether the contention that the plaintiff’s solicitors,
acting for him in the earlier proceedings, failed in breach of duty to advance an appeal upon a point of law, which would have caused the decision against
the plaintiff to be set aside, may also constitute an exception to the principle. It was common ground that, so far as counsel have been able to discover,
this point has not before been considered in any reported case in this country. It seems to me to be clear beyond question that such a contention may
constitute an exception. Let it be supposed that the plaintiff, having instructed his solicitors to pursue an appeal against the decision of the Crown Court,
is deprived of the right to appeal by the defendant’s breach of duty. Let it be supposed further that his claim shows that an obvious error of law was made
by the Crown Court which, on appeal by case stated, must have resulted in the conviction being set aside. I can see no reason why the court should refuse
to entertain such proceedings, and I can see no arguable basis for regarding such proceedings, by reason only of the collateral attack upon the decision of
the Crown Court, as an abuse of process. It would, to the contrary, be an abandonment of the duty and of the function of the court to refuse to decide the
issues in such proceedings.
The collateral attack based upon sufficient fresh evidence, if it succeeds, demonstrates nothing more than that two different courts, acting according
to law, may properly reach different conclusions upon the same or a similar issue when the evidence before the two courts is markedly different. A
collateral attack based upon a failure to advance a point of law on appeal, if it succeeds, demonstrates no more than the unsurprising fact that a court may
go wrong in law. It is because of that risk that rights of appeal are given by Parliament and, if a litigant is deprived of the ability to exercise his right of
appeal by the breach of duty of his advisers, then, in the absence of any other defence such as immunity, or estoppel, upon which no reliance is placed in
these proceedings, I see no reason why he should not be free to pursue a claim for such damages as he may prove that he suffered thereby.
As to Bynoe v Bank of England [1902] 1 KB 467, [1900–3] All ER Rep 65, upon which Mr Parker relied, in that case the plaintiff claimed that his
conviction for forgery had been caused by the negligence of the bank and of one of its officials in the keeping and production in evidence of records
relating to bank notes. This court confirmed the striking out of his claim on the ground that the criminal proceedings, in respect of which he claimed, had
not been determined in his favour. The fact that he had no power of appeal against the conviction made no difference. It was a requirement (as, of
course, it still is: see Everett v Ribbands [1952] 1 All ER 823, [1952] 2 QB 198) for a claim of malicious prosecution that the criminal proceeding be
shown to have been determined in favour of the plaintiff, and that applied equally to a claim in negligence. That principle, however, does not, in my
judgment, apply to a claim by a plaintiff that his legal advisers by their breach of contract or negligence caused him loss and damage by depriving the
plaintiff of the benefit of the exercise of a right of appeal. So to hold would, as it seems to me, be inconsistent with the reasoning 393 of the House of
Lords in Hunter’s case and with the approach of this court in J W Stupple v Royal Insurance Co Ltd [1970] 3 All ER 230, [1971] 1 QB 50.
As to Hunter’s case, Lord Diplock observed that the proper method of attacking the decision in the murder trial, that the plaintiff had not been
assaulted by the police, was by appeal to the Criminal Division of the Court of Appeal. That was not done and could not have been done because the
evidence for that purpose had been available to the plaintiff at the date of trial. Later Lord Diplock considered, as set out above, what quality of fresh
evidence could justify making an exception to the general rule of public policy, and he stated his agreement with the test set out by Goff LJ. He did not
say that there could be no such collateral attack upon an unreversed decision of a criminal court in any case even if there were such fresh evidence (see
[1981] 3 All ER 727 at 736, [1982] AC 529 at 545).
As to Stupple’s case, Bynoe v Bank of England was not cited and the point was not argued. The plaintiff’s application for leave to appeal against his
conviction was dismissed. His action, however, was dismissed because he failed to discharge the burden of proof and not because his conviction was
unreversed.
As to policy, it is clearly of importance that the law should not permit ‘every case would have to be tried over again upon its merits’ (per Byles J in
Basébé v Matthews (1867) LR 2 CP 684 at 687, cited in Bynoe v Bank of England). That, no doubt, is the basis of the rule in malicious prosecution and is
designed to prevent relitigation of the same issue. To permit a claim to be pursued for causing a plaintiff to lose the power to exercise a right of appeal is
not, in my judgment, to permit relitigation of the same issue. If that rule were to be applied to such a case, it would be necessary for the plaintiff first to
persuade the court having jurisdiction over the criminal appeal to extend the time for appealing, and for that purpose that court would have to consider the
Preamble
merits of the dispute between the plaintiff and his former legal advisers as to why the appeal had not been pursued. The prosecution would have to
investigate the matter and the decision would be required to be made in the absence, save possibly as a witness, of the proper contradictor on the issue as
to extension of time, namely the legal advisers. I am not persuaded of the utility or propriety of such a rule based upon policy.
Mr Parker argued further that, where the collateral attack is based upon an alleged loss of the right of appeal on a point of law, the plaintiff should be
required to show that an appeal could not have been pursued at some time before the collateral attack was commenced. I accept that, if he is to succeed at
the trial, the plaintiff must prove a causal connection between any act or default of the defendants and his loss of the right of appeal. The defendants,
however, have filed no evidence and have not sought to show that the plaintiff’s case on breach of duty and causation is frivolous.
(iv) I have considered above the question whether the facts alleged in this case, which are to be taken to be true for the purposes of an application to
strike out, take the proceedings within an exception to the principle stated in Hunter’s case. For the reasons given, I would hold that they do. It seems to
me, however, that the better approach to this case is to consider whether the defendants have shown that the plaintiff’s proceedings are so clearly an abuse
of process that the action should be struck out. The defendants have, in my judgment, failed entirely to make good that contention.
394
For this purpose, Mr Norris founded upon the opening paragraph of the speech of Lord Diplock in Hunter v Chief Constable of West Midlands
[1981] 3 All ER 727 at 729, [1982] AC 529 at 536 where he said:
‘[This case] concerns the inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although
not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would
otherwise bring the administration of justice into disrepute among right-thinking people. The circumstances in which abuse of process can arise are
very varied; those which give rise to the instant appeal must surely be unique. It would, in my view, be most unwise if this House were to use this
occasion to say anything that might be taken as limiting to fixed categories the kinds of circumstances in which the court has a duty (I disavow the
word discretion) to exercise this salutary power.’
I accept Mr Norris’s submission that the plaintiff’s claim upon the material before this court is not shown to be manifestly unfair to the defendants,
nor is it shown that to allow it to proceed would bring the administration of justice into disrepute among right-thinking people. The contrary, as Mr
Norris submitted, is, in my view, demonstrated on both heads. Upon the assumption that the facts alleged are true, and upon the concession that the point
of law put forward is arguable, it would be manifestly unfair to the plaintiff to deny him the right of having his case tried on the merits and it would, I
think, bring the administration of justice into disrepute if the court denied him that right.
It is to be noted that it has not been argued for the defendants that the point of law, which is conceded to be arguable, lacks sufficient prospects of
success to justify allowing the case to go to trial.
(v) The plea of abuse of process, of course, is not the only defence open to solicitors against whom such a case is made, and, moreover, available, if
the facts justify, upon an application to strike out. The case advanced that the solicitors were responsible for the loss by the plaintiffs of the right of
appeal may be demonstrably unsustainable. Such was the situation in Sinanan v Innes Pitassi & Co [1991] CA Transcript 125, which will be examined
later. Again, the allegedly obvious error of law may be shown to have been indisputably irrelevant on the facts. Again, the allegedly obvious error of law
may be shown indisputably to have been no more than one view upon an issue of law which a competent lawyer could reasonably hold so that, if the
alleged breach of duty lay in advising against an appeal on the point of law, there would be no reasonable cause of action based upon the giving of that
advice. These alternative defences are, of course, not advanced in this case at this stage. When the facts are established and, in particular, after discovery
in the action, it will be for the judge at trial to decide not only whether any breach of duty is proved against the defendant, and whether any breach of duty
caused any loss or damage to the plaintiff, but also whether, upon the facts as then established, the plaintiff should be permitted to maintain his attack
upon the decision of the Crown Court having regard to the circumstances in which and the reasons for which the plaintiff did not pursue an appeal by case
stated and having regard to the relevance and probable effect on the hearing of such an appeal, if pursued, of the points of law which are conceded in this
court to be arguable.
(vi) I further accept the submission that, for the purposes of the principles stated by Lord Diplock in Hunter’s case, the defendants cannot, on this
395 application to strike out, demonstrate that the decision of the Crown Court, against which the plaintiff is mounting a collateral attack in this
action, is a ‘final decision’. In Hunter’s case, as mentioned above, Lord Diplock pointed out that the proper method of attacking the decision by Bridge J
in the murder trial, that Hunter was not assaulted by the police before his oral confession was obtained, was by appeal to the Criminal Division of the
Court of Appeal. Since the plaintiffs there had not sought to appeal the ruling, and, moreover, if they had sought to do so, such appeal would have failed
for want of admissible fresh evidence, the decision which they sought collaterally to attack was indeed final. In this case, on the assumed facts, the
alleged breach of duty caused the plaintiff to lose the right of appeal upon an arguable ground.
(vii) I am unable to attach any decisive importance to the point about dominant purpose upon which Mr Norris relied. In Hunter’s case the collateral
attack upon the final decision of Bridge J on the voire dire was an abuse of the process because based upon no sufficient fresh evidence. The fact that the
purpose of the plaintiffs was to provide themselves with an argument upon which to attack the true validity of their convictions supported the conclusion
that those proceedings amounted to an abuse of process; but it seems clear to me that, if their purpose had been the apparently more acceptable aim of
recovering damages for the injuries which they claimed were inflicted by the police, the proceedings would unquestionably have remained an abuse of
process because it constituted a collateral attack upon a final decision which was manifestly unfair to the defendants and because it was such as to bring
the administration of justice into disrepute. No doubt, when it is present, some collateral purpose on the part of the plaintiff, other than the pursuit of his
remedy at law, will be relevant to the assessment of the case and to the exercise of the court’s discretion for the purpose of deciding whether it is shown
so clearly to be an abuse of process that the proceedings should be struck out. If, however, it is clearly shown that the plaintiff’s claim is a collateral
attack upon a final Judgment within the principle stated and applied in Hunter’s case, then the simple purity of his purpose in seeking financial damages
alone would not save his action.
(viii) The cases relied upon by Mr Parker do not, in my judgment, require this court to reach any different conclusion. In Somasundaram v M Julius
Melchior & Co (a firm) [1989] 1 All ER 129, [1988] 1 WLR 1394 the plaintiff claimed damages against solicitors who had acted for him when he was
charged with malicious wounding. Upon the advice of counsel, he pleaded guilty and was sentenced to two years’ imprisonment. Upon application for
leave to appeal against sentence the term was reduced to 18 months but the appeal against conviction was dismissed. The basis of his claim against his
solicitors was the allegation that they had, in breach of duty, put pressure on him to plead guilty and that, if he had not pleaded guilty, he would have been
acquitted or sentenced to a lesser penalty. The claim was struck out as frivolous and as an abuse of process. Upon the plaintiff’s appeal this court (May,
Stocker, Stuart-Smith LJJ) held that, on the facts alone, the plaintiff had no reasonable chance of success, and that, in consequence, his claim was truly
frivolous and should be struck out. That conclusion was sufficient to dispose of the appeal but the court thought it right to deal with two other important
arguments which had been raised on behalf of the defendant and to which counsel, instructed as amicus curiae, had directed submissions. The second
argument, which was concerned with immunity from suit in respect of advice as to plea, 396 does not concern this case. The first was directed to the
contention that, if the claim were sustainable on the facts, it was an abuse of process because the plaintiff was seeking to attack in civil proceedings the
Preamble
final decision of a criminal court of competent jurisdiction within the principle as stated by Lord Diplock in Hunter’s case [1981] 3 All ER 727 at
733–734, [1982] AC 529 at 541–542. May LJ cited the passage from Lord Diplock’s speech (see [1989] 1 All ER 129 at 132, [1988] 1 WLR 1394 at
1398). The passage commences with the principle cited by Mantell J in this case. May LJ observed that that statement of the law appeared, on the face of
it, to be directly in point. He then considered the contention that it was inconsistent with the law as laid down by the House of Lords in Saif Ali v Sydney
Mitchell & Co (a firm) (P, third party) [1978] 3 All ER 1033, [1980] AC 198 where it was held that the barrister’s immunity from suit for negligence was
not total but extended only so far as was absolutely necessary in the interest of the administration of justice. The decision of the court given by May LJ
was that the two decisions were not irreconcilable:
‘In Saif Ali’s case the alleged negligence was failure to sue the correct defendant before the claim was statute-barred. The claims against the
allegedly negligent drivers were never considered on their merits. The situation is akin to that which all too commonly occurs where through
negligence a writ is not issued in time or proceedings are struck out for want of prosecution. In such cases there is no question of there being a
direct or indirect attack on the decision of a court of competent jurisdiction.’ (See [1989] 1 All ER 129 at 133, [1988] 1 WLR 1394 at 1399.)
Further, the court considered the contention that the fact that an action makes a collateral attack upon the judgment of another court is not an
independent ground for holding the action to be an abuse of process. It was argued that, if such an independent ground existed, it would have been the
short answer to the claim in Rondel v Worsley [1967] 3 All ER 993, [1969] 1 AC 191, whereas in fact it was merely one of the bases upon which the
barrister’s immunity was founded. This court cited a long passage from the speech of Lord Morris in Rondel v Worsley [1967] 3 All ER 993 at
1012–1013, [1969] 1 AC 191 at 248–251 and expressed the opinion that the principles of public policy there set out stand in their own right and may be
applied to a case where no immunity exists (see [1989] 1 All ER 129 at 134–135, [1988] 1 WLR 1394 at 1400–1402).
The decision, and the opinions expressed upon the further points considered, do not, in my judgment, touch this case. Upon the facts in
Somasundaram’s case there was no arguable ground that the case was within any exception to the principle stated by Lord Diplock in Hunter’s case and
there was no basis for holding that the defendants had failed to show that the proceedings were an abuse of process.
As to Sinanan’s case, the plaintiff brought an action against solicitors who had acted for him in civil proceedings brought against him in 1983 by two
separate plaintiffs. In the first action Mr Sinanan was given leave to defend conditional upon payment into court of £750. In the second action, on 26
July 1983, Mr Sinanan was given leave to defend conditional upon payment into court of £10,000 within 28 days. Mr Sinanan’s legal aid certificate was
discharged on 29 July. On 1 August 1983 the solicitors informed Mr Sinanan of the discharge of the certificate and of his right to appeal against the
discharge. On 2 August the solicitors by letter advised Mr Sinanan that he should seek immediate representation by other solicitors and that any appeal
against the order made on 397 26 July 1983 must be made by 4 August 1983. Other solicitors were instructed and were informed by the first
solicitors of the urgency of the appeal. On 12 January 1984 Mr Sinanan applied for leave to appeal against the decision made on 26 July 1983. No
explanation for the delay was given and on 16 February 1984 that application was refused. On 5 January 1988 Mr Sinanan issued his writ against the first
solicitors claiming damages for negligence in that they caused the defendant to be subjected to the unreasonable condition, for leave to defend, of a
payment into court of £10,000. The action was struck out on two grounds, firstly, because the pleading impugned the correctness of a previous decision
of the court and, secondly, because the pleading disclosed no reasonable cause of action because there was no causal link between the loss claimed and
the negligence alleged.
In this court (Balcombe LJ and Sir Denys Buckley) the decision was upheld on both grounds. As to abuse of process, after reference to
Somasundaram’s case, Balcombe LJ observed that the decision in that case was reached as a matter of policy as appeared from the extensive quotation
from the speech of Lord Morris in Rondel v Worsley [1967] 3 All ER 993 at 1012–1013, [1969] 1 AC 191 at 248–251 which ended with the passage:
‘But it would, in my view, be undesirable in the interests of the fair and efficient administration of justice to tolerate a system under which, as a
sort of by-product after the trial of an action and after any appeal or appeals, there were litigation on litigation with the possibility of a recurring
chain-like course of litigation’.
The claim of Mr Sinanan, said Balcombe LJ, clearly—
‘attacks the validity of the decision in the [second] proceedings because he would have suffered no damage and therefore have no effective
claim against the solicitors unless he is correct in his assertion that he did have a good defence and counterclaim and set off in relation to [that
claim].’
Again, in my judgment, that decision of this court does not touch the issues in this case. The decision of the court in the Ord 14 proceedings, which
led to a judgment against Mr Sinanan on failure to comply with the condition, was, as I understand it, taken to be a final decision which Mr Sinanan had a
full opportunity of contesting. In particular, he was not deprived of the right to appeal against it but exercised that right to no avail. Again, there was no
arguable ground to take the case out of the principle or for holding that the defendants had not shown the proceedings to be an abuse of process.
The last case to which reference was made was the decision of Mr Simon Tuckey QC, sitting as a deputy judge of the High Court in Palmer v
Durnford Ford (a firm) [1992] 2 All ER 122, [1992] QB 483. The facts were complicated. The plaintiffs bought a lorry tractor unit from vendors. When
the unit broke down work was done upon it by repairers. The plaintiffs instructed the defendant solicitors to advise and act for them with reference to
claims against the vendor and the repairers. The solicitors retained an engineer as an expert to prepare a report on the cause of the breakdown. He
advised that the plaintiffs had good claims against both the vendor and the repairer and, in consequence, proceedings were commenced. Following the
exchange of experts’ reports, prior to trial, the expert advised that he would have difficulty in supporting the claim against the vendors but that the claim
against the repairers was still justified. At the trial, after the expert had given evidence, the plaintiffs 398 abandoned their claims and, by consent,
judgment was entered for the vendors and for the repairers. The plaintiffs then brought an action against the solicitors and the expert alleging that both
were in breach of their contractual duty of care. Against the solicitors it was alleged that they should not have instructed the expert, that they were
responsible for the fact that the weakness of the plaintiffs’ case against the vendors was not appreciated until shortly before the trial and that they allowed
this weakness to cloud and obscure a partly meritorious claim against the repairers. The damages claimed included losses which resulted from pursuing
the unmeritorious claim against the vendors and the loss of the opportunity to make good some part of their claim against the repairers.
The decision of Mr Tuckey with reference to the claim by the experts to immunity as witnesses was that it was not plain and obvious that they were
entitled to immunity in respect of the claims against them. As to the claim by the solicitors that the action against them was an abuse of the process of the
court, in so far as the claim asserted that their breach of duty had caused the loss of the opportunity to make good some part of the claim against the
repairers, Mr Tuckey proceeded as follows. After reference to Hunter’s case, Somasundaram’s case and Sinanan’s case he held that two questions which
arose were (a) whether there had been a final decision of the court and (b) if so, whether and if so to what extent the plaintiffs’ claim sought to impugn it.
The plaintiffs contended that there was no final decision of the court because the court did not itself pronounce on the merits of the claim. He disagreed.
He thought that a final decision for this purpose was one which would give rise to a plea of res judicata. There could be no doubt that the decision of the
Preamble
court was a final one. Further, since the plaintiffs were contending that part of their original claim against the repairers was good, in order to establish
that contention they necessarily had to impugn the earlier decision. Therefore, on the authorities, the claim must be struck out as an abuse of the process
of the court.
The facts upon which the plaintiffs were claiming to proceed in that case are not wholly clear from the report. In particular it is not clear upon what
basis of fact it was alleged that there was a ‘partly meritorious’ claim against the repairers which was ‘clouded and obscured’ as a result of the alleged
breach of duty. There is in the report only a terse summary of the long statement of claim. The plaintiffs, presumably on the advice of counsel
conducting the case, consented to judgment being given against them on their claims against both the vendors and the repairers. In so far as the alleged
breach of duty had caused the plaintiffs to suffer loss by commencing proceedings against the vendors which should not have been commenced, the action
was allowed to proceed. As to the claim against the repairers, that part which was struck out was the claim based upon the alleged loss of the chance of
proving part of the claim. The substance of the claim, as I understand it, was that the breach of duty of the solicitors caused the plaintiffs to be in the
position at the first trial in which the only reasonable course for them to take, in order to limit the expenditure of costs by all parties, was to submit to
judgment. There was thus no decision upon the merits of their claim upon such evidence as should have been before the court if the solicitors had
complied with their duty of care. There was, however, no possibility of correcting the errors made by appealing because the plaintiffs had been
compelled to consent to judgment.
399
If I have understood the case correctly, it was not right, in my judgment, to strike out the claim against the solicitors. I agree that, as between the
plaintiffs and the repairers, the decision of the court by consent of the plaintiffs was final as giving rise to a plea of res judicata. It is, however, not clear
to me that it was a decision by the court against the plaintiffs in proceedings in which the plaintiffs had a full opportunity of contesting the decision within
the principle stated by Lord Diplock in Hunter’s case. That principle does not prevent the plaintiffs from attacking the prior decision if the plaintiffs have
sufficient fresh evidence even where the proposed defendants, in whose favour the first decision was made, are in no sense to blame for the failure or
inability of the plaintiffs to produce the evidence at the first trial. If there is a sufficiently arguable case to show that the defendant solicitors, by their
breach of duty, put the plaintiffs in the position of being unable properly to contest the first decision, so that the plaintiffs were reasonably compelled to
submit to judgment on the issue, then, in my judgment, the plaintiffs’ claim is not shown to be an abuse of the process of the court merely because it will,
if it succeeds, require the court to assess damages on the basis that the prior decision of the court would not have been made if the solicitors had not been
in breach of duty. In such circumstances, to return again to the opening passage in Lord Diplock’s speech in Hunter’s case, it would not be manifestly
unfair to the defendant solicitors to permit the claim to proceed, and it would not bring the administration of justice into dispute.
I acknowledge, of course, that if a plaintiff is advised, and agrees, to submit to judgment because, on the available evidence, there is no valid basis of
claim against a party, as in Palmer’s case against the repairers, the mere assertion that that judgment against him was brought about by the breach of duty
of the solicitors may be insufficient to justify the maintenance of proceedings which depend upon showing that there would have been no such judgment,
but a judgment in favour of the plaintiff, if the solicitors had performed their contractual duty. Such a plaintiff may reasonably be required to show that
credible evidence which would have supported a judgment in favour of the plaintiff against the repairers would have been available if the solicitors had
performed their duty, and would be available in the proceedings against the solicitors. The absence of such evidence does not appear to have been the
ground of decision of Mr Tuckey in Palmer’s case. It is sufficient for the purposes of the present appeal to say that there is nothing in Mr Tuckey’s
decision which causes me to think that these proceedings by Mr Walpole should be struck out. For my part, if I have correctly understood the facts of that
case as set out above, I consider that the claim against the solicitors in Palmer’s case should not have been struck out.
BELDAM J. I agree
PETER GIBSON LJ. I also agree.
Appeal allowed. Leave to appeal to the House of Lords refused.
Frances Rustin Barrister.
400
[1994] 1 All ER 401
Bank of America National Trust and Savings Association v Chrismas and others
The Kyriaki
CIVIL PROCEDURE
QUEEN’S BENCH DIVISION (COMMERCIAL COURT)

HIRST J
14–16, 20, 21, 31 JULY 1992
Limitation of action – When time begins to run – Accrual of cause of action – Plaintiffs obtaining order for addition of defendants – Plaintiffs serving
defendants with writs not resealed and reissued – Plaintiffs obtaining ex parte order extending time for service and re-serving properly sealed and issued
writs – Order made outside limitation period – Whether court allowing new claim outside limitation period – Whether action time-barred – Limitation Act
1980, s 35.
Practice – Irregularity – Irregularity in any proceeding – Non-compliance with rules – Service of amended writs – Writs not reissued or resealed in
Preamble
accordance with rules of court – Writs subsequently resealed, reissued and served outside expiry of limitation period – Whether irregularity nullifying
proceedings – RSC Ord 2, r 1, Ord 15, rr 6, 8 – Limitation Act 1980, s 35.
Limitation of action – When time begins to run – Action on marine insurance – Accrual of cause of action – Plaintiffs giving notice to insurers of
abandonment of vessel as total constructive loss – Plaintiffs commencing action more than six years after date of casualty but less than six years after
notice to insurers of abandonment as total constructive loss – Policies providing that vessel free from particular average – Whether policies precluding
claim for partial loss – Whether policies precluding election of alternative remedies – Whether notice of abandonment essential part of cause of action –
Whether cause of action accruing at date of casualty or notice of abandonment – Marine Insurance Act 1906, s 61.
The plaintiffs commenced an action (the first action) against an underwriter claiming total constructive loss in respect of damage to a vessel on 22 July
1985 and issued a summons for a declaration that the underwriter was a representative underwriter. The judge refused the summons but gave leave to
serve several defendants with amended writs. The order granting leave was sealed on 9 July 1991 and served with amended writs on the defendants on 18
and 22 July. However, the writs had not been reissued and resealed in accordance with RSC Ord 20, r 10a and therefore on 29 July the plaintiffs applied
ex parte for and on 30 July were granted an extension of the time for service, notwithstanding that the order had expired on 24 July because of the failure
to comply with the time specified in Ord 15, r 8(1)b for making the amendment. The writs were reissued and resealed on 29 July and served on 6 August.
The defendants issued a summons to set aside the ex parte order of 30 July and to set aside service of the amended writs on the ground that the judge had
no jurisdiction to make the order because the limitation period had expired on 22 401 July 1991 under s 35c of the Limitation Act 1980. The
plaintiffs commenced a second action on 3 September 1991, which was identical to the first action except that it referred to the date of notice of
abandonment of the vessel as a total constructive loss on 3 September 1985. On the defendants’ summons to set aside in the first action the plaintiffs
contended that the cause of action arose on the date of the notice of abandonment and was therefore not time-barred. The plaintiffs also sought orders
under Ord 2, r 1(1)d that the original steps taken by them to effect the amendments to the writ and the original service on the first to sixth defendants be
respectively treated as valid amendments and good service and/or that the reissued and resealed amendment of the writ on 29 July and the service on 6
August be respectively treated as timely amendment and good service on the first to ninth defendants. The plaintiffs further contended that although the
general rule was that claims for a constructive total loss and a partial loss were alternatives and therefore an election between the two remedies was not an
essential part of the cause of action, notice of abandonment as a total constructive loss was, on the facts, an essential part of the cause of action since it
was a condition of the policies that the vessel was free from particular average, and therefore an election to claim for a partial loss was not possible.
________________________________________
a Rule 10 is set out at p 413 j to p 414 b, post
b Rule 8 is set out at p 412 j to p 413 f, post
c Section 35 is set out at p 410 h to p 411 h, post
d Rule 1(1) provides: ‘Where, in beginning or purporting to begin any proceedings or at any stage in the course of or in connection with any proceedings, there has, by
reason of any thing done or left undone, been a failure to comply with the requirements of these rules, whether in respect of time, place, manner, form or content or in
any other respect, the failure shall be treated as an irregularity and shall not nullify the proceedings, any step taken in the proceedings, or any document, judgment or
other order therein.’
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – (1) Under s 35(3) of the 1980 Act the court was precluded from allowing a new claim to be made after the expiry of the limitation period and
furthermore, under RSC Ord 15, r 8(4) a claim was only brought against an additional party when the claim was served on him. It followed that in respect
of the first action there had been no jurisdiction to make the ex parte order on 29 July 1991, the amendments on 29 July should not have been made and
service on 6 August was bad as all those steps had occurred outside the limitation period. Although under RSC Ord 2, r 1 the court could treat
non-compliance with the requirements of the rules as an irregularity which did not nullify the proceedings and, although that rule could potentially apply
to service of a defective writ, it was subordinate to the rules of limitation under s 35 of the 1980 Act and also to Ord 15, rr 6e and 8 which implemented
the section. It followed that in view of the court’s findings as to limitation Ord 2, r 1 was not applicable to cure the service of the defective writs (see p
406 g, p 415 h to p 416 f, p 417 b to d g to j and p 423 h, post); Ketteman v Hansel Properties Ltd [1988] 1 All ER 38 followed.
________________________________________
e Rule 6 is set out at p 411 j to p 412 h, post
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(2) The plaintiffs had a right of election under the policies since, in appropriate circumstances, a claim could be made under s 61f of the Marine
Insurance Act 1906 for a partial loss notwithstanding that the policy was warranted free from particular average. Further, even if the clause in the policies
that the vessel was free from particular average had deprived the plaintiffs of a right of election between claims for constructive total loss and particular
average, it was insufficient to displace the general rule that the cause 402 of action in a claim for a total constructive loss arose at the date of the
casualty. Accordingly, the cause of action arose at the date of the casualty and the relief sought in the defendants’ summons would therefore be granted
(see p 406 h, p 420 h to p 421 b to g, p 422 b c e and p 423 h, post).
________________________________________
f Section 61 is set out at p 418 h, post
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Notes
For the effect of non-compliance with rules of court and power of the court to rectify irregularities, see 37 Halsbury’s Laws (4th edn) paras 36, 37, and for
cases on the subject, see 37(2) Digest (Reissue) 205–212, 1355–1390.
For amendment of pleadings after the expiry of limitation period, see 37 Halsbury’s Laws (4th edn) para 274, and for cases on the subject, see 37(1)
Digest (Reissue) 264–265, 1732–1737.
For the Marine Insurance Act 1906, s 61, see 22 Halsbury’s Statutes (4th edn) (1991 reissue) 45.
For the Limitation Act 1980, s 35, see 24 Halsbury’s Statutes (4th edn) (1989 reissue) 690.

Australian Coastal Shipping Commission v Curtis Cruising Pty (1989) 17 NSWLR 734, NSW CA.
Bank of America National Trust and Savings Association v Taylor [1992] 1 Lloyd’s Rep 484.
Preamble
Castle Insurance Co Ltd v Hong Kong Islands Shipping Co Ltd [1983] 3 All ER 706, [1984] AC 226, [1983] 3 WLR 524, PC.
Chandris v Argo Insurance Co Ltd [1963] 2 Lloyd’s Rep 65.
Cohen (George) & Sons v Standard Marine Insurance Co Ltd (1925) 21 Ll L Rep 30.
Firma C-Trade SA v Newcastle Protection and Indemnity Association, The Fanti [1990] 2 All ER 705, [1991] AC 1, [1990] 3 WLR 78, HL.
Golden Ocean Assurance Ltd v Martin, The Goldean Mariner [1990] 2 Lloyd’s Rep 215, CA.
Irving v Manning (1847) 1 HL Cas 287, 9 ER 766, HL.
Ketteman v Hansel Properties Ltd [1988] 1 All ER 38, [1987] AC 189, [1987] 2 WLR 312, HL.
Robertson v Petros M Nomikos Ltd [1939] 2 All ER 723, [1939] AC 371, HL.
Seabridge v H Cox & Sons (Plant Hire) Ltd [1968] 1 All ER 570, [1968] QB 46, [1968] 2 WLR 629, CA.
Woodside v Globe Marine Insurance Co Ltd [1896] 1 QB 105, [1895–9] All ER Rep 1016.
Applications and cross-application

By a writ dated 6 November 1987 the plaintiffs, Stasima Maritima Co Ltd and Bank of America National Trust and Savings Association (a body
corporate), claimed $US49,109·32 as against the defendant, John Joseph Taylor (by himself and as representing all other underwriters subscribing to the
subject policy), as the defendant’s proportion of the underwriter’s liability of the sum insured under certain marine insurance policies and $US5,161,984
being the defendant’s proportion of the underwriter’s liability in respect of the salvage of the insured vessel Kyriaki, which suffered a breakdown on its
voyage bound for West Africa. By an order dated 9 July 1991 Waller J ordered that Peter Nathan Chrismas and nine corporate bodies to be joined as
co-defendants to the action pursuant to RSC Ord, 15 r 6 (see sub nom Bank of America National Trust and 403 Savings Association v Taylor [1992] 1
Lloyd’s Rep 484). By a further writ dated 3 September 1991 the plaintiff, Bank of America National Trust and Savings Association, claimed against the
defendants, Peter Nathan Chrismas and ten others, several sums against the defendants as the proportions of the insured sum and salvage liability under
the same subject policies and in respect of the breakdown of the same vessel as referred to in the first action. By a summons dated 23 August 1991 (and
subsequently amended) the defendants applied to set aside an ex parte order made by Waller J extending the time for leave to amend the writs of
summons, an order declaring that the writ of summons had not been amended in accordance with the order of Waller J dated 9 July 1991, that the
amended writ and all concurrent writs be set aside and that the service of the amended writs on 6 August 1991 be set aside. By a cross-summons dated 11
September 1991 the plaintiffs applied for orders pursuant to RSC Ord 2, r 1 that the irregularities in the plaintiffs’ failure to amend the writs within 14
days pursuant to the order Waller J dated on 9 July 1991 be rectified upon such terms or otherwise that the original steps taken by the plaintiffs to effect
the amendments to the writ and the original service of the writs upon the first to sixth defendants be treated as good service and/or the amendment by
reissue of the writ be treated as in compliance with Ord 15, r 8(1) and the service thereof be good service. On 16 July 1992 the first to ninth defendants
also issued another summons in the second action to strike out or to dismiss the action pursuant to, inter alias, Ord 18, r 19. All three summons were
heard together in chambers but judgment was given by Hirst J in open court. The facts are set out in the judgment.
Alistair Schaff (instructed by Hill Taylor Dickinson) for the plaintiffs.

Richard Aikens QC and Neil Calver (instructed by Ince & Co) for the defendants.
Cur adv vult
HIRST J.
INTRODUCTION
These three summonses arise in two separate actions (the first and second actions) involving the same parties. Both actions relate to the casualty of
the vessel Kyriaki which was disabled by engine breakdown on 22 July 1985. The plaintiffs allege that the cost of repair exceeded the insured value of
the vessel, namely $US2m, and for present purposes it is common ground that the vessel is to be treated as a constructive total loss (CTL). Notice of
abandonment (NOA) of the vessel was given by the owner and rejected by the underwriters on 3 September 1985 (although it is in issue as to whether the
NOA was tendered to all underwriters and, if not, whether this is of any consequence).
The plaintiffs, the Bank of America National Trust and Savings Association, claim as assignees of the various marine insurance policies issued by
the first to tenth defendants inclusive, and, in the case of the first to third defendants inclusive, those whom they represent. The plaintiffs are now, and
have since 1989 been, represented by Messrs Hill Taylor Dickinson (HTD). The first to ninth defendants inclusive have always been represented by
Messrs Ince & Co (Ince). The tenth defendants are not parties to the present summons and are therefore not affected by the orders which I shall
eventually make. The 404 eleventh defendants are the owners of the vessel, who were originally plaintiffs but have now been joined as defendants.
The first action was originally brought against a single underwriter, Mr John Joseph Taylor, purportedly as the representative of all subscribing
underwriters for whom Ince acted (ie all insurers apart from the tenth defendant) with the intention that by an agreement to be bound, all such
underwriters would be bound by any judgment against Mr Taylor. Pleadings were exchanged in late 1987 and early 1988, but thereafter there followed a
prolonged and inconclusive debate between the respective solicitors concerning the proposed agreement to be bound.
In May 1990 the plaintiffs issued a summons for a declaration that Mr Taylor was a representative underwriter, and eventually, after various
adjournments, this summons came before Waller J on 22 February 1991, and, following an adjournment in the hope of the parties coming to terms, was
concluded on 10 May 1991 (see Bank of America National Trust and Savings Association v Taylor [1992] 1 Lloyd’s Rep 484). Waller J held that the
action had not been commenced as a representative action and that the only person effectively sued was Mr Taylor; but that it was appropriate that it
should continue as a representative action, for which purpose the learned judge gave a number of directions as to who should represent the underwriters,
and on associated procedural matters.
By this date the sixth anniversary of the casualty, namely 22 July 1991, was fast approaching. Following unsuccessful attempts by solicitors to agree
the terms of the orders consequential on Waller J’s judgment, the matter was referred by correspondence to the judge who was then sitting on circuit in
Leeds. The judge signed a draft order accompanied by an explanatory letter on 9 July, and subsequently a final order (also dated 9 July, although there is
a dispute as to when it was actually made). This order, inter alia, granted, or purported to grant, leave to the plaintiffs to amend the writ by substituting
the present defendants for Mr Taylor.
On 18 July HTD served on Ince a sealed order together with six ‘amended’ writs purportedly by way of service on the first to sixth defendants, all of
whom are English companies. I have put the word ‘amended’ in inverted commas, because the writs were neither resealed nor reissued, in contravention,
as is common ground, of the mandatory requirements of RSC Ord 20, r 10(1).
Preamble
Under Ord 15, r 8(1) it is stipulated that an amendment must be made within such period as may be specified in the order or, if no period is specified,
within 14 days after the making of the order. Waller J’s order specified no period, so it follows that if his order was made on 9 July, as the defendants
contend, the deadline expired on 24 July.
On that day HTD, having obtained leave on 22 July to serve the seventh and ninth defendants out of the jurisdiction, served, or purported to serve,
two unresealed and unreissued writs on those two defendants by post to Ince (Ince having agreed to accept service on their behalf, provided Ord 11 leave
was granted). On 29 July HTD, having realised their earlier mistake, reissued and resealed the first six amended writs in compliance (albeit belated) with
Ord 20, r 10(1). On the same day HTD applied ex parte by letter to Waller J for an extension of time for effecting the amendment, and on 30 July Waller
J made the order as requested extending the time to 29 July 1991.
On 6 August 1991 the reissued and resealed amended writs were served on the first to ninth defendants inclusive.
405
By this date, the sixth anniversary of the NOA, namely 3 September 1991, was fast approaching. Consequently, on 3 September 1991, the plaintiffs
launched the second action, which is a replica of the first action apart from the fact that a specific reference to the NOA, which was omitted in the latter, is
included.
The defendants’ summons in the first action seeks an order to set aside Waller J’s ex parte order dated 30 July 1991, and also various declarations
and orders which would have the effect of setting aside the amended writs and the service thereof on the first to ninth defendants on the grounds, in a
nutshell, that the limitation period having expired on 22 July 1991, Waller J had no jurisdiction to make the ex parte order on 30 July, and that the
amendment on 29 July together with the service on 6 August were invalid. This raises a very important point of principle as to the court’s jurisdiction,
dependent on the terms of s 35 of the Limitation Act 1980 and of the relevant rules, in the light of the decision of the House of Lords in Ketteman v
Hansel Properties Ltd [1988] 1 All ER 38, [1987] AC 189.
It is self-evident that this summons can only succeed if the defendants are right that the cause of action arose on the date of the casualty on 22 July,
and not, as the plaintiffs contend, on the date of the NOA, ie 3 September 1985. This raises the second important point of principle in the case, which
turns upon the construction of the relevant sections of the Marine Insurance Act 1906 in the light of a number of decided authorities.
The plaintiffs by their cross-summons seek orders that, if and in so far as they failed to comply with the provisions of the rules in failing to amend
the writs of summons within 14 days after Waller J’s order dated 9 July, the original steps taken by the plaintiffs to effect the amendments to the writ and
the original service on the first to sixth defendants be respectively treated as valid amendments and good service and/or that the reissued and resealed
amendment on 29 July, and the service on 6 August, be respectively treated as timely amendment and good service on the first to ninth defendants. This
summons is based primarily on Ord 2, r 1 (with a subsidiary reliance on Ord 20, r 9, although Mr Schaff for the plaintiffs accepts that if he fails under the
former rule his application cannot succeed under the latter), and raises the third important issue of principle in the case, namely if the defendants are right
on their jurisdiction point, can the plaintiffs invoke Ord 2, r 1?
Since all these three major points of principle interreact, it is convenient at this stage to foreshadow my conclusion that, for reasons set out in full
detail below, the defendants succeed on all three.
It follows from my decision in favour of the defendants on the second point (namely that the cause of action arose on 22 July) that the second action
is statute-barred. This renders academic the other points raised by the defendants in their summons in the second action, based, in a nutshell, on the
proposition that the second action is frivolous, vexatious and oppressive on the ground that it is a claim in respect of the same damage as the first action
but inconsistent therewith, because the first action is in essence a claim for partial loss, whereas the second action is a claim for a CTL. I shall, however,
touch briefly on this aspect in the course of the ensuing main narrative.
Furthermore, the defendants having succeeded on all three main points of principle, no question arises as to the exercise of my discretion, whether
under Ord 2, r 1 or generally. I shall, however, at the request of both parties, explain with reasons how my discretion would have been exercised if Mr
Schaff had 406 been free to invoke it, ie if I had been in his favour on one or more of the relevant points of principle.
Finally, a separate issue arises on a small claim by the plaintiffs for salvage expenses, which I shall deal with separately at the end of this judgment.
I propose first to give a narrative expanding so far as is necessary the history as briefly summarised above. I shall then deal successively with the
first and third points of principle, since they are very closely connected, before discussing the second point of principle.
I am giving this judgment in open court with the consent of both parties.
MAIN NARRATIVE
Events surrounding the casualty

On 22 July 1985 there occurred the vessel’s engine breakdown which has given rise to these proceedings, and the vessel was taken under tow on the
terms of the Lloyd’s Open Form (LOF), which only entitles the salvor to payment if the vessel is successfully towed to port. In the present case the tow
was successfully completed on 5 August 1985.
The NOA dated 3 September 1985 was in the following terms:
‘VESSEL: “KYRIAKI”
PERIOD: 31.12.84–25.9.85.
CASUALTY: July, 1985 Engine Breakdown
The above vessel has met with the above accident, as a result of which it is considered that it may have become a Constructive Total Loss
and/or Total Loss. Acting on the instructions of the Assured, we hereby beg to tender abandonment and claim payment of a Constructive Total
Loss and/or Total Loss under your policy for Hull and Machinery etc. In the event of your declining to accept the above abandonment, kindly,
when replying, agree to place the Assured in the same position as if a Writ had been issued this day.’
This was indorsed in common form by the underwriters: ‘Abandonment declined, agree writ clause’.
The policies
These provided so far as relevant as follows:
‘Interest: Hull, Manchester etc. Valued at US$2,000,000/US$1,500,000

Sum Insured: US$1,760,000 (88.00 per cent of value)
Conditions: Free from Particular Average [FPA] Absolutely but including damage received in Collision, Fires, Lightning, Explosion, Stranding,
Grounding and Striking the Ground. Subject to deductible US$25,000 all claims, each accident, except Total Loss which is payable in full.
Preamble
Including Institute Time Clauses, Hulls, 1.10.83. so far as applicable. The Institute Time Clauses, Hulls, 1.10.83. provide inter alia: 6.2 This
insurance covers loss of or damage to the subject matter insured caused by 6.2.3 negligence of Master Officers Crew or Pilots provided such loss or
damage has not resulted from want of due diligence by the Assured, Owners or Managers … 11.1 This insurance covers the Vessel’s proportion of
salvage …’
The FPA condition is of importance in the debate on the second point of principle, and its effect is that on the facts of this case, given the peril relied
upon 407 (negligence of the crew) this plaintiff cannot recover for partial losses other than ones incurred by a general average sacrifice (s 76(1) of the
1906 Act).
The first action

Having recited the terms of the policy, including of course the FPA condition, and the details of the casualty, the points of claim proceeded as
follows:
‘The costs of repairing the vessel were in excess of the insured value of $2,000,000. The Plaintiffs rely upon the estimate set out in the letter
dated 10th October 1985 from Manley Hopkins Son and Cookes Ltd to H Clarkson (Marine) Ltd and received by them on 14th October 1985. The
salvage claim under LOF was reasonably settled in the sum of US$85,000.
14. In the premises the Defendant and other underwriters of the said policy (and the underwriters of the 12% risk not covered by the said policy
but covered by policies no. MGO9647 MGO9648 and MGO9649) are liable to indemnify the Plaintiffs in respect of: 1. The sum insured under the
policies, namely, US$1,500,000 and 2. the salvage liability of US$85,000.’
Mr Aikens QC for the defendants argues that, having regard to the omission from this pleading of any specific reference to the NOA, its true effect
was a claim for partial loss only, thus giving rise to his contention in the summons in the second action described above.
Undoubtedly, as is common ground, a claim for a constructive total loss should refer to the NOA (though the context in which such reference arises
is a matter of acute controversy on the second point of principle), and to that extent this pleading, for which Mr Schaff was not responsible, was
technically defective, as he acknowledges.
However, I am quite satisfied that, on its proper construction, with the reference to the costs of repairs exceeding the insured value, this claim was
essentially one for a CTL and not, as Mr Aikens alleges, one for partial loss. This conclusion is reinforced by the pleader’s reference to the FPA
condition, having regard to its effect as just described. I should therefore have rejected Mr Aikens’s submission in his summons in the second action.
The proceedings before Waller J in 1991

After Waller J had given his judgment on 10 May (the May judgment), ruling that the action as it stood against Mr Taylor was not properly
constituted as a representative action, but ordering that a properly framed representative action was appropriate, and after the two firms of solicitors had
been unable to agree the terms of the consequential orders, HTD wrote to Waller J in Leeds by letter dated 4 July (with a copy to Ince) enclosing a
proposed order together with a draft amended writ, supported by an affidavit; the letter spelt out the points of difference between HTD and Ince. On the
following day Ince wrote to Waller J setting out their clients’ contentions.
The proposed amendment went somewhat beyond the scope of the May judgment.
Waller J replied to both solicitors by letter dated 9 July, enclosing his order, which was indorsed ‘Draft’ and was dated in manuscript 9 July, and
which amended in manuscript the HTD draft, including deletion of the paragraph that the plaintiff should have leave to amend.
In the covering letter Waller J stated, inter alia, as follows with reference to the paragraph just mentioned:
408
‘Amendments reflected purely by my Order could be ordered. The proposed amendments go further, and unless they are not resisted I am not
prepared to make an Ex Parte Order.’
This letter crossed another letter to the judge from HTD dated 11 July which was in the following terms:
‘We refer to our previous letter to His Lordship dated 4th July. We would ask His Lordship to note that it is possible that a time-bar may arise
should the Plaintiff not be in a position to issue an Amended Writ and Points of Claim by 22nd July. We simply raise this point, so that His
Lordship is aware of the time constraints which the Plaintiff faces and the urgency of the formal Orders which we seek.’
On 15 July HTD replied to the judge (with copy to Ince) as follows:
‘We acknowledge receipt of his Lordship’s letter dated 9th July and thank Mr Justice Waller for his prompt reply to ours and Messrs Ince &
Co’s letters dated 4th and 5th July respectively. We have noted the contents of His Lordship’s correspondence and recommendations contained
therein. We now enclose amended draft Orders which we ask be put before His Lordship. These orders deal with the matters between the parties
which are not in dispute and which reflect His Lordship’s letter of 9 July.’
The amended writ enclosed was now in line with Waller J’s May judgment, and the order, typed by HTD, was dated by them 9 July and reinstated
the paragraph giving leave to amend. Waller J initialled HTD’s draft order without any amendment, and without alteration of the date, and returned it to
HTD who received it on or about 18 July.
All the writs were reissued and resealed in proper form on 29 July, bearing the rubric ‘amended pursuant to the order of Mr Justice Waller made on
ninth day of July 1991’.
The application ex parte to Waller J on 29 July was made by HTD by letter as follows:
‘We advise that following receipt of His Lordship’s Orders dated 9th and 22nd July 1991, the writer took immediate steps to serve amended
writs on the parties now joined. However, due to an oversight, the writer has served amended Writs on the Defendants but omitted to re-seal the
amended Writs before service in accordance with Order 20 rule 9 of the Supreme Court Rules. No point has yet been taken by those representing
the Defendants but this omission has come to the writer’s attention and in order to rectify this situation, we have today re-sealed the concurrent
amended Writs in accordance with Order 20 rule 10. We enclose a copy for His Lordship’s examination. It would be our intention to re-serve
copies of the re-sealed Writs. However, Order 20 rule 9 which provides for the amendment of the Writ sets out a 14 day time limit for the making
Preamble
of amendments pursuant to His Lordship’s Order dated 9th July 1991. We are therefore obliged to make an ex-parte application to his Lordship
seeking an extension of time in which to effect the amendments pursuant to His Lordship’s Order dated 9th July 1991.’
The enclosed draft order, which was initialled without alteration by Waller J, was in the following terms:
409
‘UPON the plaintiff’s application ex-parte. It is hereby Ordered and Directed as follows: 1. Time for leave to amend the Writ of Summons
referred to in the Order of Mr Justice Waller dated 9th July 1991 be extended to 29th July 1991.’
The first subsidiary point arising out of this sequence of events is as to the date on which Waller J’s order giving leave to amend was made.
Mr Schaff submits that it was made on 16–18 July (ie upon the return to HTD of the order), and that in consequence the plaintiffs are not caught by
the 14-day time limit laid down in Ord 15, r 8(1). He submits that the form of order issued by the judge on 9 July did not have the effect of giving leave
to amend as eventually granted, seeing that Waller J deleted the relevant paragraph.
I am unable to accept this submission. It seems to me apparent that, having regard to the combined effect of the draft order dated 9 July as initialled
and the accompanying letter, Waller J made it quite clear that leave to amend was granted provided it was limited within the scope of the May judgment.
Thus the second order submitted by HTD on 15 July complied with that direction and was correctly dated by HTD with the same date as that of the first
draft order, namely, 9 July. This date was adhered to by HTD themselves in all subsequent correspondence, in the rubric indorsed on the correctly
amended draft writs quoted above, and in both the draft ex parte order and the covering letter dated 29 July. I therefore hold that Waller J’s order
granting leave to amend was made on 9 July.
The other subsidiary point arising out of this sequence of events is the submission by the defendants that there was a material non-disclosure in
HTD’s letter of 29 July, seeing that it did not draw specifically to the judge’s attention the fact that the limitation period might have expired a week
beforehand on 22 July. Mr Schaff very fairly recognised that it would have been better if this had been specifically mentioned, but he contends, in my
judgment, with full justification, that there was no question of holding anything back, seeing that HTD had specifically drawn Waller J’s attention to the
potential limitation point in their letter of 11 July seeking expedition. I therefore reject the suggestion that there was any culpable non-disclosure and
exonerate HTD from any criticism on this score.
JURISDICTION—THE FIRST POINT OF PRINCIPLE
The legal framework

Section 35 of the Limitation Act 1980 provides as follows:
‘New claims in pending actions: rules of court.—(1) For the purposes of this Act, any new claim made in the course of any action shall be
deemed to be a separate action and to have been commenced—(a) in the case of a new claim made in or by way of third party proceedings, on the
date on which those proceedings were commenced; and (b) in the case of any other new claim, on the same date as the original action.
(2) In this section a new claim means any claim by way of set-off or counterclaim, and any claim involving either—(a) the addition or
substitution of a new cause of action; or (b) the addition or substitution of a new party; and “third party proceedings” means any proceedings
brought in the course of any action by any party to the action against a person not previously a party to the action, other than proceedings brought
by joining 410 any such person as defendant to any claim already made in the original action by the party bringing the proceedings.
(3) Except as provided by section 33 of this Act or by rules of court, neither the High Court nor any county court shall allow a new claim within
subsection (1)(b) above, other than an original set-off or counterclaim, to be made in the course of any action after the expiry of any time limit
under this Act which would affect a new action to enforce that claim. For the purposes of this subsection, a claim is an original set-off or an
original counterclaim if it is a claim made by way of set-off or (as the case may be) by way of counterclaim by a party who has not previously made
any claim in the action.
(4) Rules of court may provide for allowing a new claim to which subsection (3) above applies to be made as there mentioned, but only if the
conditions specified in subsection (5) below are satisfied, and subject to any further restrictions the rules may impose.
(5) The conditions referred to in subsection (4) above are the following—(a) in the case of a claim involving a new cause of action, if the new
cause of action arises out of the same facts or substantially the same facts as are already in issue on any claim previously made in the original
action; and (b) in the case of a claim involving a new party, if the addition or substitution of the new party is necessary for the determination of the
original section.
(6) The addition or substitution of a new party shall not be regarded for the purposes of subsection (5)(b) above as necessary for the
determination of the original action unless either—(a) the new party is substituted for a party whose name was given in any claim made in the
original action in mistake for the new party’s name; or (b) any claim already made in the original action cannot be maintained by or against an
existing party unless the new party is joined or substituted as plaintiff or defendant in that action.
(7) Subject to subsection (4) above, rules of court may provide for allowing a party to any action to claim relief in a new capacity in respect of a
new cause of action notwithstanding that he had no title to make that claim at the date of the commencement of the action. This subsection shall not
be taken as prejudicing the power of rules of court to provide for allowing a party to claim relief in a new capacity without adding or substituting a
new cause of action.
(8) Subsections (3) to (7) above shall apply in relation to a new claim made in the course of third party proceedings as if those proceedings were
the original action, and subject to such other modifications as may be prescribed by rules of court in any case or class of case.’
It is common ground that sub-ss (5) and (6) do not apply here.
Order 15, r 6 provides, so far as relevant, as follows:
‘Misjoinder and nonjoinder of parties

(1) No cause or matter shall be defeated by reason of the misjoinder or nonjoinder of any party; and the Court may in any cause or matter
determine the issues or questions in dispute so far as they affect the rights and interests of the persons who are parties to the cause or matter.
(2) Subject to the provisions of this rule, at any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and
either of its own motion or on application—(a) order any person who has 411 been improperly or unnecessarily made a party or who has for any
reason ceased to be a proper or necessary party, to cease to be a party; (b) order any of the following persons to be added as a party, namely—(i)
any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the
Preamble
cause or matter may be effectually and completely determined and adjudicated upon, or (ii) any person between whom and any party to the cause or
matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which
in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or
matter.
(3) An application by any person for an order under paragraph (2) adding him as a party must, except with the leave of the Court, be supported
by an affidavit showing his interest in the matters in dispute in the cause or matter or, as the case may be, the question or issue to be determined as
between him and any party to the cause or matter.
(4) No person shall be added as a plaintiff without his consent signified in writing or in such other manner as may be authorised.
(5) No person shall be added or substituted as a party after the expiry of any relevant period of limitation unless either—(a) the relevant period
was current at the date when proceedings were commenced and it is necessary for the determination of the action that the new party should be
added, or substituted, or (b) the relevant period arises under the provisions of section 11 or 12 of the Limitation Act 1980 and the Court directs that
those provisions should not apply to the action by or against the new party. In this paragraph “any relevant period of limitation” means a time limit
under the Limitation Act 1980 or a time limit which applies to the proceedings in question by virtue of the Foreign Limitation Periods Act 1984.
(6) Except in a case to which the law of another country relating to limitation applies, and the law of England and Wales does not so apply, the
addition or substitution of a new party shall be treated as necessary for the purposes of paragraph (5)(a) if, and only if, the Court is satisfied
that—(a) the new party is a necessary party to the action in that property is vested in him at law or in equity and the plaintiff’s claim in respect of an
equitable interest in that property is liable to be defeated unless the new party is joined, or (b) the relevant cause of action is vested in the new party
and the plaintiff jointly but not severally, or (c) the new party is the Attorney General and the proceedings should have been brought by relator
proceedings in his name, or (d) the new party is a company in which the plaintiff is a shareholder and on whose behalf the plaintiff is suing to
enforce a right vested in the company, or (e) the new party is sued jointly with the defendant and is not also liable severally with him and failure to
join the new party might render the claim unenforceable.’
It is common ground that none of the criteria specified in para (6)(a) to (e) apply here.
Order 15, r 8 provides as follows:
‘Provisions consequential on making of order under rule 6 or 7

(1) Where an order is made under rule 6 the writ by which the action in question was begun must be amended accordingly and must be indorsed
412 with—(a) a reference to the order in pursuance of which the amendment is made, and (b) the date on which the amendment is made; and
the amendment must be made within such period as may be specified in the order or, if no period is so specified, within 14 days after the making of
the order.
(2) Where by an order under rule 6 a person is to be made a defendant, the rules as to the service of a writ of summons shall apply accordingly
to service of the amended writ on him, but before serving the writ on him the person on whose application the order was made must procure the
order to be noted in the cause book.
(3) Where by an order under rule 6 or 7 a person is to be made a defendant, the rules as to acknowledgment of service shall apply accordingly to
acknowledgment of service by him, subject, in the case of a person to be made a defendant by an order under rule 7, to the modification that the
time limited for acknowledging service shall begin with the date on which the order is served on him under rule 7(4) or, if the order is not required
to be served on him, with the date on which the order is noted in the cause book.
(4) Where by an order under rule 6 or 7 a person is to be added as a party or is to be made a party in substitution for some other party, that
person shall not become a party until—(a) where the order is made under rule 6, the writ has been amended in relation to him under this rule and (if
he is a defendant) has been served on him, or (b) where the order is made under rule 7, the order has been served on him under rule 7(4) or, if the
order is not required to be served on him, the order has been noted in the cause book; and where by virtue of the foregoing provision a person
becomes a party in substitution for some other party, all things done in the course of the proceedings before the making of the order shall have
effect in relation to the new party as they had in relation to the old, except that acknowledgment of service by the old party shall not dispense with
acknowledgment of service by the new.
(5) The foregoing provisions of this rule shall apply in relation to an action begun by originating summons as they apply in relation to an action
begun by writ.’
Order 20, rr 9 and 10 provide as follows:
‘Failure to amend after order

9. Where the Court makes an order under this Order giving any party leave to amend a writ, pleading or other document, then, if that party does
not amend the document in accordance with the order before the expiration of the period specified for that purpose in order or, if no period is so
specified, of a period of 14 days after the order was made, the order shall cease to have effect, without prejudice, however, to the power of the
Court to extend the period.
Mode of amendment of writ, etc.

10.—(1) Where the amendments authorised under any rule of this Order to be made in a writ, pleading or other document are so numerous or of
such nature or length that to make written alterations of the document so as to give effect to them would make it difficult or inconvenient to read, a
fresh document, amended as so authorised, must be prepared and, in the case of a writ or originating summons, re-issued, but, except as aforesaid
413 and subject to any direction given under rule 5 or 8, the amendments so authorised may be effected by making in writing the necessary
alterations of the document and, in the case of a writ or originating summons, causing it to be re-sealed and filing a copy thereof.
(2) A writ, pleading or other document which has been amended under this Order must be indorsed with a statement that it has been amended
specifying the date on which it was amended, the name of the Judge, Master or Registrar by whom the order (if any) authorising the amendment
was made and the date thereof, or, if no such order was made, the number of the rule of this Order in pursuance of which the amendment was
made.’
In Ketteman v Hansel Properties Ltd [1988] 1 All ER 38, [1987] AC 189, the applicable limitation regime was that laid down under the Limitation
Act 1939, which did not contain a counterpart to s 35 of the 1980 Act.
The first point which was decided in Ketteman’s case, which is critically relevant to the present case, is as to the proper construction of Ord 15, r
8(4), in deciding the date at which a new person added as a defendant under the terms of that rule becomes a party. The House of Lords unanimously
held, overruling Seabridge v H Cox & Sons (Plant Hire) Ltd [1968] 1 All ER 570, [1968] QB 46, that the plain language of that rule must prevail, and
Preamble
that—
‘a person added as a defendant does not become a party until not only has the writ been amended but also the amended writ has been served
upon him.’ (See [1988] 1 All ER 38 at 45, [1987] AC 189 at 198 per Lord Keith of Kinkel, with whom Lord Templeman, Lord Griffiths and Lord
Goff of Chieveley agreed.)
Lord Brandon of Oakbrook stated that in his opinion, the plain effect of the rule is that defendants added under Ord 15, r 6 ‘become parties to the
action in which they are joined when, and only when, an amended writ is served on them’ (see [1988] 1 All ER 38 at 53, [1987] AC 189 at 209).
The second relevant decision of the principle arising from Ketteman’s case is as to the date at which an action is brought against a newly added
defendant. On this point the House of Lords, having ruled that under the terms of the 1939 Act the joinder of the new defendant did not relate back to the
date of the issue of the writ, held that an action is brought against an additional defendant ‘at the date upon which that defendant is joined as a party in
accordance with the rules of court’ (see [1988] 1 All ER 38 at 47, 54, [1987] AC 189 at 200, 210 per Lord Keith and Lord Brandon). In consequence, in
the words of Lord Keith ([1988] 1 All ER 38 at 48, [1987] AC 189 at 202), the relevant newly added defendants in that case had a ‘cast-iron defence of
limitation’ at the date they effectively became defendants. Lord Keith also stated that, had the relation back theory applied, it would have been—
‘unjust to join [the new defendant] at a time when limitation has run in his favour, because to do so would have the effect of depriving him of a
valid defence.’ (See [1988] 1 All ER 38 at 46, [1987] AC 189 at 200.)
The defendants’ submissions

Mr Aikens for the defendants submitted that, on the plain and natural meaning of s 35(3), the court is debarred from allowing (ie permitting) a new
claim involving the addition or substitution of a new party to be made after the expiry of the relevant limitation period.
414
In the present case, by Ord 15, r 8(4), as construed in Ketteman’s case, none of the defendants became parties until the writ had been properly
amended and served on them, ie not earlier than 5 August and well outside the limitation period. Furthermore, the proceedings were only brought against
the new defendants when they were served with the properly amended writ, as also laid down in Ketteman’s case, ie not earlier than 5 August.
It follows, Mr Aikens submitted, that the order of the court allowing the addition of the new defendants to take place after the expiry of the limitation
period, and having the effect that proceedings will be brought against those new defendants after the expiry of the limitation period, was in direct
contravention of s 35(3) and Ord 15, r 6(5); consequently, Waller J’s order dated 9 July should have imposed a condition that service on the additional
defendants must be effected before the expiry of the limitation period, and his ex parte order was ultra vires since it had the effect of extending the
validity of the earlier order beyond such expiry.
As to relation back, Mr Aikens strongly relied on Lord Keith’s statement in the Ketteman case that, if that theory applied, it would be unjust to join a
new defendant at a time when limitation has run in his favour, because to do so would have the effect of depriving him of a valid defence. Now that the
relation-back theory had been reinstated by s 35(1), Mr Aikens submitted that sub-ss (3) to (5) had been enacted in order to preserve the principle laid
down by Lord Keith.
The plaintiffs’ submissions

Mr Schaff for the plaintiffs submitted that, on the proper construction of s 35(3), all that is required is that the plaintiffs should obtain leave to amend
within the limitation period and no more.
Mr Aikens’s construction would, he submitted, be extremely anomalous, seeing that an original writ, provided is was issued within the limitation
period, could be served outside that period provided the general time limit for service was not exceeded.
While he accepted that Ord 15, r 8(4) is conclusive of the date when a new defendant becomes a party, it was not, he submitted, conclusive on the
limitation question, and did not have the effect of establishing that the date of service was a critical stage for deciding whether or not the claim against a
new defendant was time-barred.
As to Ketteman’s case, Mr Schaff submitted that it was distinguishable, since it did not involve the 1980 Act and was contingent on the rejection of
the relation-back theory, which had now been reinstated by s 35(1).
In the result, Mr Schaff submitted, on the proper construction of s 35 and the relevant rules, the correct approach was that, provided the application
for and grant of leave to amend was within the limitation period, it mattered not that proper amendment, or proper service, took place after the expiry of
that period, since under s 35(1), in contrast to the position under the previous law laid down in Ketteman’s case, the amendment would relate back to the
original date of the issue of the writ.
Analysis and conclusions

I am unable to accept Mr Schaff’s submissions. In the first place, his construction of s 35(3) seems to me inconsistent with the plain wording of that
section, and would involve reading the words ‘allow a new claim … to be made’ 415 as if they were ‘grant an application for leave to amend’, which
involves both inserting additional words and giving no force whatsoever to the words ‘new claim … to be made’.
I accept Mr Aikens’s submission that s 35(3) is quite categorical in precluding the court from allowing (ie permitting) any amendment to be made at
a date after the expiry of the limitation period, and that, in the case of a new defendant, an order which permits service upon him outside the limitation
period is bad, seeing that it is only at the date of service that the claim is effectively brought against him and that he is effectively joined. Thus, contrary
to Mr Schaff’s argument, Ord 15, r 8(4) is directly relevant and applicable in this context.
I also reject Mr Schaff’s argument that the Ketteman case is distinguishable because the relation-back theory has now been reinstated by s 35(1). In
my judgment, both limbs of the Ketteman decision are directly applicable here, and, so far as relation back is concerned, Lord Keith’s statement that, if
that theory applies, it would be unjust to join the new party as a defendant at a time when limitation had run in his favour, because to do so would have
the effect of depriving him of a valid defence, is fully applicable under s 35. It was, in my judgment, as Mr Aikens submitted, in order to preserve this
principle that s 35(3) to (5) were enacted.
Mr Schaff’s contrast between the code where a fresh writ is issued and the code where a new defendant is added seems to me of no avail, since the
rules have carefully and deliberately laid down different regimes for the two forms of procedure.
For the reasons given by Mr Aikens, therefore, I am satisfied that there was no jurisdiction to make the ex parte order on 29 July granting an
extension of time which had the effect of allowing the action to be brought against the new defendants by service after the expiry of the limitation period;
that the amendment on 29 July was bad since it took place outside the limitation period; and that the joinder for the first time of the new defendants by
service on 5 August was also bad since it fell outside the limitation period. I therefore uphold the defendants’ case on jurisdiction in respect of the first to
Preamble
ninth defendants inclusive.
ORDER 2, R 1—THE THIRD POINT OF PRINCIPLE

Order 2, r 1 provides as follows:
‘Non-compliance with rules

(1) Where, in beginning or purporting to begin any proceedings or at any stage in the course of or in connection with any proceedings, there has,
by reason of any thing done or left undone, been a failure to comply with the requirements of these rules, whether in respect of time, place, manner,
form or content or in any other respect, the failure shall be treated as an irregularity and shall not nullify the proceedings, any step taken in the
proceedings, or any document, judgment or order therein.
(2) Subject to paragraph (3) the Court may, on the ground that there has been such a failure as is mentioned in paragraph (1) and on such terms
as to costs or otherwise as it thinks just, set aside either wholly or in part the proceedings in which the failure occurred, any step taken in those
proceedings or any document, judgment or order therein or exercise its powers under these rules to allow such amendments (if any) to be made and
to make such order (if any) dealing with the proceedings generally as it thinks fit.
416
(3) The Court shall not wholly set aside any proceedings or the writ or other originating process by which they were begun on the ground that
the proceedings were required by any of these rules to be begun by an originating process other than the one employed.’
Mr Schaff, having emphasised the very wide scope of the words of this order, went on to submit that s 35(3) should not prevent the correction of
mistakes, however trivial, which arise after joinder has been properly made. But he recognised that if, as I have already held, s 35(3) deprives the court of
jurisdiction, this argument is difficult to maintain, and in my judgment, Ord 2, r 1 must be subordinate to s 35 and to those parts of Ord 15, rr 6 and 8
which implement that section, and in particular to s 35(4), which explicitly provides that rules of court may provide for allowing a new claim to which
sub-s (3) above applies to be made, but only if the conditions specified in sub-s (5) are satisfied.
I should stress that, were it not for the unsurmountable obstacle presented by s 35 and its accompanying rules, I should have had little difficulty in
accepting Mr Schaff’s argument that, by serving the defective writs, the plaintiffs had purported to begin proceedings and so fell potentially within the
ambit of Ord 2, r 1 (cf Golden Ocean Assurance Ltd v Martin, The Goldean Mariner [1990] 2 Lloyd’s Rep 215 esp at 218 per Lloyd LJ). I should not
have accepted Mr Aikens’s argument that a line must be drawn somewhere, and that the service of the effective writs, though near the borderline, was on
the wrong side of it. The importance of the phrase ‘purporting to begin’ was stressed by the majority judgments in the New South Wales Court of Appeal
in Australian Coastal Shipping Commission v Curtis Cruising Pty (1989) 17 NSWLR 734 in relation to the New South Wales counterpart of Ord 2, r 1;
but this case does not, contrary to Mr Schaff’s submission, assist him on the main point, since there is, as I am informed, no counterpart in New South
Wales to s 35.
As a final argument under this head, Mr Schaff focused on the position of the first to sixth defendants inclusive, who are all English companies, and
submitted that since they were all served, albeit incorrectly, before the expiry of the limitation period, this constituted no more than a procedural
irregularity which could be remedied under Ord 2, r 1, so that even if the time of service is the touchstone for the new defendants, the irregular service
could be put right in the case of these six defendants. In my judgment, this argument, like the previous one, falls foul of s 35(4) for the same reasons. It
is also objectionable, as Mr Aikens submits, since it is asking the court now, long after the limitation period had expired, to validate the earlier ineffective
steps taken by the plaintiffs and the orders made consequential thereon; as Mr Aikens neatly put it, the rule cannot put the parties and the court in a time
machine and transport them back to a date prior to the expiry of the limitation period.
It follows that in my judgment, Ord 2, r 1 is not applicable in the present case, and, as Mr Schaff recognised, a fortiori, the court cannot at this
juncture extend the period for amendment under Ord 20, r 9.
THE DATE OF ACCRUAL OF THE CAUSE OF ACTION—THE SECOND POINT OF PRINCIPLE
The Marine Insurance Act 1906

Sections 56 to 57 and 60 to 62 of the Marine Insurance Act 1906 provide so far as relevant as follows;
417
‘56. Partial and total loss.—(1) A loss may be either total or partial. Any loss other than a total loss, as hereinafter defined, is a partial loss.
(2) A total loss may be either an actual total loss, or a constructive total loss.
(3) Unless a different intention appears from the terms of the policy, an insurance against total loss includes a constructive, as well as an actual,
total loss.
(4) Where the assured brings an action for a total loss and the evidence proves only a partial loss, he may, unless the policy otherwise provides,
recover for a partial loss.
(5) Where goods reach their destination in specie, but by reason of obliteration of marks, or otherwise, they are incapable of identification, the
loss, if any, is partial and not total.
57. Actual total loss.—(1) Where the subject-matter insured is destroyed, or so damaged as to cease to be a thing of the kind insured, or where
the assured is irretrievably deprived thereof, there is an actual total loss.
(2) In the case of an actual total loss no notice of abandonment need be given …
60. Constructive total loss defined.—(1) Subject to any express provision in the policy, there is a constructive total loss where the subject-matter
insured is reasonably abandoned on account of its actual total loss appearing to be unavoidable, or because it could not be preserved from actual
total loss without an expenditure which would exceed its value when the expenditure had been incurred.
(2) In particular, there is a constructive total loss—(i) Where the assured is deprived of the possession of his ship or goods by a peril insured
against, and (a) it is unlikely that he can recover the ship or goods as the case may be, or (b) the cost of recovering the ship or goods, as the case
may be, would exceed their value when recovered; or (ii) In the case of damage to a ship, where she is so damaged by a peril insured against, that
the cost of repairing the damage would exceed the value of the ship when repaired. In estimating the cost of repairs, no deduction is to be made in
respect of general average contributions to those repairs payable by other interests, but account is to be taken of the expense of future salvage
operations and of any future general average contributions to which the ship would be liable if repaired; or (iii) In the case of damage to goods,
where the cost of repairing the damage and forwarding the goods to their destination would exceed their value on arrival.
61. Effect of constructive total loss. Where there is a constructive total loss the assured may either treat the loss as a partial loss, or abandon the
subject-matter insured to the insurer and treat the loss as if it were an actual total loss.
Preamble
62. Notice of abandonment.—(1) Subject to the provisions of this section, where the assured elects to abandon the subject-matter insured to the
insurer he must give notice of abandonment. If he fails to do so the loss can only be treated as a partial loss.
(2) Notice of abandonment may be given in writing, or by word of mouth, or partly in writing and partly by word of mouth, and may be given in
any terms which indicate the intention of the assured to abandon his insured interest in the subject-matter insured unconditionally to the insurer.
418
(3) Notice of abandonment must be given with reasonable diligence after the receipt of reliable information of the loss, but where the
information is of a doubtful character the assured is entitled to a reasonable time to make inquiry.
(4) Where notice of abandonment is properly given, the rights of the assured are not prejudiced by the fact that the insurer refuses to accept the
abandonment.
(5) The acceptance of an abandonment may be either express or implied from the conduct of the insurer. The mere silence of the insurer after
notice is not an acceptance.
(6) Where notice of abandonment is accepted the abandonment is irrevocable. The acceptance of the notice conclusively admits liability for the
loss and the sufficiency of the notice.
(7) Notice of abandonment is unnecessary where at the time when the assured receives information of the loss there would be no possibility of
benefit to the insurer if notice were given to him.
(8) Notice of abandonment may be waived by the insurer.
(9) Where an insurer has re-insured his risk, no notice of abandonment need be given by him.’
Sections 67 to 69 inclusive provide, so far as relevant, under the heading ‘Measure of Indemnity’, as follows:
‘67. Extent of liability of insurer for loss.—(1) The sum which the assured can recover in respect of a loss on a policy by which he is insured, in
the case of an unvalued policy, to the full extent of the insurable value, or, in the case of a valued policy, to the full extent of the value fixed by the
policy, is called the measure of indemnity.
(2) Where there is a loss recoverable under the policy, the insurer, or each insurer if there be more than one, is liable for such proportion of the
measure of indemnity as the amount of his subscription bears to the value fixed by the policy, in the case of a valued policy, or to the insurable
value, in the case of an unvalued policy.
68. Total loss. Subject to the provisions of this Act, and to any express provision in the policy, where there is a total loss of the subject-matter
insured,—
(1) If the policy be a valued policy, the measure of indemnity is the sum fixed by the policy:
(2) If the policy be an unvalued policy, the measure of indemnity is the insurable value of the subject-matter insured.
69. Partial loss of ship. Where a ship is damaged, but is not totally lost, the measure of indemnity, subject to any express provision in the
policy, is as follows:—
(1) Where the ship has been repaired, the assured is entitled to the reasonable cost of the repairs, less the customary deductions, but not
exceeding the sum insured in respect of any one casualty:
(2) Where the ship has been only partially repaired, the assured is entitled to the reasonable cost of such repairs, computed as above, and also to
be indemnified for the reasonable depreciation, if any, arising from the unrepaired damage, provided that the aggregate amount shall not exceed the
cost of repairing the whole damage, computed as above:
419
(3) Where the ship has not been repaired, and has not been sold in her damaged state during the risk, the assured is entitled to be indemnified for
the reasonable depreciation arising from the unrepaired damage, but not exceeding the reasonable cost of repairing such damage computed as
above.’
The defendants’ submissions

Mr Aikens submitted as follows. (1) The nature of the cause of action is for damages for the insurers’ failure to indemnify (or hold harmless) the
assured from losses he has suffered as a result of the damage to the vessel (Firma C-Trade SA v Newcastle Protection and Indemnity Association, The
Fanti [1990] 2 All ER 705 at 717, [1991] 2 AC 1 at 35 per Lord Goff of Chieveley). (2) In Irving v Manning (1847) 1 HL Cas 287, 9 ER 766 the House
of Lords, on advice of the judges, held that a claim for a CTL under a valued policy is a claim by way of liquidated damages. (3) In Chandris v Argo
Insurance Co Ltd [1963] 2 Lloyd’s Rep 65, approved by the House of Lords in Castle Insurance Co Ltd v Hong Kong Islands Shipping Co Ltd [1983] 3
All ER 706, [1984] AC 226, Megaw J held that the cause of action in a claim for either general or particular average arose at the date of the casualty and
not at the date of the average adjustment, that there was no need for the assured to prove a notice or demand for payment before bringing his action, or to
quantify his claim and that s 69 of the 1906 Act affected the measure of indemnity but not the accrual of the cause of action. (4) In Robertson v Petros M
Nomikos Ltd [1939] 2 All ER 723, [1939] AC 371, which was a claim under a freight policy in the CTL case, the House of Lords held that it was not
necessary that the assured should have given NOA as a condition precedent to recover the amount insured by the freight policy. In the words of Lord
Atkin ([1939] 2 All ER 723 at 724, [1939] AC 371 at 399):
‘… notice of abandonment is not a condition precedent [of a constructive total loss of the ship] though it is of a right to sue for such a loss.’
Lord Wright stated ([1939] 2 All ER 723 at 726, [1939] AC 371 at 381):
‘In my opinion, notice of abandonment is not an essential ingredient of a constructive total loss. The appellant’s argument confuses two
different concepts, because it confuses constructive total loss with the right to claim for a constructive total loss.’
Lord Thankerton, Lord Russell of Killowen and Lord Porter delivered concurring judgments.
Basing himself on these established principles, Mr Aikens submitted that in the present case the underwriters’ obligation was to hold the insured
harmless from the losses he suffered as a result of the damage to the vessel, and that this obligation was broken at the moment of the casualty. The NOA
amounted, he argued, to no more than an election under s 61 of the 1906 Act to claim for a CTL measure of damages, rather than to claim for a partial
loss measure of damages under s 69, and did not constitute an essential ingredient of the cause of action; this was borne out by the heading ‘Measure of
Indemnity’ to ss 67 to 69 in the 1906 Act, and was also reflected in the contrast clearly drawn in Robertson’s case between the CTL itself and the right to
Preamble
claim on a CTL basis. Thus, Mr Aikens submitted, it would be open to an assured to claim on the very day on which the casualty occurred on a CTL
basis (assuming, of course, that there was a CTL in fact) without any prior NOA provided the writ itself gave 420 NOA, there being no requirement,
having regard to the provisions of s 62(2), that the NOA must be couched in any particular form.
This submission, Mr Aikens argued, was strongly reinforced by s 56(4) of the 1906 Act, which demonstrates that an assured may claim for a CTL
and for a partial loss in the alternative, and might well wish to do so if the repair costs were near the borderline of the sum insured under the policy; it
would, he submitted, be absurd if the causes of action under these two headings, arising out of the same casualty, and maintained in the same proceedings,
accrued at different dates. Mr Aikens also relied on s 62(7) and (8), and submitted that manifestly, where either of those two subsections apply, the cause
of action must arise at the date of the casualty.
The plaintiffs’ submissions

Mr Schaff, while not in the end seeking to controvert Mr Aikens’s general arguments, based his case under this heading on a very narrow point, viz
the inclusion of the FPA condition in this particular contract. As a result, he submitted, the plaintiff had only one choice, namely, to claim for a CTL, so
that there was no question here of the plaintiffs having a right to elect between two alternative quantums. In this particular case, therefore, a NOA was
essential as part of the cause of action, since otherwise the plaintiffs could have no claim at all. The FPA clause was thus a special contractual provision
rendering a NOA a necessary ingredient of the cause of action in this particular case (see Chandris v Argo Insurance Co Ltd [1963] 2 Lloyd’s Rep 65 at
74 per Megaw J).
Analysis and conclusions

I am quite satisfied that Mr Aikens’s submissions are correct in general principle, for the reasons he gave, and that in consequence in a CTL case
(leaving aside for a moment the FPA point) the cause of action arises at the date of the casualty, so that the NOA is not an essential ingredient of that
cause of action, but rather a notification of an election between two alternative quantums of damage.
Does the inclusion of the FPA clause in the present contract make any difference, as Mr Schaff submits? Even assuming Mr Schaff is right that the
FPA clause deprived him of a right of election, I am quite unable to accept that the inclusion of this particular condition in this contract could displace the
general principle that the cause of action in a CTL case arises at the date of the casualty, which is based on the statutory provisions in the 1906 Act, and
on decisions of the highest authority on which Mr Aikens relies.
However, I am not satisfied that Mr Schaff’s assumption is correct. In Arnould’s Law of Marine Insurance and Average (16th edn, 1981) vol 2, para
1170, edited by Lord Mustill and Mr Jonathan Gilman QC, it is stated as follows:
‘Section 61 confers a power of election on the assured. It is important to notice that this is an election as to the nature of the claim, not as to the
nature of the loss. The existence of a state of facts falling within the definition of a constructive total loss in section 60 is the necessary condition
for the exercise of the election under section 61. Hence, it is submitted, the assured may in appropriate circumstances, exercising his power of
election under section 61, claim as for a partial loss, notwithstanding that the policy is warranted free of particular average; and conversely (again
assuming that there is a constructive total loss) no election under section 61 to claim for a partial loss can justify a claim on a policy covering partial
losses only.’
421
Mr Schaff submits that the first part of the final sentence of the above quotation is incorrect, and in a supplementary argument following the
conclusion of the hearing, he drew to my attention two cases, Woodside v Globe Marine Insurance Co Ltd [1896] 1 QB 105, [1895–9] All ER Rep 1016
and George Cohen & Sons v Standard Marine Insurance Co Ltd (1925) 21 Ll L Rep 30, although he recognised that they do no more than touch on the
issue. I gained no assistance from those cases, and I respectfully adopt the view expressed by the very distinguished editors of Arnould on this topic. On
this basis there is indeed a right of election under this contract, so that the FPA clause makes no difference.
For these reasons, I hold that the cause of action arose on the date of the casualty, namely 22 July 1985, so that the limitation period expired on 22
July 1991.
SALVAGE
Mr Schaff submitted that different principles applied here, since having regard to the LOF provisions, the cause of action for the salvage only arose
when the vessel reached port.
This seems to me a hopeless submission. Whatever may be the position as between the salvors and the plaintiffs, the plaintiffs’ claim for salvage
expenses against the underwriters is for one particular head of expenditure consequent on the casualty; it is no different from the position in an ordinary
motor accident case, where the plaintiff, having lost the use of his car, claims under his particulars of special damage the cost of hire of taxis to get him to
work during the period his car was under repair. These are damages consequential on the accident, where it could not possibly be suggested that a
separate cause of action arose each time the taxi was hired. I am therefore satisfied that the cause of action for the salvage expenses also arose on the date
of the casualty.
DISCRETION
This part of my judgment is academic if I am right on the main points of principle, but, as already noted, I agreed to counsel’s request to give my
conclusions on this topic in case my decision on the main points of principle should be reversed subsequently, in circumstances where the outcome would
hinge upon whether in the exercise of my discretion I should have granted the plaintiffs the relief sought in their cross-summons in the first action.
Mr Schaff submitted as follows. (1) The delay was not culpable but was caused by the prolonged difficulties in seeking to settle the terms of an
agreement to be bound. (2) The procedural mistake which was made was purely technical. (3) Although the form of Waller J’s order dated 9 July
decreed the joinder of new parties to the record, in substance the first to ninth defendants, and all those represented by the first to third defendants had
been involved in the litigation from the outset; moreover, Ince had been instructed on behalf of all those underwriters, including the representees, although
formally they did not act on behalf of anyone other than Mr Taylor. This is thus not a case in which new parties with no previous involvement in the
subject matter of the dispute were being brought into the proceedings for the first time. (4) Until Waller J observed halfway through the hearing that the
points of claim sought relief against Mr Taylor only, both sides’ counsel had proceeded on the basis that the action was already a representative action in
which the first to ninth defendants were already parties. (5) HTD’s error was a one-off slip, and the object of the rules is not to punish either parties or
their advisers for 422 mistakes of this character. (6) As the defendants’ evidence shows, Ince, having received the amendments (albeit not correctly
made) were aware of the error on 19 July, three days before the expiry of the limitation period. Thus they had received at that juncture on behalf of the
first to sixth defendants documents which not only clearly set out the terms of the formal amendment, but which also clearly showed to what allegations
they had to plead, notwithstanding the procedural error. (7) HTD themselves spotted the mistake without prompting by Ince, and took immediate steps to
Preamble
set the matter right by the ex parte application. (8) The reissuing and resealing was effected within 14 days of the receipt back by HTD of Waller J’s
signed order.
Mr Aikens very frankly recognised that if the case turned solely on the exercise of my discretion, he would have an uphill task. However, he
submitted that in the particular circumstances it would not have been proper to exercise my discretion in favour of the plaintiffs for the following reasons.
(i) This is not a widows or orphans case, but an action between professionals, professionally advised, it being apparent from the defendants’ affidavit
evidence that the underlying parties on the plaintiffs’ side are the mortgage interest underwriters. (ii) This is a stale case where snail-like progress was
taken on the plaintiffs’ case during the protracted discussions as to the agreement to be bound, which the plaintiffs allowed to drag on until only very
shortly before the expiry of the limitation period. Having allowed the case to drag on so long, it behoved the plaintiffs to be very careful to ensure they
got things right, and if they failed to do so they were not entitled to great sympathy. (iii) It was not a one-off slip, since they got the action wrong from
the start, and continued the proceedings against Mr Taylor only for five years and ten months after the issue of the writ. (iv) Even though Ince acted for
all relevant underwriters including the representees, and knew that proceedings would be issued and served against the new representative underwriters,
they never said or did anything to lead HTD to think that the defendants would accept anything other than strict and proper compliance with the rules. (v)
The court should, even if the case turned only on discretion, pay close regard to the limitation aspects of the case. (vi) Particular care and caution was
needed in relation to the foreign defendants; having regard to well-settled principles the court should be jealous to safeguard their interests.
I fully accept Mr Aikens’s submissions raise some valid points of substance. Nevertheless, it seems to me that they would have been substantially
outweighed by the very powerful considerations advance by Mr Schaff. It follows that if this case had turned on discretionary considerations, I should
have exercised my discretion in the plaintiffs’ favour.
FINAL CONCLUSIONS
The defendants having succeeded on all three main points of principle, it follows that they are entitled in substance to the relief sought under their
summons in the first action, and I shall hear counsel as to the precise form of order.
I should like express my gratitude to both counsel for their admirable arguments.
Order accordingly.
423
[1994] 1 All ER 424
Re M (a minor) (care order: threshold conditions)

FAMILY; Family Proceedings

BALCOMBE, ROSE AND PETER GIBSON LJJ
29, 30 JULY, 15 OCTOBER 1993
Family proceedings – Orders in family proceedings – Care order – Conditions to be satisfied before making care order – Harm child ‘is suffering’
attributable to care being given to him not what it would be reasonable to expect parent to give – Mother murdered by child’s father – Child living with
short-term foster-mother – Siblings living with relative – Relative seeking residence order – Father and local authority supporting care order with view to
adoption outside family – Judge making care order because of harm suffered by child as result of mother’s murder – Whether condition that child ‘is
suffering’ significant harm satisfied – Whether judge entitled to make care order – Children Act 1989, s 31(2).
In 1991 G’s mother was murdered by his father when G was four months old. G went to live with a short-term foster-mother but retained regular contact
with his older half-brothers and sister, who went to live with Mrs W, the mother’s cousin. Mrs W initially felt unable to care for G and in May 1992 the
local authority applied for a care order in respect of him. In June the father was found guilty of murder and sentenced to life imprisonment with a
recommendation that he be deported on his release. In August Mrs W obtained a residence order in respect of the three older children and, having
decided that she could after all cope with G, applied for a residence order in respect of him. When the case came before the judge the local authority did
not pursue its application for a care order but instead supported Mrs W’s application for a residence order. However, both the father and the guardian ad
litem appointed for G in the care proceedings supported the making of a care order with a view to G’s adoption outside his natural family. The issue arose
whether the threshold criteria for the making of a care order in respect of G under s 31a of the Children Act 1989 were satisfied. Section 31(2) provided
that a court could only make a care order if it was satisfied that the child ‘is suffering … significant harm … attributable to … the care given to the child,
or likely to be given to him if the order were not made, not being what it would be reasonable to expect a parent to give to him …’ The judge decided
that the threshold conditions for a care order under s 31 were satisfied because the murder of G’s mother had deprived him of her love and care, thereby
causing him harm, and that a care order should be made with a view to G’s adoption outside the family. Mrs W, supported by the local authority,
appealed to the Court of Appeal.
________________________________________
a Section 31, so far as material, is set out at p 427 g, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – Section 31(2) of the 1989 Act, by referring to the harm the child the subject of an application for a care order ‘is suffering’, made it clear that the
court was required to have regard to harm being suffered by the child at the time of the hearing when the court had to decide whether the threshold
Preamble
conditions were satisfied. Accordingly, the first of the threshold conditions in s 31(2) was not fulfilled unless the court was satisfied at the time of the
hearing 424 that the child was then suffering significant harm attributable to the fact that the care then being given to him was not what it would be
reasonable to expect a parent to give to him. It was not enough that some event in the past had caused the child to suffer harm if before the hearing the
child had ceased to suffer such harm. On the facts, the trial judge had erred in finding, by reference to the murder of G’s mother by his father, that the
threshold criteria for the making of a care order had been satisfied, since that finding referred to the past event of the mother’s murder and ignored the
care given to G by his foster-mother. There had been no evidence before the judge which entitled her to find that at the date of the hearing G was
suffering significant harm of the relevant kind. Accordingly, the threshold conditions had not been satisfied and the care order would be set aside. The
appeal would be allowed and a residence order made in favour of Mrs W (see p 426 c, p 427 j to p 428 a g, p 430 j, p 431 d e and p 432 b to d, post).
Dictum of Lord Goff in D (a minor) v Berkshire CC [1987] 1 All ER 20 at 44 applied.
Northamptonshire CC v S [1993] Fam 136 overruled.
Notes
For the threshold criteria for the making of a care order, see 5(2) Halsbury’s Laws (4th edn reissue) para 787, and for cases on the subject, see 28(3)
For the Children Act 1989, s 31, see 6 Halsbury’s Statutes (4th edn) (1992 reissue) 431.

D (a minor), Re [1993] 1 FLR 554.
D (a minor) v Berkshire CC [1987] 1 All ER 20, [1987] AC 317, [1986] 3 WLR 1080, HL.
M v Westminster CC [1985] FLR 325, DC.
Northamptonshire CC v S [1993] Fam 136, [1992] 3 WLR 1010.
W (an infant), Re [1971] 2 All ER 49, [1971] AC 682, [1971] 2 WLR 1011, HL.
Cases also cited

B (child: interim care order), Re [1993] 1 FCR 565.
G v G [1985] 2 All ER 225, [1985] 1 WLR 647, HL.
H v H and C (Kent CC intervening) (child abuse: evidence) [1989] 3 All ER 640, [1990] Fam 86, CA.
L (a minor) (care proceedings: wardship), Re (No 2) [1991] 1 FLR 29.
R v Birmingham Juvenile Court, ex p G and ors (minors), R v Birmingham Juvenile Court, ex p R (a minor) [1989] 3 All ER 336, [1990] 2 QB 573, CA.
Appeal
Mrs W, the third respondent in care proceedings brought by the Greenwich London Borough Council (Greenwich) in respect of a minor, G, appealed from
the decision of Bracewell J on 12 February 1993 dismissing her application for a residence order and making a care order under s 31 of the Children Act
1989 with a view to the adoption of G outside his family. Mrs W’s appeal was supported by Greenwich. The guardian ad litem and G’s natural father
supported the judge’s order. The facts are set out in the judgment of the court.
425
Rodger Hayward Smith QC and Laura Harris (instructed by Hudgell & Partners) for Mrs W.
Elizabeth Anne Gumbel (instructed by Meaby & Co) for the father.
Sandra Graham (instructed by David Atkinson) for Greenwich.
Joanna Dodson QC and Mhairi McNab (instructed by Cliffords) for the guardian ad litem.
At the conclusion of the argument the court announced that the appeal would be allowed for reasons to be given later.
BALCOMBE LJ. On 30 July 1993 we allowed an appeal from a care order made on 12 February 1993 by Bracewell J under s 31 of the Children Act
1989 saying we would give our reasons later. This we now do and this is the judgment of the court.
The child concerned is G, who was born on 28 June 1991 and is now 2 years old. He is the son of J (the mother), a woman whose family came from
Jamaica but who was herself born in England on 28 May 1959. The mother had three children before G, a son, L, born on 27 March 1984 (now aged 9)
and twins born on 12 June 1987 and now aged 6. The father of the twins was a different man from L’s father. Neither of these fathers retained contact
with their children. In January 1990 the mother married, in this country, a Nigerian (the father) and G was the son of this marriage. After G’s birth he
lived with his mother, his half-brothers and his half-sister in a home which was visited by the father, who had retained his own accommodation.
On 12 October 1991 the father murdered the mother at her home in the presence of all four children; G was four months old at the time. It was a
very brutal and violent murder in which the father used a meat cleaver and a knife. He also assaulted the mother’s boyfriend.
The police immediately obtained a place of safety order and the four children were accommodated by the local authority, Greenwich London
Borough Council. After a week the three elder children went to live with the mother’s maternal cousin, Mrs W. Mrs W, who is also of Jamaican origin,
was born on 29 March 1938 and so is now aged 55. She lives in a three-bedroomed council maisonette in south-west London. She is separated from her
husband, by whom she had two teenage children. The mother’s three elder children have since lived with Mrs W and it is common ground that they have
thrived under her care. On 11 August 1992 a residence order in respect of the three children was made in her favour.
At the time of the mother’s death, Mrs W did not feel able to look after G, because he was so young and because of the attention which the three
elder children would require to help them cope with their mother’s violent death. So G stayed with a short-term foster-mother, a Mrs C, with whom he
was living at the time of the appeal. He had, however, retained regular contact with Mrs W and his half-siblings. The place of safety order was not
renewed and G remained with Mrs C on a voluntary basis and with her he thrived; however as a short-term foster-parent she could not look after him
indefinitely.
On 15 May 1992 Greenwich applied for a care order in respect of G. At that time the father was still awaiting trial for the murder of the mother and
his 426 position was unclear, while Mrs W had not then told Greenwich that there had been a change in her initial reluctance to care for G.
Between the date of Greenwich’s application and the date of the hearing before the judge a number of events occurred. First, on 7 June 1992 the
father was found guilty of the murder of the mother, and of causing grievous bodily harm to the mother’s boyfriend. He was sentenced to a term of life
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imprisonment for the murder and to three years’ imprisonment for the offence of grievous bodily harm. There was a recommendation that he should be
deported to Nigeria upon his release. He is currently serving his sentence in one of Her Majesty’s prisons. Secondly, a guardian ad litem was appointed
for G in the care proceedings. Thirdly, two members of the father’s family, G’s paternal aunts both resident in the United States, as well as Mrs W, all
separately applied for residence orders in respect of G. The other three children had then settled so well that Mrs W considered that she could cope with
G, who was no longer a tiny baby. Finally, various medical and psychiatric reports about G were obtained.
By the time the case came before the judge, the two American paternal aunts were no longer pursuing their applications for residence orders.
Greenwich no longer pursued their application for a care order, but supported Mrs W’s application for a residence order. The father and the guardian ad
litem both supported the making of a care order in respect of G with a view to an adoptive placement outside his natural family.
Thus there were three main issues before the judge. (1) Were the ‘threshold criteria’ for the making of a care order under s 31 of the 1989 Act
satisfied? (2) If so, should a care or supervision order be made? (3) Should a residence order be made in favour of Mrs W?
The judge decided that the threshold conditions were satisfied, that there should be a care order (with a view to adoption outside the family) and that
Mrs W’s application for a residence order should be dismissed; her order of 12 February 1993 reflects those decisions. From that order Mrs W, supported
by Greenwich, appealed; the guardian ad litem and the father sought to uphold the judge’s order.
The threshold conditions are contained in s 31(2) of the 1989 Act; they are, so far as relevant, as follows:
‘A court may only make a care order or supervision order if it is satisfied—(a) that the child concerned is suffering, or is likely to suffer,
significant harm; and (b) that the harm, or likelihood of harm, is attributable to—(i) the care given to the child, or likely to be given to him if the
order were not made, not being what it would be reasonable to expect a parent to give to him …’
Simply as a matter of the statutory language referred to above it seems clear that a court may only make a care order—for present purposes it is
unnecessary to consider separately the case of a supervision order—if it is satisfied: (a) that the child is suffering significant harm, and that the harm is
attributable to the care given to the child not being what it would be reasonable to expect a parent to give to him; or (b) that the child is likely to suffer
significant harm and that the likelihood of harm is attributable to the care likely to be given to the child if the order were not made not being what it
would be reasonable to expect a parent to give to him.
427
The use of the present tense in the first of these alternatives—‘is suffering’—makes it clear that the harm must be being suffered at the relevant time,
which is when the court has to be satisfied of the fulfilment of the threshold conditions, ie when it decides whether or not to make a care order. This is
clear from the language used; it is also consistent with other areas of the law relating to children. Thus, under s 16 of the Adoption Act 1976 the court
may make an adoption order, notwithstanding the absence of a parent’s consent, if it is satisfied that the parent is withholding his agreement
unreasonably. It is well established that the test is whether at the time of the hearing the consent is being withheld unreasonably—see Re W (an infant)
[1971] 2 All ER 49 at 52, 71, 77, 78, [1971] AC 682 at 698, 716, 723, 725. Of course, this does not mean that the child must be suffering significant harm
at the precise moment when the court is considering whether the threshold conditions are satisfied: it is sufficient if there is a continuum in existence at
that time. One of the threshold conditions under s 1(2) of the Children and Young Persons Act 1969—which was replaced by s 31 of the 1989 Act—was
if the child’s ‘proper development is being avoidably prevented or neglected or his health is being avoidably impaired or neglected or he is being
ill-treated’. In relation to that provision Lord Goff of Chieveley said in D (a minor) v Berkshire CC [1987] 1 All ER 20 at 44, [1987] AC 317 at 350:
‘The words “is being” are in the continuous present. So there has to be a continuum in existence at the relevant time, which is when the justices
consider whether to make a place of safety order. In cases under the subsection, this may not be established by proof of events actually happening
at the relevant time. In the nature of things, it may well have to be established, as continuing at that time, by evidence that (1) the relevant state of
affairs had existed in the past and (2) there is a likelihood that it will continue into the future. So it can be said that a child is being ill-treated if it
has been cruelly beaten in the past, and there is a likelihood that it will continue to be cruelly beaten in the future. It is not enough that something
has avoidably been done or omitted to be done in relation to the child in the past which has, for example, impaired its health, and that the symptoms
or effects still persist at the relevant time; for it cannot be said in such circumstances that, at the relevant time, the child’s health is being avoidably
impaired: all that can be said is that its health has been avoidably impaired in the past.’
Thus it is not enough that something happened in the past which caused the child to suffer harm of the relevant kind if before the hearing the child
has ceased to suffer such harm. Of course, that would still leave it open to the court to be satisfied that the child is likely to suffer significant harm of the
relevant kind.
That being our considered view of the meaning of s 31, we turn to consider whether there is any authority which requires us to reach a contrary
conclusion.
We were referred to a decision of a Divisional Court of the Family Division, M v Westminster CC [1985] FLR 325. This, too, was a decision on the
provisions of s 1(2) of the 1969 Act, and it is significant that that section contained no provision equivalent to the ‘likely to suffer’ provision of s 31. The
court was clearly much exercised about the anomalies that could arise if the words ‘is being’ were interpreted too restrictively, especially in relation to an
injured child who had been in interim care for some time prior to the full hearing and 428 had then recovered from his injuries. We do not find it
necessary to express an opinion as to whether M v Westminster CC was correctly decided; it is sufficient to say that it was a decision on a provision which
is markedly different from s 31 of the 1989 Act which we are here considering.
In D (a minor) v Berkshire CC [1987] 1 All ER 20, [1987] AC 317 Lord Brandon of Oakbrook considered three questions relating to the meaning
and effect of the expression ‘is being’ in s 1(2) of the 1969 Act. The first was whether the expression referred to an instant or a continuing situation, and
he came to the conclusion that it referred to a continuing situation, a conclusion with which we would not disagree. His second question was: ‘if it refers
to a continuing situation, as at what point of time should the court consider whether that continuing situation exists?’ (see [1987] 1 All ER 20 at 40,
[1987] AC 317 at 345). He answered that question by having in mind the purpose sought to be achieved not only by s 1, but also by s 28 of the 1969 Act.
(Section 28(1) empowered a magistrate to make a place of safety order lasting up to 28 days; s 28(6) empowered a magistrates’ court to make one or more
interim care orders to last until the hearing for a full care order under s 1.) Clearly exercised by the same matters as exercised Bush and Butler-Sloss JJ in
M v Westminster CC, he said ([1987] 1 All ER 20 at 41, [1987] AC 317 at 346):
‘Against the background of these three possible stages in the process of protecting a child under ss 1 and 28 it is, in my view, clear that the
court, in considering whether a continuing situation of one or other of the kinds described in s 1(2)(a) exists, must do so as at the point of time
immediately before the process of protecting the child concerned is first put into motion. To consider that matter at a point of time when the child
has been placed under protection for several weeks, first by a place of safety order and then by one or more interim care orders, would, as pointed
out by Bush J in M v Westminster City Council ([1985] FLR 325 at 340), defeat the purpose of Parliament. I would answer the second question
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relating to the expression “is being” accordingly.’
We find it difficult to reconcile this part of Lord Brandon’s speech with that of Lord Goff in the same case which we have cited above. This
difficulty does not seem to have troubled either Lord Griffiths or Lord Mackay of Clashfern, who agreed with both Lord Brandon and Lord Goff ([1987]
1 All ER 20 at 43, [1987] AC 317 at 349). We have to say that we find the reasoning of Lord Goff the more convincing and, if we had to choose between
the two, it is that of Lord Goff that we would prefer. However, it is sufficient for present purposes to say that Lord Brandon was referring to a provision
significantly different from that which we have to consider.
Finally we refer to the decision of Ewbank J in Northamptonshire CC v S [1993] Fam 136, a decision on the meaning of the expression ‘is suffering
… significant harm’ under s 31(2)(a) of the 1989 Act. Ewbank J, purporting to follow Lord Brandon of Oakbrook in Re D (a minor), said ( [1993] Fam
136 at 140):
‘In my judgment, the words “is suffering” in section 31(2)(a) of the Children Act 1989 relate to the period immediately before the process of
protecting the child concerned is first put into motion, just as in the Children and Young Persons Act 1969. That means that the court has to
consider the position immediately before an emergency protection order, if there was one, or an interim care order, if that was the initiation of
protection, or, as in this case when the child went into voluntary care. In 429 my judgment, the family proceedings court was quite entitled to
consider the position when the children were with the mother prior to going into care and was correct in doing so.’
It will be apparent from what we have already said that we do not agree with this conclusion. The decision, being at first instance, is not binding on us
and must be considered incorrect.
As is well known, before s 31 was enacted, this area of the law was considered by the Review of Child Care Law, by the government in a White
Paper and by the Law Commission. Paragraph 15.12 of the 1985 consultative document, Review of Child Care Law, provided:
‘15.12 In our view the primary justification for the state to initiate proceedings seeking compulsory powers is actual or likely harm to the child.
… Hence, we recommend that in assimilated grounds it should be necessary to prove that there is, or is likely to be, harm to the child.’ (Our
emphasis.)
Paragraph 59 of the 1987 White Paper, The Law on Child Care and Family Services (Cm 62), echoes the last statement:
‘Grounds for a care order

59. A major proposal in the Review which will be implemented is a re-casting of the ground for an order in care proceedings and an assimilation
to them of the grounds in family proceedings other than wardship. This involves the removal of specific grounds for making a care order such as
the committing of an offence of non-attendance at school. There will be three elements in the grounds each of which must be satisfied for an order
to be made. These are: a. evidence of harm or likely harm to the child; and that b. this is attributable to the absence of a reasonable standard of
parental care … The current grounds are largely confined to an examination of the present and past defects in the development or well-being of the
child. Where future harm is at issue, the local authority often make application to the High Court for wardship. It is intended that the inclusion of
likely harm in the new grounds should allow those cases to be heard in juvenile courts in future and will cover children who are being cared for by
the local authority on a voluntary basis where a return home is likely to harm them.’
The Law Commission in its 1988 report on Family Law, Review of Child Law, Guardianship and Custody (Law Com No 172) was concerned only
with putting into effect what the Review of Child Care Law had recommended and the government by its White Paper had accepted. But in the Law
Commission’s draft bill appended to the report the first of the threshold criteria was worded that the child concerned ‘has suffered significant harm or that
there was a real risk of his suffering such harm’. That recommended wording was not adopted in s 31(2). The substitution of ‘is suffering’ for ‘has
suffered’ serves to emphasise the intention that it is not the past but the continuous present to which attention must be directed.
Accordingly we are clear that the first of the threshold conditions is not fulfilled unless the court is satisfied, at the date of the hearing: (i) that the
child is then suffering significant harm; and (ii) that that harm is attributable to the care given to him not being what it would be reasonable to expect a
parent to give to him.
430
Bracewell J dealt with the first of the threshold conditions in the following passage from her judgment:
‘… I am satisfied that G is suffering significant harm within the meaning of s 31(2)(a) in that he has suffered ill-treatment by being permanently
deprived of the love and care of his mother when she was murdered in his presence, and in the presence of his half-brothers and sisters in October
1991. I am also satisfied that under s 31(2)(b) the significant harm is attributable to the care given to the child by the father not being what it would
be reasonable to expect a parent to give to him, in that the father deprived the child, by his actions, of the care of a loving mother … The relevant
date for the words “is suffering” in s 31(2)(a) I find relates to the period immediately before the process of protecting the child is first put into
motion, that is when the father deprived the child for all time of his mother.’
In our judgment that finding is wrong in each of its two limbs. Each limb refers to the past event of the father’s murder of the mother. The second
limb also artificially looks only to the care given by the father, even though for the 16 months prior to the hearing the father, being in prison, was in no
position to give care to G, and it ignores the care actually given to G by the foster-mother. Neither limb refers to the circumstances existing as at the date
of the hearing. In our judgment, on the facts as we have stated them, there was no material before the judge which entitled her to find that, as at the date
of the hearing G was suffering significant harm of the relevant kind.
The judge also dealt with the second of the threshold conditions—‘likely to suffer significant harm’—as follows:
‘I am also satisfied that if an order were not made the child would be likely to suffer significant harm in that he is a small child with special
needs, has no permanent home, and the only person with parental responsibility is the father who is unable to exercise it appropriately or fully in
that he is serving a life sentence with an order of deportation upon release.’
If the position at the date of the hearing had been that G was no longer able to stay with Mrs C (as was the case) and that there was no other suitable
home within his family available for him, then it might well have been open to the judge to find that G was likely to suffer significant harm of the relevant
kind. But there was another family home available to G—that offered by Mrs W where he would be with his half brothers and sister. If G went to live
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with Mrs W, there was nothing to suggest that he would be likely to suffer significant harm, attributable to the care likely to be given to him (by Mrs W)
if the (care) order were not made not being what it would be reasonable to expect a parent to give to him. Admittedly the judge, after deciding that she
could make a care order, came down on balance against Mrs W and in favour of unknown adoptive parents. But the judge herself found it a very difficult
case, and the professional witnesses were evenly divided: one of them said ‘the decision hangs on a knife edge and one does not know which way to go’.
In the end the judge came to the view that Mrs W might not be able to give G the quality of emotional care which he, with his particular background, was
likely to require. This is a thousand miles away from saying that if G were to live with Mrs W he was likely to suffer significant harm of the relevant
kind and, having been taken by counsel through the material evidence, we are satisfied that there was no 431 evidence before the judge which would
have entitled her to find that the second threshold condition was fulfilled. We would observe that, on the way in which the judge held that the second
threshold condition was satisfied, if G’s parents had both been killed in a motor accident, but there was an aunt or uncle willing to take him into his or her
family and bring him up with his siblings and cousins, it would nevertheless be open to the court to say that the second threshold condition was satisfied
and make a care order. This would amount to a form of social engineering which we are satisfied is wholly outside the intention of the 1989 Act.
As we are satisfied that the threshold conditions were not satisfied we do not need to consider whether the judge’s exercise of her discretion to make
a care order could have been successfully challenged.
Accordingly we set aside the care order of 12 February 1993. It did not necessarily follow from that that we should make a residence order in favour
of Mrs W. However, no sensible alternative to G residing with Mrs W was put before us, and the home offered to G by Mrs W with his half-brothers and
sister was clearly a viable proposition, strongly supported by Greenwich. In those circumstances there was no reason for us to send the case back to the
High Court to consider afresh the question of a residence order and we made a residence order in favour of Mrs W.
Appeal allowed. Leave to appeal to the House of Lords refused.

[1994] 1 All ER 432
Hounslow London Borough Council v Pilling

LANDLORD AND TENANT; Tenancies

NOURSE, STUART-SMITH AND WAITE LJJ
22 FEBRUARY 1993
Landlord and tenant – Tenancy – Joint tenancy – Determination – Determination of periodic tenancy held by two or more joint tenants – Weekly tenancy
– Notice to quit accepted by landlord as terminating tenancy three days after notice given by one joint tenant – Whether notice binding other joint tenant.
Landlord and tenant – Eviction – Protection from eviction – Validity of notice to quit – Date for termination – Agreement between landlord and one joint
tenant to accept less than statutory minimum notice – Whether notice binding other joint tenant – Protection from Eviction Act 1977, s 5(1).
The defendant and D entered into a secure weekly tenancy with the plaintiff council for the occupation of a council flat under an agreement dated 22
April 1991, which provided that the rights and liabilities of ‘the tenant’, which was defined as both the defendant and D, applied both jointly and
individually and that the tenant was obliged to give the council four weeks’ written notice or such lesser period as the council might accept of termination
of the tenancy. Five months later, after alleged incidents of domestic violence, D left the flat for good and on 6 December 1991 she wrote to the council
stating that she wished 432 to terminate her tenancy of the flat with immediate effect. The council accepted that as a notice to quit as from 9
December and two days later the council wrote to the defendant stating that the tenancy had been terminated, that the defendant had no right to remain at
the flat and that he had become an illegal occupier. The defendant refused to give up possession and the council brought proceedings against him in the
county court. The district judge made an order for possession which was affirmed on appeal by the judge. The defendant appealed to the Court of
Appeal, where the questions arose whether the purported termination of a periodic tenancy by the landlord and one of two joint tenants without the
consent of the other joint tenant was effective at common law and whether the joint tenant remaining in possession was protected by s 5(1)a of the
Protection from Eviction Act 1977, which provided that notice by a landlord or a tenant to quit a dwelling let as a tenancy was invalid unless it was given
not less than four weeks before the date on which it was to take effect.
________________________________________
a Section 5(1) is set out at p 437 h, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – The appeal would be allowed for the following reasons—

(1) The tenancy of the flat had not been surrendered, since a joint tenancy could not be surrendered without the concurrence of both tenants, and the
fact that the agreement defined the tenant as both the defendant and D did not have the effect that their right to determine the tenancy on notice could be
exercised by them individually. Furthermore, the notice given by D, although capable of taking effect as a notice to quit, had not had that effect because
the council had accepted it as taking effect three days after it was given, which was insufficient time for a notice to terminate a weekly tenancy. In those
circumstances, the notice was not a notice to quit but a notice operating a break clause in the tenancy agreement, and as such it was ineffective because
such a notice could not be given by only one of two joint tenants (see p 435 g to j, p 436 b g j to p 437 c and p 439 d e, post); Re Viola’s Lease, Humphrey
v Stenbury [1908–10] All ER Rep 483 applied; Hammersmith and Fulham London BC v Monk [1992] 1 All ER 1 distinguished.
(2) Even assuming that D’s notice to quit was otherwise valid, it was invalidated by s 5(1) of the 1977 Act, notwithstanding that the tenancy
agreement contained an agreement that the tenancy could be terminated by a tenant’s notice to quit of less than four weeks’ duration which was accepted
by the council, since an invalid notice to quit could not be treated as a valid notice by agreement between a landlord and only one of two joint tenants.
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Such an agreement could not deprive the other joint tenant of the protection to which he was entitled under s 5(1) (see p 437 j and p 439 a to e, post);
Elsden v Pick [1980] 3 All ER 235 distinguished.
Notes
For the determination of periodic tenancy held by several joint tenants, see 27 Halsbury’s Laws (4th edn) para 195, and for cases on the subject, see 31(2)
For the Protection from Eviction Act 1977, s 5, see 23 Halsbury’s Statutes (4th edn) (1989 reissue) 314.
433

Elsden v Pick [1980] 3 All ER 235, [1980] 1 WLR 898, CA.
Hammersmith and Fulham London BC v Monk [1992] 1 All ER 1, [1992] 1 AC 478, [1991] 3 WLR 1144, HL.
Viola’s Indenture of Lease, Re, Humphrey v Stenbury [1909] 1 Ch 244, [1908–10] All ER Rep 483.
Appeal
The defendant, Roland George Pilling, appealed with the leave of the judge from the decision of Judge Marder QC given in the Staines County Court on 7
July 1992 dismissing his appeal from the order made by District Judge Coni on 9 March requiring him to give up possession of the premises known as
107 Belvedere House, Highfields, Feltham, Middlesex, to the plaintiff, Hounslow London Borough Council, on the grounds that the joint tenancy of the
premises held by the defendant and Theresa Doubtfire had been determined by notice to quit contained in a letter from Miss Doubtfire to the council on 6
December 1991. The facts are set out in the judgment of Nourse LJ.
Jan Luba (instructed by Owen White & Catlin, Feltham) for the defendant.
Maurice Cottle (instructed by M J Smith, Hounslow) for the council.
NOURSE LJ. This appeal raises questions as to (1) the consequences at common law of an attempt by a landlord and one of two joint tenants to
determine a periodic tenancy without the consent of the other and (2) the effect of s 5(1) of the Protection from Eviction Act 1977.
By an agreement in writing made on a standard printed form and dated 22 April 1991 the plaintiff, Hounslow London Borough Council, granted and
the defendant, Mr Roland George Pilling, and Miss Theresa Doubtfire accepted a joint weekly tenancy of 107 Belvedere House, Highfields, Feltham,
Middlesex, the tenancy to commence on that date, a Monday. The tenancy was a secure tenancy for the purposes of Pt IV of the Housing Act 1985.
In the agreement the defendant and Miss Doubtfire were together defined as ‘the tenant’. The substantive part of the agreement begins with what
might be described as recitals, the first being in these terms:
‘If the tenancy granted is a joint tenancy the rights and liabilities of the tenant apply both jointly and individually.’
The only other provision of the agreement I need read is cl 14 of Part C, that part being headed ‘The tenant’s obligations’. By cl 14 the tenant was
obliged—
‘to give the council four weeks’ written notice or such lesser period as the council may accept when the tenant wishes to end the tenancy and
give possession of the premises.’
The defendant and Miss Doubtfire went into possession of the premises in accordance with the agreement. Five months later Miss Doubtfire was
making allegations of domestic violence against the defendant, the truth of which it has been unnecessary to investigate. After an alleged incident of
violence on the night of 24–25 September Miss Doubtfire left the premises, never to return, and went to live temporarily with her mother. On 2 October
1991 Judge Marder QC, sitting in the Brentford County Court, granted a non-molestation injunction against the defendant. Miss Doubtfire then
approached the council, 434 who have a domestic violence policy whereby they undertake to rehouse any tenant who is proved to have been a victim
of violence, provided that the victim surrenders his or her tenancy. In due course the council took steps to rehouse Miss Doubtfire in other
accommodation of theirs.
On Friday, 6 December 1991 Miss Doubtfire wrote a letter from her mother’s address in Hounslow to Mr Christopher Carter, a district housing
officer in the employment of the council, in which she said:
‘Re: l07 Belvedere House, Highfields Rd.

This is to confirm our telephone conversation of earlier today, I wish to terminate my tenancy held on the above mentioned property with
immediate effect. Thank you for your kind co-operation.’
On Wednesday, 11 December Mr Carter wrote to the defendant at the premises, saying:
‘The council has received a letter ending the tenancy of 107 Highfield. It is now accepted and from 9th December 1991 you are no longer a
council tenant and should find somewhere else to live. You have no right to remain at 107 Highfield and have become an illegal occupier.’
The defendant having refused to give up possession, on 30 January 1992 the council commenced proceedings against him in the Staines County
Court. On 9 March District Judge Coni made an order for possession and that order was affirmed on appeal by Judge Marder on 7 July. The judge gave
the defendant leave to appeal to this court and stayed the order for possession in the meantime. At an earlier hearing on 22 May the council had given an
undertaking not to solicit or procure notice to quit from Miss Doubtfire. It is said that that undertaking may have lapsed when it was not expressly
renewed on the granting of the stay pending the appeal to this court, but I am by no means certain that that was so. In any event no further notice
purporting to determine the tenancy has been given by Miss Doubtfire and the defendant continues in possession of the premises.
A number of points have been taken on this appeal. The convenient course is to start with the claim made by the council that the effect of what
happened in December 1991 was that the tenancy was surrendered. Mr Cottle for the council accepts that in normal circumstances a joint tenancy cannot
be surrendered without the concurrence of both tenants. But he says that here the position was different. He relies on the first recital to the agreement
combined with cl 14, which obliges the tenant to give four weeks’ written notice or such lesser period as the council may accept. Although the tenant is
defined to mean both the defendant and Miss Doubtfire, Mr Cottle says that the effect of the first recital is that their right to determine the tenancy on
Preamble
notice is one that can be exercised by them individually.
In my view that attaches far too great a significance to the first recital. It is not exactly clear what the effect of it is. But I am entirely satisfied that it
cannot have the effect for which Mr Cottle has contended. All Mr Cottle’s subsequent arguments on the question of surrender then fall to the ground. It
is, on the facts, impossible to say that there was a surrender by both joint tenants. Certainly there was no writing that can be held against the defendant.
Moreover, since he has remained in possession it cannot be said that there has been a surrender by operation of law. Mr Cottle’s final point on this
question was that by the terms of the agreement Miss Doubtfire was constituted the 435 agent of the defendant for the purpose of effecting a
surrender. For reasons similar to those already given, that argument also fails.
So there was no surrender and the council’s right to possession, if any, depends on the terms and effect of Miss Doubtfire’s letter of 6 December.
The council claim that that letter was a valid notice to quit which took effect on 9 December when it was accepted by them. As to that it is clear, first,
that without cl 14 of the tenancy agreement the letter would have been invalid as a notice to quit, on the simple ground that the earliest day on which a
notice to quit given on Friday, 6 December could have determined a weekly tenancy from Monday to Monday would have been Monday, 16 December.
However, the council say that all that is changed by a combination of the terms of cl 14 and the decision of the House of Lords in Hammersmith and
Fulham London BC v Monk [1992] 1 All ER 1, [1992] 1 AC 478.
What was decided in that case was that a contractual periodic tenancy held by two or more joint tenants continued only so long as they all agreed to
its continuation, so that, in the absence of any contrary term in the agreement, the tenancy was determinable by a notice to quit given by one joint tenant
without the concurrence of the other or others. There the tenancy was terminable by four weeks’ notice to expire on a Monday and it was in fact
determined by what Lord Bridge of Harwich called ‘an appropriate notice’ (see [1992] 1 All ER 1 at 2, [1992] 1 AC 478 at 482). He said ([1992] 1 All
ER 1 at 3, [1992] 1 AC 478 at 483):
‘Thus the application of ordinary contractual principles leads me to expect that a periodic tenancy granted to two or more joint tenants must be
terminable at common law by an appropriate notice to quit given by any one of them whether or not the others are prepared to concur.’
Lord Bridge then turned to the authorities on landlord and tenant and held that they did indeed confirm the expectation which he had derived from
the application of ordinary contractual principles. Lord Browne-Wilkinson, the only other member of the House to deliver a reasoned speech, also
referred to an appropriate notice (see [1992] 1 All ER 1 at 10, [1992] 1 AC 478 at 492). Those references to an appropriate notice make it abundantly
clear that a joint tenant cannot unilaterally determine the tenancy by giving an inappropriate notice, for example one which does not give the period of
notice required at common law or by the terms of the tenancy.
In this case Mr Luba for the defendant has raised several points on the notice by which he seeks to show that it was not an appropriate notice for the
purposes of the decision in Monk’s case. He has argued, for example, that it is ambiguous in its terms, that it is not clear that it was intended to take effect
immediately and that, if it was, it was not a valid notice within cl 14, because there was no ‘period’ between the giving of the notice and the date or time
when it was expressed to take effect. So far as those and other arguments in the same vein are concerned, I would reject them. I think that the terms of
Miss Doubtfire’s letter of 6 December 1991 were such that it was capable of taking effect as an immediate notice to quit.
Whether it did take effect as a notice to quit is quite a different matter. It was expressed to take effect immediately and it was accepted as taking
effect on Monday, 9 December, that is to say on a day on which the tenancy could not have been determined by a notice to quit given on Friday, 6
December. Accordingly, argues Mr Luba, it was not a notice to quit properly so-called. It 436 was a notice purporting to be given in exercise of a
break clause contained in the lease, namely that contained in cl 14.
In my judgment that argument is correct and the decision of the House of Lords in Monk’s case is distinguishable on that ground. All that that case
decided was that the continuation of a periodic joint tenancy beyond the end of each period of it depends on the joint will of the tenants, so that if one of
them gives notice determining it at the end of a period it does not continue. Here the notice purported to determine the tenancy not at the end of a period
but in the middle of one. On the assumption, which I certainly make, that cl 14 permitted notice to be given for an immediate determination, the effect of
Miss Doubtfire’s letter of 6 December and the council’s acceptance of it was to determine the tenancy on 9 December and not on 16 December. I
therefore agree with Mr Luba that the notice was not a notice to quit, but one operating a break clause in the tenancy agreement. Such a notice could not
be given by one only of the joint tenants: see Re Viola’s Indenture of Lease, Humphrey v Stenbury [1909] 1 Ch 244, [1908–10] All ER Rep 483.
That that is indeed the case and that Monk’s case should be distinguished on that ground appears clearly from the speech of Lord Bridge. He said
([1992] 1 All ER 1 at 9, [1992] 1 AC 478 at 490):
‘Finally, it is said that all positive dealings with a joint tenancy require the concurrence of all joint tenants if they are to be effective. Thus, a
single joint tenant cannot exercise a break clause in a lease, surrender the term, make a disclaimer, exercise an option to renew the term or apply for
relief from forfeiture. All these positive acts which joint tenants must concur in performing are said to afford analogies with the service of notice to
determine a periodic tenancy which is likewise a positive act. But this is to confuse the form with the substance. The action of giving notice to
determine a periodic tenancy is in form positive; but both on authority and on the principle so aptly summed up in the pithy Scottish phrase “tacit
relocation” the substance of the matter is that it is by his omission to give notice of termination that each party signifies the necessary positive
assent to the extension of the term for a further period.’
The invalidity of the notice is in itself a sufficient basis for deciding this case in favour of the defendant.
However, Mr Luba submits that, even if it had been valid at common law, it would have been rendered invalid by s 5(1) of the Protection from
Eviction Act 1977, which, as amended by s 32 of the Housing Act 1988, is in these terms:
‘Subject to subsection (1B) below, no notice by a landlord or a tenant to quit any premises let (whether before or after the commencement of
this Act) as a dwelling shall be valid unless—(a) it is in writing and contains such information as may be prescribed, and (b) it is given not less than
4 weeks before the date on which it is to take effect.’
No other part of the section is material. It is to be observed that s 5(1) applies as much to a notice to quit given by a tenant as to one given by a
landlord. Accordingly, on the assumption that Miss Doubtfire’s notice to quit was otherwise valid, it would nevertheless appear to have been invalidated
by this provision. However, that was not the view taken by Judge Marder. He thought that the case was concluded against the defendant by the decision
of this court in Elsden v Pick [1980] 3 All ER 235, [1980] 1 WLR 898.
437
That was a case under s 23(1) of the Agricultural Holdings Act 1948, now s 25(1) of the Agricultural Holdings Act 1986, which provides:
‘A notice to quit an agricultural holding or part of an agricultural holding shall (notwithstanding any provision to the contrary in the contract of
Preamble
tenancy of the holding) be invalid if it purports to terminate the tenancy before the expiry of twelve months from the end of the then current year of
tenancy.’
It will be seen that that wording is much the same as that of s 5(1). Mr Luba did not seek to draw a distinction grounded on any material difference
in wording.
In Elsden v Pick the tenant held under an agricultural tenancy determinable on one year’s notice in writing expiring on 6 April in any year. On 7
April 1977 he gave notice determining the tenancy on a date which was treated as being 6 April 1978. The date on which the tenancy was determined
was not crucial because on any footing the notice had been given one day late and was accordingly invalid. However, at the request of the tenant the
landlords’ agent agreed to treat it as valid, notwithstanding that it was short. Later the tenant, having regretted his previous action, contended that the
notice was ineffective to determine the tenancy. The landlords brought proceedings for a declaration that they were entitled to possession of the holding
in April 1978. Their claim failed at first instance, but succeeded in this court.
Elsden v Pick is authority for two propositions: first, that a provision in a tenancy agreement which enables either party to determine the tenancy on
notice shorter than that required by s 23(1) of the 1948 Act is an unlawful attempt to contract out of the provisions of the Act and on that ground invalid;
secondly, and on the other hand, that in relation to the operation of a given notice to quit its invalidity can be cured by the agreement of both parties to
treat it as valid. Both these points are clearly dealt with in the judgment of Brightman LJ where he said ([1980] 3 All ER 235 at 242, [1980] 1 WLR 898
at 907):
‘What s 23 means is that a short notice to quit is invalid as against the recipient. A tenant is not bound to accept less than the statutory 12
months’ notice to quit served by his landlord (nor vice versa) even if the tenancy agreement so provides. If the tenant chooses to do so, he can
simply ignore a short notice served on him and resist any attempt by the landlord to recover possession on the strength of it. But if the tenant
wishes to do so, he can bind himself to accept it. The parties are entitled to agree that the notice shall be treated in all respects as if it were a notice
of the statutory length. If the parties so agree, the tenancy will come to an end on the agreed date by virtue of the defective notice to quit which it is
agreed shall be treated as valid. Such an agreement could not effectively be made before a notice to quit is served, because the parties cannot agree
that the tenancy shall be capable of being terminated by a short notice. Neither the landlord nor the tenant can bind himself in advance to accept a
short notice from the other of them. That would be a “provision to the contrary” in, or supplemental to, the contract of tenancy and would not be
effective. But once an invalid notice has been served, which the recipient is entitled to ignore, I see nothing in s 23 to prohibit an agreement
between landlord and tenant that the notice shall be followed by the same consequences as if it were valid.’
438
The judgments of Shaw and Buckley LJJ were to the same effect. In my view the second part of Brightman LJ’s observations precisely cover this
case.
Here cl 14 contains an agreement that the tenancy may be determined by notice to quit given by the tenant if the period of notice is (a) four weeks or
(b) such lesser period as the council may accept. The parties therefore agreed under (b) that the tenancy should in certain circumstances be determined by
less than the four weeks’ notice required by s 5(1). Notwithstanding Mr Cottle’s arguments to the contrary, that is clearly an agreement to contract out of
the provisions of s 5(1).
The case is therefore comparable with Elsden v Pick, but with one crucial difference. In Elsden v Pick the agreement to treat the invalid notice to
quit as being valid was made between the landlords and the sole tenant. That agreement was held to be sufficient to take the case outside the statutory
protection. Here the council are asking us to hold that the protection afforded by s 5(1) can be brought to an end by an agreement made between them
and only one of two joint tenants. It is obvious that such an agreement cannot deprive the other joint tenant of the protection to which he is entitled under
the Act. That is not a point which can be elaborated.
For these reasons I would also decide the second point in favour of the defendant. I would allow the appeal and discharge the district judge’s order
for possession.
STUART-SMITH LJ. I agree.
WAITE LJ. I also agree.
Appeal allowed.
Sophie Craven Barrister.

[1994] 1 All ER 439
Target Home Loans Ltd v Clothier and another

LAND; Mortgages

NOLAN LJ AND HOLLIS J
30 JULY 1992
Mortgage – Order for possession of mortgaged property – Suspension of execution of order – Likelihood that mortgagor will be able to pay sums due
within reasonable period – Proposal by mortgagor to sell property in order to pay sums due – Whether sale better effected by mortgagors in occupation
or by mortgagee – Whether sale by mortgagors in occupation serving best interests of both mortgagors and mortgagee – Whether court should suspend
execution of order for possession to enable sale of property by mortgagors – Administration of Justice Act 1970, s 36 – Administration of Justice Act
Preamble
1973, s 8.
The defendants borrowed £225,000 from the plaintiff mortgagee and charged their home by a legal charge to secure repayment of the loan. The
defendants covenanted to make repayments monthly with interest but stopped making payments in July 1990. In October 1991, by which time the arrears
were over 439 £46,000, the plaintiffs applied to the county court for immediate possession of the house. The district judge adjourned the application
for 56 days pursuant to s 36a of the Administration of Justice Act 1970, which provided that the court could, by way of an adjournment, suspend
execution of a mortgagee’s order for possession ‘if it appears … that the mortgagor is likely to be able within a reasonable time to pay any sums due
under the mortgage’. By s 8b of the Administration of Justice Act 1973 the power to delay giving a mortgagee possession was applied to instalment
mortgages if the mortgagor satisfied the court that he could pay the instalment arrears by the due date. The plaintiffs appealed to the judge against the
decision to adjourn their application. By the time of the hearing of the appeal the arrears had risen to over £64,000 and the defendants had not made any
further payments. The defendants produced at the hearing a draft for £10,000 in favour of the plaintiffs and evidence of a prospective sale of part of the
property, subject to planning permission being obtained, for possibly £48,000. The judge, exercising the same statutory powers, adjourned the application
for four months to enable planning permission to be obtained and the sale of part of the land to be completed. The plaintiffs appealed against the
adjournment. By the time of the hearing of the appeal the defendants had made a further payment of £616 but the prospective sale of part of the land had
not proceeded any further although planning permission had been obtained. The defendants produced new evidence to the effect that they had placed the
whole property on the market for £495,000 and that the estate agents instructed to sell the property were optimistic of an early sale.
________________________________________
a Section 36, so far as material, is set out at p 441 j to p 442 c, post
b Section 8, so far as material, is set out at p 442 f to p 443 a, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – Although there had been no evidence before the judge that the defendants were then likely to be able to discharge the sums due under the
mortgage within a reasonable time, on the evidence before the court it was unlikely that the defendants would meet their mortgage commitments unless
the house was sold. Since an early sale of the property would best serve the interests of the plaintiffs as well as those of the defendants and since such a
sale would be more readily achieved if the house was occupied rather than repossessed, the court would defer an order for possession for three months. If
the defendants failed to discharge the whole of their indebtedness to the plaintiff in that time the plaintiffs would then be entitled to possession of the
property. The appeal would be dismissed but the judge’s order varied accordingly (see p 444 j and p 446 b to e j to p 447 e, post).
Royal Trust Co of Canada v Markham [1975] 3 All ER 433 considered.
Notes
For the power of a court to adjourn an action for possession by a mortgagee, see 32 Halsbury’s Laws (4th edn) paras 834, 836, and for cases on the
subject, see 35 Digest (Reissue) 442, 3871–3874.
For the Administration of Justice Act 1970, s 36, see 37 Halsbury’s Statutes (4th edn) 397.
For the Administration of Justice Act 1973, s 8, see ibid 432.

Halifax Building Society v Clark [1973] 2 All ER 33, [1973] Ch 307, [1973] 2 WLR 1.
440
Royal Trust Co of Canada v Markham [1975] 3 All ER 433, [1975] 1 WLR 1416, CA.

Citibank Trust Ltd v Ayivor [1987] 3 All ER 241, [1987] 1 WLR 1157.
First National Bank plc v Syed [1991] 2 All ER 250, CA.
Western Bank Ltd v Schindler [1976] 2 All ER 393, [1977] Ch 1, CA.
Interlocutory appeal
The plaintiff, Target Home Loans Ltd, appealed from the decision of Mr Recorder Jonathan Cole siting in the Kingston-upon-Thames County Court on 15
April 1992 whereby he adjourned for four months the plaintiff’s appeal from the order of Mr H E Beith sitting as a deputy district judge dated 10
February 1992 adjourning to the first open date after 56 days the plaintiff’s claim for an order for possession against the defendants, Norman Clothier and
Margaret Joan Clothier, in respect of the land and dwelling house known as Honeycroft, 91 Silverdale Avenue, Walton on Thames, Surrey. The facts are
set out in the judgment of Nolan LJ.
Anne Bell (instructed by Lightfoots, Thame) for the plaintiff.

Simon Brilliant (instructed by Howell-Jones & Partners, Walton on Thames) for the defendants.
NOLAN LJ. This is an appeal by the plaintiffs, Target Home Loans Ltd, from a decision of Mr Recorder Jonathan Cole given on 15 April 1992, ordering
that the plaintiffs’ appeal against the order of Mr H E Beith sitting as a deputy district judge, dated 10 February 1992, be adjourned for four months. The
plaintiffs seek to substitute for that order an order that the defendants deliver up to the plaintiffs possession of the land and dwelling house known as
Honeycroft, 91 Silverdale Avenue, Walton on Thames, Surrey.
The history of the matter is that by a legal charge dated 28 July 1988, made between the plaintiffs and the defendants, the defendants charged their
home, ‘Honeycroft’, to secure the repayment of a loan of £225,000. The repayment was to be made with interest at the initial rate of 9·2% pa.
Repayments were to be made monthly on the third day of each month. The monthly payments were duly made until 3 July 1990, whereupon they ceased.
No further regular payments have been made since then. When the matter came before the district judge he adjourned it to the first open date after 56
days. Against that order the plaintiffs appealed to the court of Mr Recorder Cole.
When the matter came both before the district judge and the learned recorder they had to consider the claim for possession that was made by the
plaintiffs in the light of the relevant provisions of the Administration of Justice Acts 1970 and 1973. Those are conveniently summarised in the judgment
of Sir John Pennycuick in Royal Trust Co of Canada v Markham [1975] 3 All ER 433 at 437–438, [1975] 1 WLR 1416 at 1420–1422. He first quoted s
36 of the Administration of Justice Act 1970, which reads as follows:
Preamble
‘(1) Where the mortgagee under a mortgage of land which consists of or includes a dwelling-house brings an action in which he claims
possession of the mortgaged property, not being an action for foreclosure in which a claim for possession of the mortgaged property is also made,
the court may exercise any of the powers conferred on it by subsection (2) below if it appears to the court that in the event of its exercising the
power the mortgagor is likely to be able within a reasonable period to pay any sums 441 due under the mortgage or to remedy a default
consisting of a breach of any other obligation arising under or by virtue of the mortgage.
(2) The court—(a) may adjourn the proceedings, or (b) on giving judgment, or making an order, for delivery of possession of the mortgaged
property, or at any time before the execution of such judgment or order, may—(i) stay or suspend execution of the judgment or order, or (ii)
postpone the date for delivery of possession, for such period or periods as the court thinks reasonable.
(3) Any such adjournment, stay, suspension or postponement as is referred to in subsection (2) above may be made subject to such conditions
with regard to payment by the mortgagor of any sum secured by the mortgage or the remedying of any default as the court thinks fit …’
Sir John Pennycuick continued:
‘… under that section, which applies alike to non-instalment and to instalment mortgages, the court is given a limited power to suspend
execution of an order for possession. I will come back to the words of that section in a moment. That section gave rise to a difficulty in that, in
order that the condition of likelihood of payment should be satisfied, on the face of the words used the mortgagor had to satisfy the court that he
was likely to be able to pay not only arrears of interest or arrears of instalments but also the principal sum due under the mortgage: see Halifax
Building Society v Clark [1973] 2 All ER 33, [1973] Ch 307. It is as a result, I think, of that decision that a further provision was enacted by the
Administration of Justice Act 1973. Section 8 of that Act reads as follows: “(1) Where by a mortgage of land which consists of or includes a
dwelling-house, or by any agreement between the mortgagee under such a mortgage and the mortgagor, the mortgagor is entitled or is to be
permitted to pay the principal sum secured by instalments or otherwise to defer payment of it in whole or in part, but provision is also made for
earlier payment in the event of any default by the mortgagor or of a demand by the mortgagee or otherwise, then for the purposes of section 36 of
the Administration of Justice Act 1970 (under which a court has power to delay giving a mortgagee possession of the mortgaged property so as to
allow the mortgagor a reasonable time to pay any sums due under the mortgage) a court may treat as due under the mortgage on account of the
principal sum secured and of interest on it only such amounts as the mortgagor would have expected to be required to pay if there had been no such
provision for earlier payment. (2) A court shall not exercise by virtue of subsection (1) above the powers conferred by section 36 of the
Administration of Justice Act 1970 unless it appears to the court not only that the mortgagor is likely to be able within a reasonable period to pay
any amounts regarded (in accordance with subsection (1) above) as due on account of the principal sum secured, together with the interest on those
amounts, but also that he is likely to be able by the end of that period to pay any further amounts that he would have expected to be required to pay
by then on account of that sum and of interest on it if there had been no such provision as is referred to in subsection (1) above for earlier payment
…” In other words, in the case of an instalment mortgage the court may exercise the power of suspension if the mortgagor establishes a likelihood
of being able to pay instalments due to date.’
442
A little further on Sir John Pennycuick dealt with the suggestion that the court was unable to have regard to the possibility of the property being sold
and thus producing the means of discharging both the existing accrued instalments and also further liabilities under the mortgage. As to that, he said
([1975] 3 All ER 433 at 438, [1975] 1 WLR 1416 at 1422):
‘I ought, however, to mention ground 4, namely that the judge was wrong in law in taking into account as evidence of likelihood the defendants’
proposal to pay such sums by selling the property, such proposal being repugnant to and/or incompatible with an order for possession. I do not
think that that ground can be supported. Section 36 is expressed in perfectly unqualified terms; and I see no justification for writing into the section
words which are not there, such as, “otherwise than by way of a sale of the property”.’
Browne LJ said ([1975] 3 All ER 433 at 439, [1975] 1 WLR 1416 at 1423):
‘I also agree with Sir John that, for the reasons he has given, it is not possible to accept counsel’s submission that in a proper case the court
could not stay or suspend an order to enable a property to be sold. I suppose that in all probability this would only be done where there was clear
evidence that a sale was going to take place in the near future and that the price would cover all the sums due to the mortgagee for capital and
interest. But in such circumstances, and if the court thought it proper, in my view there would be jurisdiction to make such an order.’
How did matters stand when the case came before the learned recorder? His judgment says:
‘In his defence of 28 November 1991 the defendant, who has appeared unrepresented, and I assume on behalf of himself and of his wife, in a
handwritten defence did not dispute the claim and stated that they were “actively pursuing finance to discharge the debt to date in full and have
made further arrangements to ensure payments of the mortgage for the immediate future”. That is the language of pious hope unbased on fact. It
continues that they are “hopeful of selling part of the garden to our neighbour for £40,000 with the balance of the moneys being met today from a
near relative”. That is again a hope completely unfulfilled as Mr Clothier did not pay a halfpenny piece.’
I should add that immediately before that passage the recorder mentioned that the particulars of claim, dated 4 October 1991, had put the arrears at
that date in the sum of £46,422·18. His judgment continued:
‘On 7 April 1992 Mr Summerfield of the plaintiff’s solicitors swore an affidavit and attached to that affidavit is an exhibit which sets out the
arrears as at 3 April 1992 as being £64,579·96. It is correct to record that Mr Clothier has not paid so much as a halfpenny towards the mortgage
since his last payment on the 3 July 1990. Not only were payments not properly paid, no part of them was paid.’
Then at the foot of the next page of his judgment the recorder summarises the position in law in this way:
‘The court may adjourn the proceedings, suspend execution of any judgment or postpone delivery of possession if it appears that the 443
Preamble
mortgagor is likely to be able to repay the sums due within a reasonable time. In so far as I am aware there is no reported case which sets out what
a reasonable time may be. As a matter of common sense it should not be so short as to be negligible or so long as to defeat the mortgagor’s rights.’
The recorder continued:
‘Today [15 April 1992] Mr Clothier produced a draft for £10,000 and he also produced on Monday correspondence with a Mr Popat which at
least shows on the face of it that Mr Popat would purchase some of the land at the bottom of Mr Clothier’s garden for £44,000/£48,000. This
agreement is not completed due to the failure of Mr Popat to agree to a planning condition that a suitable line of trees should be planted. Mr
Clothier says that Mr Popat is willing to do so and that planning permission will be given within two months. This would mean that a further
£40,000 can be paid towards the mortgage debt. Mr Clothier says that perhaps his sister-in-law may have other sums which can help to defray this
debt. I am not convinced that Mr Clothier is the most reliable of witnesses and I suspect that he confuses the actual with what is desirable when
giving his evidence. None the less I have a discretion and I think I am extending it to very near its admissible limit … I am adjourning this matter
for four months to enable planning permission to be obtained to enable the sale of the plot of land to be completed. But, in respect of this
adjournment, it will be granted on one condition that there is an undertaking given by Mr Clothier to the court that the whole of the sale proceeds be
paid into court within three days of receipt of those proceedings to await their ultimate disposal.’
I would make two comments on those passages from the judgment. The first is based on the arithmetic of the evidence before the learned recorder.
Mr Clothier, faced with arrears at that stage of £64,579·96, having made no payments since 3 July 1990, produced before the recorder a draft for £10,000
and correspondence showing on the face of it a prospective purchase of his land by Mr Popat for at most £48,000, a total (ignoring costs of sale) of
£58,000. Apart from the suggestion that perhaps Mr Clothier’s sister-in-law may have other sums which would help to defray the debt, which the learned
assistant recorder was not prepared to treat as a matter of weight, there was no evidence whatever before the recorder of Mr Clothier being likely to
discharge the sums due under the mortgage within a reasonable time. I quote again from the judgment of Sir John Pennycuick in the Markham case
where he says ([1975] 3 All ER 433 at 438, [1975] 1 WLR 1416 at 1422):
‘ “Likelihood” is a question of fact, to be determined by the judge on the evidence before him.’
I am bound to say that for my part I can see no evidence to justify the view taken by the judge in granting the adjournment of the case as he did.
That is my first comment on that passage in the judgment.
The second goes to its consequences. As I read what the judge said, what he had in mind was that if planning permission were to be given within
two months, an adjournment of four months would not only enable planning permission to be obtained but would also enable the plot of land to be sold.
Otherwise there was little point in his coupling the four month adjournment with Mr Clothier’s undertaking to pay over the whole of the sale proceeds of
the land within three days. What in the event has happened now on 30 July 1992, 444 three and a half months later? We are told that planning
permission was indeed granted on 20 May. That is over two months ago. There is no evidence that the proposed deal with Mr Popat is any nearer to
occurring. There is, however, new evidence before us in the form of an affidavit by Mr Clothier which speaks of other possible ways of raising money.
They consist of a proposed sale and a proposed letting of the house. I think it would be sufficient if I confine myself to the evidence concerning the
possibility of a sale, because, although there is evidence concerning the possibility of a letting, that would require the consent of the mortgagees unless it
were in itself to constitute a breach of the terms of the mortgage entitling the mortgagees to claim possession, and the mortgagees have made it plain that,
having regard to the history of the matter and the risk of letting into the house a tenant who might give trouble and whom they might be unable to evict,
they are unwilling to give their consent to a letting.
What then of a possible sale? Mr Clothier exhibits a letter from a firm of estate agents in Weybridge, which says:
‘We confirm that we are instructed by Mr and Mrs Clothier in connection with the sale of the above property. We were first instructed on 22
January 1992 and have been actively marketing the property since then. Mr and Mrs Clothier have been persistent in their enquiries and have kept
us under considerable pressure to sell the property. Unfortunately a sale has not yet been agreed and recently the price of the property was, on our
advice, reduced to £495,000. As a result, there have been several applicants interested in the property during the last few days, and this morning we
received an initial offer of £450,000 from a Mr & Mrs T Jones who will require a mortgage in the region of £50,000 and have no property to sell,
and therefore sound to be very good applicants. Naturally we are attempting to increase this offer because it is substantially less than the asking
price. We are quite satisfied that the property will be sold very shortly either to this applicant or to another. “Honeycroft” is one of the most
desirable properties in the area and has been kept to a very high standard of decoration and repair by Mr & Mrs Clothier.’
I mean no disrespect to the estate agency profession when I offer the suggestion that they would win by a distance any competition between
members of different professions for optimism. Any such letter must be viewed with reserve if it is to form the basis of a decision involving real money.
It is also, as Miss Bell for the mortgagees points out, a little surprising that after all this time, with the lapse of regular payments over two years ago, we
should on the day of this hearing be presented with evidence of very recent interest in the property and of the prospects of a sale at a price which,
although no doubt disappointing in comparison with prices obtainable two or three years ago, is still a substantial offer and one which exceeds not only
the amount owing to the plaintiffs but also the amount secured by way of a second charge on the property amounting to about £130,000 in favour of Mr
and Mrs Clothier’s bankers.
Miss Bell submits that just as the learned recorder was wrong to grant the adjournment when the evidential basis for it was lacking, so here in this
court precisely the same position obtains even when regard is had to the new evidence. She says that there would be no certainty of the mortgagees
getting their money or of Mr Clothier being put back in funds to meet his obligations 445 unless an immediate order for possession is granted and the
sale of the property is put in hand by the mortgage company.
Mr Brilliant has raised a number of points to the contrary effect. He submits, first, that although the plaintiffs undoubtedly claimed immediate
possession in their original particulars of claim, they were evidently prepared to concede before the recorder that this was a case in which the recorder had
a discretion; in other words, they were prepared to concede that there was evidence of a sufficient likelihood of the defendants being able to pay off the
amounts due under the mortgage for the recorder to be entitled to make the order which he did. Mr Brilliant rightly accepts that jurisdiction cannot be
created by agreement, but says in effect that here there was a concession as to the evidence available and in consequence the learned recorder was not and
indeed this court is not in a position to contemplate making an order for immediate possession.
With respect, I do not think that argument can run. In the first place, although the notice of appeal to the recorder was couched in the terms that ‘the
Plaintiff wishes to apply … for an Order for Possession to be granted suspended on such terms as the Court thinks fit’, the grounds of appeal were in fact
that suspension or adjournment would fail to comply with the conditions of the Administration of Justice Acts 1970 and 1973. The phrase ‘suspended on
such terms’ does not seem to me to be clear enough to be capable of committing the plaintiffs to the proposition that there was evidence which would
Preamble
justify the recorder in holding that he had a discretion under the Acts if in fact no such evidence existed. Just as jurisdiction cannot be created by
agreement, so evidence and matters of fact cannot be created by agreement where they do not exist. Therefore, in my judgment it was open to the
recorder and it is open to this court to make the order for immediate possession which was originally sought by the mortgagees.
Mr Brilliant also gives expression to the sense of considerable grievance felt by the defendants because they had understood that the sum of £10,000
provided by Mrs Clothier’s sister, which was produced at the hearing before the recorder, was accepted as a sum the payment of which would at least give
them four months’ peace of mind following the order of the recorder. However, whatever their understanding might have been and whatever the grounds
that gave rise to it, quite plainly it was not a condition which could bind this court. They have had three and a half of their four months, and it simply was
not a term of the order made by the learned judge that the payment of the £10,000 would produce any such result.
Mr Brilliant referred to a further payment of £616·88 which had been made on 14 June and urged us to take account not only of his clients’
willingness and, indeed, eagerness to pay their debts but also of the sound commercial sense of leaving them in occupation of the house on the basis that
they are in a far better position to sell it than the plaintiffs would be. An occupied house, he rightly says, is far more likely to look attractive and to
command a buyer than one which has been repossessed by a mortgage company. But, says Miss Bell, this has gone on too long. Despite the two
payments of £10,000 and £616 and despite any apparent willingness and eagerness by Mr and Mrs Clothier to abide by their bargain, unless there is now
an immediate order for possession there will be further delay and expense and additional costs. Moreover, it would create an undesirable precedent and
result in uncertainty in the minds of others dealing with mortgage companies.
These are solid factors to take into account, but I am for my part impressed by this part of Mr Brilliant’s submission. Mr Clothier has suffered badly
in his business as a result of the recession. No one suggests that he is a dishonest man.
446
But the fact remains that during the last two years he has failed to meet his mortgage commitments. On the evidence there is no way in which he is
going to meet them except by the sale of this house. That leads directly to the question: is there a prospect of an early sale? If so, is it better in the
interests of all concerned for that to be effected by him and his wife or by the mortgage company? If the view is that the prospects of an early sale for the
mortgagees as well as for Mr Clothier are best served by deferring an order for possession, then it seems to me that that is a solid reason for making such
an order but the deferment should be short.
I would for my part propose an order granting possession in three months’ time. If in that time Mr and Mrs Clothier have not succeeded in
discharging the whole of their indebtedness to the plaintiffs, they will lose possession. It would be open to them if they were unable to meet that deadline
to come back to the court. I can only express the firm view in the light of the history of this matter and from what we have heard today that there should
be no further deferment and if Mr and Mrs Clothier are unable to find a buyer and to pay off their debts within three months, then without doubt the time
will have come for the mortgage company to be given possession. But I would propose an order for possession in three months for those reasons.
HOLLIS J. I agree entirely with the judgment just delivered by Nolan LJ and there is nothing that I can usefully add.
Appeal dismissed; order below varied.

[1994] 1 All ER 447
Re Barretto
Wadsted v Barretto
CRIMINAL; Criminal Law: CONSTITUTIONAL; Legislatures

SIR THOMAS BINGHAM MR, STAUGHTON AND ROCH LJJ
18, 19 OCTOBER 1993
Drugs – Drug trafficking – Confiscation order – Increase in amount of confiscation order – Person against whom order made not disclosing all realisable
assets at hearing – New legislation authorising increase in amount of order if amount taken into account in making confiscation order greater than
thought when order made or subsequently increasing – Receiver seeking increase in amount of order – Whether new legislation retrospective – Criminal
Justice (International Co-operation) Act 1990, s 16.
B pleaded guilty to a charge of conspiracy to supply cocaine, for which he was sentenced to 20 years’ imprisonment. On 26 January 1990 a confiscation
order was made under s 1 of the Drug Trafficking Offences Act 1986 requiring him to pay £287,603·29, being the proportion of the proceeds of B’s drug
trafficking which the court considered might be realised. In January 1992 an order was made appointing a receiver. On 9 October 1992 the receiver,
acting on the fact that subsequent to the making of the confiscation order on 26 January 1990 the 447 police had discovered international money
orders not disclosed at the hearing, applied under s 16a of the Criminal Justice (International Co-operation) Act 1990 for a certificate that the amount that
might be realised was greater than the amount which had been taken into account when making the confiscation order on 26 January 1990. The 1990 Act,
which came into force on 1 July 1991, provided by s 16 that the prosecution could apply for an increase in the amount of the order if the amount which
might be realised was greater than that taken into account when the order was made. B opposed the application on the ground that s 16 did not apply to
confiscation orders made before the 1990 Act came into force. The judge held that s 16 of the 1990 Act did not have retrospective effect and dismissed
the receiver’s application. The receiver appealed to the Court of Appeal.
________________________________________
a Section 16 is set out at p 451 f to p 452 a, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Preamble
Held – The presumption against the retrospective application of penal statutes applied to s 16 of the 1990 Act because (a) there was no express provision
in s 16, unlike ss 1(3) and 2 of the 1986 Act, that the section applied to events occurring before the commencement of the Act and (b) confiscation orders
were in a broad sense penal and if the amount that might be realised from B was increased his financial obligation would be increased and his term of
imprisonment extended on terms and by a procedure which could not have been relied on in January 1990 when the confiscation order was made and his
obligation was finally fixed. Furthermore (per Staughton LJ), s 16 of the 1990 Act required that the confiscation order should be made in the future, and
therefore on the ordinary language of the Act, even without applying the presumption against retrospectivity, s 16 did not apply to a case where a
confiscation order had been made in the past. The appeal would therefore be dismissed (see p 452 j to p 453 g, p 454 d to h, p 455 a c d g h and p 456 d e
h to p 457 c, post).
DPP v Lamb [1941] 2 All ER 499 and Carter-Fea v Graham (1964) 62 LGR 279 doubted.
Notes
For confiscation of the proceeds of drug trafficking, see 11(2) Halsbury’s Laws (4th edn reissue) paras 1305–1310, and for cases on the subject, see 15(2)
Digest (2nd reissue) 386–388, 21834–21838.2.
For the retrospective operation of statutes, see 44 Halsbury’s Laws (4th edn) paras 921–926, and for cases on the subject, see 45 Digest (Reissue)
430–443, 4246–4387.
For the Drug Trafficking Offences Act 1986, s 1, see 12 Halsbury’s Statutes (4th edn) (1989 reissue) 989.

Carter-Fea v Graham (1964) 62 LGR 279, DC.
DPP v Lamb [1941] 2 All ER 499, [1941] 2 KB 89, DC.
L’Office Cherifien des Phosphates v Yamashita-Shinnihon Steamship Co Ltd [1993] 3 All ER 686, [1993] 3 WLR 266, CA.
R v Chandra Dharma [1905] 2 KB 335, [1904–7] All ER Rep 570, CCA.
R v Penwith Justices, ex p Hay (1979) 1 Cr App R (S) 265, DC.
R v St Mary, Whitechapel (Inhabitants) (1848) 12 QB 120, 116 ER 811.
Secretary of State for Social Security v Tunnicliffe [1991] 2 All ER 712, CA.
448

Chief Constable of Kent v V [1982] 3 All ER 36, [1983] QB 34, CA.
Grafton Street (14), London W1, Re, De Havilland (Antiques) Ltd v Centrovincial Estates (Mayfair) Ltd [1971] 2 All ER 1, [1971] Ch 935.
Howard de Walden (Lord) v IRC [1942] 1 All ER 287, [1942] 1 KB 389, CA.
R v Judge James and Midland Rly Co, ex p Bath Rural Council [1908] 1 KB 958, DC.
Thomas (disclosure order), Re [1992] 4 All ER 814, sub nom Re T (restraint order: disclosure of assets) [1992] 1 WLR 949, CA.
Williams v Williams [1971] 2 All ER 764, [1971] P 271.
Yew Bon Tew v Kenderaan Bas Mara [1982] 3 All ER 833, [1983] 1 AC 553, PC.
Appeal
Stephen Patrick Jens Wadsted, the receiver of the realisable property of the defendant, Lorenzo Alejandro Barretto, appealed from the order of Schiemann
J made on 30 November 1992 dismissing the receiver’s application under s 16 of the Criminal Justice (International Co-operation) Act 1990 for a
certificate that the amount that might be realised in Mr Barretto’s case was greater than the amount that was taken into account in the making of a
confiscation order against him on 26 January 1990 by Judge Owen Stable QC at the Crown Court at Snaresbrook. The facts are set out in the judgment of
Sir Thomas Bingham MR.
Andrew R Mitchell (instructed by Lawrence Graham) for the receiver.

Timothy W Sewell (instructed by Sears Blok) for Mr Barretto.
SIR THOMAS BINGHAM MR. The issue in this appeal can be shortly stated: can the procedure introduced by s 16 of the Criminal Justice
(International Co-operation) Act 1990 be invoked when the confiscation order in question was made before the section came into force?
Mr Barretto was arrested for very serious drug offences in March 1989. He was in due course charged with conspiracy to supply cocaine. On 17
May 1989 a restraint order, having an effect similar to a Mareva injunction, was made against him under s 8 of the Drug Trafficking Offences Act 1986.
On 26 January 1990 Mr Barretto, who had pleaded guilty to the charge of conspiracy, appeared before Judge Owen Stable QC in the Crown Court at
Snaresbrook, and the procedure prescribed by the 1986 Act was carefully followed. The officer in charge of the case submitted a statement in writing
under s 3 of the Act. In this he listed Mr Barretto’s assets (including his house at cost and not market value) and valued them at £296,853·29. He
estimated Mr Barretto’s proceeds from drug dealing at £646,144·91. In the statement the officer referred to 14 international money orders bought by a
co-defendant with money supplied by Mr Barretto. Each of these had a value of $US7,500 and the purchase price was said to have come from the sale of
cocaine. The statement said they had not been recovered and Mr Barretto was not able to explain where they went.
Judge Stable had first to determine, under ss 1(2) and 2 of the 1986 Act, whether Mr Barretto had benefited from drug trafficking and if so to what
extent. Having heard argument he held that Mr Barretto had benefited from drug trafficking and accepted the figure put forward on behalf of the Crown,
but deducted a sum spent on acquiring Mrs Barretto’s half share in the matrimonial home, and so reached a total of £595,519·91. He then had, under ss
1(4) and 4 of the Act, to assess the amount to be recovered in Mr Barretto’s case. This he did, assessing the amount to be recovered in the sum of
£287,603·29. The court then 449 made a confiscation order in that sum, with three years’ imprisonment in default of payment, to be served
consecutively to any term to be imposed for the substantive offence. Applying s 4(2) of the 1986 Act, the court then certified: (1) that the defendant had
benefited from drug trafficking in the sum of £595,519·91; (2) its satisfaction that the amount that might be realised at the time of making the confiscation
order was £287,603·29.
In the certificate a number of items were listed as relevant to the court’s determination of the amount that might be realised at the time of making the
confiscation order. One of those items was a sum of cash then in the hands of the police. The remaining items included property (the house and a car)
and balances held in various bank accounts but did not include any international money orders. The court was satisfied under s 4(3) that the amount
Preamble
which might be realised at the time the confiscation order was made was less than the amount assessed to be the value of Mr Barretto’s drug trafficking,
and so the amount to be recovered in his case under the confiscation order was the amount appearing to the court to be the amount that might be so
realised.
These procedures took place, as sub-ss (1) and (4) of s 1 of the 1986 Act required, before Mr Barretto was sentenced. For the offence of conspiracy
he was sentenced to 20 years’ imprisonment, a discount of one-third (from 30 years) being made to reflect his plea of guilty. In November 1990 an appeal
against the length of the sentence and the amount of the confiscation order was dismissed.
I pause at this point to make three observations on the 1986 Act.
(1) The confiscation procedure introduced by the 1986 Act is clearly expressed to operate where payment has been received from drug trafficking
whether before or after the commencement of s 1 of the Act (see ss 1(3) and 2). To that extent the 1986 Act had retroactive effect.
(2) The 1986 Act made provision for reduction of the amount to be recovered under a confiscation order if (a) the defendant satisfied the High Court
that his realisable property was inadequate for payment of the balance of the confiscation order, and (b) the High Court so certified, giving reasons, and
(c) the Crown Court thought it just in all the circumstances to substitute a lesser amount for the amount to be recovered under the order. On such
reduction, the Crown Court would shorten, as might be appropriate, the period of imprisonment to be served in default of payment.
(3) The Act gave the Crown, or a receiver appointed under s 8 or s 11, power to recover from a defendant the sum shown as recoverable in the
confiscation order. It did not divest a defendant of any rights he might have in any assets and the total treated as realisable might consist wholly or in part
of assets which were not the product of drug trafficking so long as the total did not exceed the amount assessed to be the value of the defendant’s proceeds
of drug trafficking.
It is thus plain that on a defendant’s application the amount to be recovered under a confiscation order could in certain circumstances be reduced, but
there was no provision for the Crown or a receiver to apply for that sum to be increased. On the making of a confiscation order a defendant would
accordingly know the limit of his financial obligation which would then be fixed, subject to any appeal or application by him. He would also know that if
he paid the recoverable sum as certified he would not have to serve the period of imprisonment in default, and if he paid that sum out of assets which were
not the proceeds of drug trafficking he would not (vis-à-vis the Crown or a receiver) lose his title to assets which were.
Early in 1991, after the confiscation order, the police learnt of the existence of 25 international money orders. These included some of those of
which the 450 police had known earlier. Mr Barretto confirmed, it is said, that each of the orders had either been purchased by him or by a third party
on his instructions. He confirmed that the monies for the purchase of the orders had been obtained from the sale of drugs. They were still under his
control, and a sum of £104,624·93 was realised upon their sale and used to pay off the confiscation order.
It does not appear that any date was fixed for payment when the Crown Court made the confiscation order. On 30 January 1992, however,
application was made to Pill J for the appointment of a receiver on the grounds that the recoverable sum had not been fully paid. The judge ordered that
unless Mr Barretto satisfied the confiscation order in full by 28 February 1992 a receiver should be appointed for the purpose of enforcing the order.
Payment in full was not made by 28 February and the order took effect.
When the receiver was appointed a principal sum of £16,620·09 remained unpaid. This sum was paid within a week. The receiver’s only claim now
is for an outstanding sum said to be due by way of interest.
The Criminal Justice (International Co-operation) Act 1990 was enacted to give effect in English law to the United Nations Convention against Illicit
Traffic in Narcotic Drugs and Psychotropic Substances (Vienna, 20 December 1988; TS 26 (1992); Cm 1927). There can be no doubt that this convention
reflected the determination of the many signatory states to stamp out the international drug trade and strip drug-traffickers of their ill-gotten gains. The
1990 Act was also intended to fill loopholes which had appeared in the 1986 Act regime.
Section 14 of the 1990 Act made it an offence to conceal or disguise property which represented the proceeds of drug trafficking or to convert or
remove that property from the jurisdiction. Section 15 provided for the charging of interest on any sum required to be paid under a confiscation order and
not paid when it was required to be paid. If the effect of adding interest to the amount recoverable under a confiscation order was to increase the
maximum period of imprisonment in default, then the Crown Court might on the prosecutor’s application, increase the length of that period up to the new
maximum. Section 16, which is the section directly relevant to this appeal, provides:
‘(1) This section has effect where by virtue of section 4(3) of the Drug Trafficking Offences Act 1986 (insufficient realisable property) the
amount which a person is ordered to pay by a confiscation order is less than the amount assessed to be the value of his proceeds of drug trafficking.
(2) If, on an application made in accordance with subsection (3) below, the High Court is satisfied that the amount that might be realised in the
case of the person in question is greater than the amount taken into account in making the confiscation order (whether it was greater than was
thought when the order was made or has subsequently increased) the court shall issue a certificate to that effect, giving the court’s reasons.
(3) An application under subsection (2) above may be made either by the prosecutor or by a receiver appointed under the said Act of 1986 in
relation to the realisable property of the person in question.
(4) Where a certificate has been issued under subsection (2) above the prosecutor may apply to the Crown Court for an increase in the amount to
be recovered under the confiscation order; and on that application the court may—(a) substitute for that amount such amount (not exceeding the
amount assessed as the value referred to in subsection (1) above) as appears to the court to be appropriate having regard to the amount now shown
to be realisable; and (b) increase the term of imprisonment or detention fixed 451 in respect of the confiscation order under subsection (2) of
section 31 of the Powers of Criminal Courts Act 1973 (imprisonment in default of payment) if the effect of the substitution is to increase the
maximum period applicable in relation to the order under subsection (3A) of that section.’
This section came into force on 1 July 1991. That was, of course, well after the making of the confiscation order, although before the appointment of the
receiver.
On 9 October 1992, relying on the 1990 Act and the information received about realisation of the 25 international money orders, the receiver applied
under s 16 for a certificate that the amount that might be realised in the case of Mr Barretto was greater than the amount which had been taken into
account in the making of the confiscation order on 26 January 1990. This application was resisted on the grounds: (1) that s 16 did not apply to
confiscation orders made before the section came into force; and (2) that the application was contrary to representations earlier made on behalf of the
Crown.
The application came before Schiemann J on 30 November 1992. He dismissed it on the first ground and accordingly found it unnecessary to deal
with the second. The receiver now appeals against the judge’s ruling on the first ground.
In his argument for the receiver, Mr Mitchell submitted that the presumption against the retrospective or retroactive application of statutes did not
apply in this case for a number of reasons, which included the following.
(1) The important step under the 1986 Act was the assessment of a defendant’s benefit from drug trafficking. That figure, once assessed, could not
be revised upwards under the 1986 Act or the 1990 Act. In contrast, determination of the recoverable sum was based on the material available to the
Crown Court at the time and was a procedural step towards liquidation of the defendant’s realisable assets. This was not a penal proceeding but simply a
procedure designed to ensure that drug traffickers did not profit from their crime. Since Parliament intended traffickers to be stripped of their ill-gotten
Preamble
gains, it could not be said that variation of the recoverable sum after a confiscation order had been made interfered with vested rights. The presumption
against retroactive operation of statutes did not apply in a case like the present where punishment was not involved and there was no interference with
vested rights, but if it did apply the case fell within the well-established exception relating to procedure.
(2) Where similar language had been used in previous legislative provisions, the courts have held that the meaning was clear and that reliance could
be placed on provisions disadvantageous to the defendant and not in force at the time when an offence had been committed. Reliance was placed on R v
Chandra Dharma [1905] 2 KB 335, [1904–7] All ER Rep 570, DPP v Lamb [1941] 2 All ER 499, [1941] 2 KB 89 and Carter-Fea v Graham (1964) 62
LGR 279, although the latter cases were to be contrasted with R v Penwith Justices, ex p Hay (1979) 1 Cr App R (S) 265.
(3) If fairness was relevant, it was not unfair to a defendant to deprive him of assets which he would not have been allowed to keep had he not
concealed their existence at the time of the confiscation order. Parliament cannot have intended to show any indulgence towards such defendants.
The judge rejected these submissions and in my judgment he was right to do so. My reasons are, in brief, these.
452
Whereas the 1986 Act expressly provided that the Act should apply to certain events occurring before its commencement, I find no such express
provision in the 1990 Act. It seems to me inconceivable that a prosecution under s 14 of the 1990 Act could be successfully founded upon a concealment
or a transfer which took place only at a time, before the commencement of the Act, when such conduct was not criminal. I would be surprised if interest
could be claimed under s 15 of the 1990 Act as a result of delay in payment at a time when there was no statutory or other right to interest. So the context
does not, as it seems to me, give rise to an inference that s 16 was intended to have retroactive effect. In the absence of any express or implied indication
that Parliament intended s 16 to have retroactive effect, it is necessary to look at the operation of s 16 more closely to see if it invites application of the
presumption against retroactivity.
While it is true that a confiscation order is made before sentence is passed for the substantive offence, and the term of imprisonment in default is
passed to procure compliance and not by way of punishment, these are in a broad sense penal provisions, inflicting the vengeance of society on those who
have transgressed in this field. While it is also true that the 1986 Act provides for drug traffickers to be stripped of their gains, it does not treat them as
having forfeited their property rights. It puts them in much the same position as a defendant subject to a money judgment, but with a penalty for
non-payment. So any provision which increases a money judgment retrospectively, particularly if coupled with an additional liability to imprisonment,
does in my view disturb a defendant’s settled rights. While again it is true that s 16 of the 1990 Act is procedural in the sense that it introduces a new
procedure, it is not in my view merely procedural: it can lead to a substantial increase in a defendant’s financial obligation and to a lengthened term of
imprisonment in default. It falls well outside the purview of the procedural exception. It is, however, preferable to discard labels and look at the
substance of the matter. If the receiver is right, Mr Barretto is liable to have his financial obligation increased and his term of imprisonment extended on
terms and by a procedure which could not have been relied on in February 1990 after the confiscation order was made. Subject to appeal or application
by him his obligation was then finally fixed. To permit this obligation to be increased and the penalty strengthened by means of a law enacted
subsequently would in my view contravene the presumption against retroactivity as this has, I think, been understood in English law (see L’Office
Cherifien des Phosphates v Yamashita-Shinnihon Steamship Co Ltd [1993] 3 All ER 686 at 691–693, [1993] 3 WLR 266 at 272–274. It would subject Mr
Barretto to substantial disadvantage by applying a change in the law to events which occurred well before the change.
I do not think the authorities on which Mr Mitchell relied overcome this difficulty. In R v Chandra Dharma the period in which a prosecution for
carnal knowledge of an under-age girl might be initiated was increased from three months to six. The change came into force within three months of the
alleged offence and Dharma was prosecuted within six. This was understandably regarded as a procedural change. Channell J observed that the question
would have been entirely different had the time under the old Act expired before the new Act came into operation, and while the other four judges did not
touch on this question it is hard to see how the position would not have been different once the defendant had under the existing law acquired a complete
(albeit technical) answer to the charge (see [1905] 2 KB 335 at 339).
In DPP v Lamb the defendants were said to have infringed a defence regulation during a period throughout which the same penalty was prescribed.
After that 453 period, but before the defendant’s trial, a further Order in Council prescribed an increased penalty. This was to apply ‘Where any
person is convicted of an offence against any of these regulations’ and so was the penalty in force when the defendants pleaded guilty. The only issue
was whether the court was bound by the old penalty, as the penalty in force when the offence was committed, or could impose the new. The stipendiary
magistrate held that he was bound by the old penalty. A Divisional Court held that he was wrong, on the ground that the language of the amending order
was too clear for argument and left no room for any presumption against retroactivity.
In Carter-Fea v Graham a legislative change in penalty again took effect between the commission of an offence and the defendant’s plea of guilty.
The language of the relevant statute again began ‘Where a person is convicted’ and the Divisional Court followed Lamb in treating this language as clear
and unambiguous. I have reservations about this decision, as I do about Lamb, but at least the new provision was in force when the court came to make
its order, whereas s 16 was not in force when the confiscation order was made in this case. In my view, however, R v Penwith Justices, ex p Hay reflects
a sounder principle.
Many would think that on the present facts there would be nothing unfair in stripping Mr Barretto of the fruits of his criminal activity which he did
not disclose in January 1990 even if this means relying on a law enacted later. But the court is here concerned with fairness in a more particular sense. A
defendant is not to be substantially prejudiced by laws construed as having retroactive effect unless Parliament’s intention that they should have that
effect is plain. The blackest malefactor is as much entitled to the benefit of that presumption as anyone else. Parliament has not displaced the
presumption in this case and it would not be fair to treat it as having done so however strong one’s disapproval of Mr Barretto’s conduct.
I would dismiss this appeal. Like the judge, I have not found it necessary to consider Mr Barretto’s alternative argument. Should that argument ever
become relevant, the case will have to be remitted to the High Court.
STAUGHTON LJ. Let us assume that s 16 of the Criminal Justice (International Co-operation) Act 1990 refers to, or includes, cases where a
confiscation order was made before the Act came into force. On that hypothesis it is in my opinion retrospective legislation in some degree. One of the
requisites for its action is drawn from time antecedent to its passing: see R v St Mary, Whitechapel (Inhabitants) (1848) 12 QB 120 at 127, 116 ER 811 at
814 per Lord Denman CJ. Is that prima facie objectionable so as to bring the presumption against retrospective effect into force? In my opinion it is. A
new penalty is being imposed for conduct which occurred before the Act became law. I appreciate Mr Mitchell’s argument that a confiscation order is not
penal. But I am afraid that I cannot accept it. Whether or not such an order is part of the sentence (and it appears not to be for some purposes), it is an
unpleasant legal consequence which follows conviction. That to my mind brings the presumption into play.
We have been reminded of what I said in the case of Secretary of State for Social Security v Tunnicliffe [1991] 2 All ER 712 at 724, that the
presumption was against the unfair enactment of a law which wholly or partly operates on past conduct. That was followed by Sir Thomas Bingham MR
in the case of L’Office Cherifien des Phosphates v Yamashita-Shinnihon Steamship Co Ltd [1993] 3 All ER 686 at 693, [1993] 3 WLR 266 at 274, CA
(rvsd [1994] 1 All ER 20, [1994] 2 WLR 39, HL). Mr Mitchell submits that there is nothing unfair in requiring a drug trafficker to surrender gains which
he has made in the past and concealed from the court on 454 a previous occasion. But I do not think that one should go into detail to that extent. It
will generally be unfair to increase the penalty for any past conduct however disreputable.
Preamble
So the presumption applies and that by itself could well be enough to dismiss this appeal. But I turn to look at the statute in this case to see whether
one reaches the same conclusion without the presumption. Section 16(1) provides:
‘This section has effect where by virtue of section 4(3) of the Drug Trafficking Offences Act 1986 (insufficient realisable property) the amount
which a person is ordered to pay by a confiscation order is less than the amount assessed to be the value of his proceeds of drug trafficking.’
That event will normally occur upon the making of the confiscation order, when it will be apparent that the amount which a person is ordered to pay is
less than the value of the proceeds of drug-trafficking.
The tense which the statute uses is the legislative present. In the ordinary way it refers to the future. Parliament does not say: a person shall be
guilty of theft if he dishonestly appropriates property belonging to another with the intention of permanently depriving that other of it. Parliament says a
person is guilty of theft in those circumstances. When the present tense is used it looks to the future. Two of the cases cited illustrate that. DPP v Lamb
[1941] 2 All ER 499, [1941] 2 KB 89 was concerned with an Order in Council which said: ‘Where any person is convicted of an offence …’ The court
held, quite properly, that it referred to the future, something happening after the date of the making of the Order in Council. So too in Carter-Fea v
Graham (1964) 62 LGR 279 the relevant section of the Road Traffic Act said ‘Where a person is convicted of an offence specified in Part II of the First
Schedule to this Act’ (my emphasis). That too looks to the future. It was held in those two cases that the wording was clear enough, so that a future
conviction attracted the new penalty even if the crime had been committed before the enactment of the Order in Council in the statute. Like Sir Thomas
Bingham MR, I wonder whether the same decision would be reached today.
R v Penwith Justices, ex p Hay (1979) 1 Cr App R (S) 265 was concerned with a schedule which simply substituted new penalties for old, so that the
point on language was not the same. In that case it was held that the new penalties did not apply to offences committed before they were enacted.
Here s 16 of the 1990 Act requires that the confiscation order should be made in the future, on the ordinary language of the statute, even without a
presumption against retrospectivity. It does not apply to a case where the confiscation order was made in the past.
I would also dismiss this appeal.
ROCH LJ. The Drug Trafficking Offences Act 1986, which introduced confiscation orders intended to deprive drug traffickers of the proceeds of their
drug trafficking, omitted to deal with the situation where the offender was successful in concealing realisable property, or the true value of his realisable
property, from the authorities. Section 14 of that Act enabled the High Court, on the application of the drug trafficker, to certify that the amount of
realisable property was less than had been thought at the hearing at which the confiscation order was made. No provision allowed for the amount of the
confiscation order to be increased when it was later discovered that the offender had greater realisable assets than had been thought.
455
In the present case, prior to the confiscation order of 26 January 1990 being made, it was known that the defendant had in March 1989 purchased a
number of international money orders, with the proceeds of his drug trafficking. The precise number and amount of those international money orders was
not known, nor were their whereabouts known in January 1990. In his affidavit of 5 November 1992 the defendant deposed that he had handed those
international money orders to an unnamed man on the day prior to his arrest.
It can hardly be said that if s 16 of the Criminal Justice (International Co-operation) Act 1990 were to be interpreted so that a certificate could be
issued that the amount that might be realised in the defendant’s case is greater than the amount taken into account on the making of the order of 26
January 1990, such an interpretation would be unfair to the defendant or produce injustice on the facts of this case.
The issue is the proper interpretation of s 16 of the 1990 Act; whether the section applies to confiscation orders made by virtue of the 1986 Act
whenever those orders were made or only to those confiscation orders made after the 1990 Act came into force, that is to say after 1 July 1991.
Mr Mitchell for the receiver argues that s 16 of the 1990 Act applies to confiscation orders whenever made. He concedes that the section does not
say so expressly, but he argues that that is the necessary implication of the section read in the context of the 1986 Act and the 1990 Act. Mr Mitchell
submits that decided cases such as DPP v Lamb [1941] 2 All ER 499, [1941] 2 KB 89, a decision of the Divisional Court, and Carter-Fea v Graham
(1964) 62 LGR 279, also a decision of the Divisional Court, are authority that sections such as s 16 of the 1990 Act will be interpreted by the courts so as
to have a retroactive effect.
In my view this argument fails.
With regard to those cases, both statutory provisions which the court had to consider began with these words: in Lamb’s case ‘Where any person is
convicted of an offence against any of these regulations’; and in Carter Fea’s case ‘Where a person is convicted of an offence’. In both those cases the
conviction came after the statutory provision came into force, albeit that the offence had been committed prior to the commencement of the statutory
provision. In both cases the event on which the statutory provision depended occurred after the provision came into force.
Section 16(1) of the 1990 Act reads:
‘This section has effect where … the amount which a person is ordered to pay by a confiscation order is less than the amount assessed to be the
value of his proceeds of drug trafficking.’
Applying the same analysis of the facts of those two cases to s 16, that section requires that the confiscation order, upon which the operation of s 16
depends, was made after the commencement of the 1990 Act, albeit that the drug trafficking offence may have been committed prior to 1 July 1991.
That this is the correct interpretation of the section is underlined, in my judgment, by certain of the provisions of the 1986 Act. Parliament in the
1986 Act made it clear when it wished the provision to be retroactive in its effect. For example, see s 1(3) of the Act, which provides:
‘For the purposes of this Act, a person who has at any time (whether before or after the commencement of this section) received any payment or
other reward in connection with drug trafficking carried on by him or another has benefited from drug trafficking.’
456
Section 2(1)(a) of the Act, which deals with the assessment of the proceeds of drug trafficking, has similar wording.
No comparable words appear in s 16 of the 1990 Act. It would have been very simple for Parliament to have included after the words ‘ordered to
pay by a confiscation order’ the words ‘whether made before or after the commencement of this provision’, had Parliament intended s 16 to apply to
confiscation orders made prior to the coming into force of this section.
In the absence of such words, and assuming that s 16 is ambiguous, I would apply the well-established rule of the interpretation of penal statutes, that
they should not be given retroactive effect in the absence of express words to that effect unless the implication that Parliament must have intended the
penal provision to have retroactive effect is inescapable. In my judgment for the above reasons, and those given by Sir Thomas Bingham MR and
Preamble
Staughton LJ, that is not the position in the case of s 16 of the Criminal Justice (International Co-operation) Act 1990. I would dismiss this appeal.
Appeal dismissed.

[1994] 1 All ER 457
R v Secretary of State for Foreign and Commonwealth Affairs, ex parte Rees-Mogg

CONSTITUTIONAL; Other Constitutional: EUROPEAN COMMUNITY; Social policy: INTERNATIONAL; Treaties

LLOYD, MANN LJJ AND AULD J
26, 27, 28, 30 JULY 1993
Constitutional law – Treaty-making power – Ratification of treaty – Treaty on European Union – Ratification by United Kingdom – Whether ratification
without statutory authority lawful – Whether ratification of Protocol on Social Policy in breach of requirement for approval by Act of Parliament –
Whether ratification of Protocol on Social Policy altering Community law without statutory approval – Whether ratification transferring part of royal
prerogative to Community institutions without statutory authority – European Communities Act 1972, ss 1(2), 2(1) – European Parliamentary Elections
Act 1978, s 6 – European Communities (Amendment) Act 1993, s 1.
European Economic Community – Treaty provisions – Treaty on European Union – Ratification of treaty by United Kingdom – Whether ratification in
breach of requirement for approval by Act of Parliament – European Communities Act 1972, ss 1(2), 2(1) – European Parliamentary Elections Act 1978,
s 6 – European Communities (Amendment) Act 1993, s 1.
On 7 February 1992 the Treaty on European Union (the Union Treaty), consisting of seven titles followed by 17 protocols was signed on behalf of the
United Kingdom by the Foreign Secretary and on behalf of the other member states of the European Community. By s 1(1)a of the European
Communities 457 (Amendment) Act 1993 Titles II, III and IV and the protocols of the Union Treaty were deemed to be treaties which under ss 1(2)
and 2(1)b of the European Communities Act 1972 had legal effect in the United Kingdom. By s 1(2) of the 1993 Act the Union Treaty was approved for
the purposes of s 6c of the European Parliamentary Elections Act 1978, which provided that no increases in the European Parliament’s powers could be
ratified by the United Kingdom unless they had been approved by an Act of Parliament. The applicant brought proceedings against the Foreign Secretary
seeking, inter alia, a declaration that the United Kingdom could not lawfully ratify the Union Treaty, contending (i) that by ratifying the Protocol on
Social Policy (which provided for an increase in the powers of the European Parliament) the government would be in breach of s 6 of the 1978 Act,
because by virtue of para 3 the protocol was annexed to and therefore formed part of the EEC Treaty, not the Union Treaty, and therefore the approval of
the Union Treaty in s 1(2) of the 1993 Act for the purposes of s 6 of the 1978 Act did not include approval of the protocol, (ii) that by ratifying the
protocol the government would be altering the content of Community law under the EEC Treaty without approval by an Act of Parliament, since the EEC
Treaty, unlike other treaties which were the subject of the treaty-making power of the royal prerogative, was by virtue of s 2(1) of the 1972 Act deemed to
be given legal effect in the United Kingdom and therefore statutory approval was required by s 6 of the 1978 Act, and (iii) that by ratifying Title V of the
treaty, which established a common foreign and security policy among member states of the European Community, the government would be transferring
part of the royal prerogative to Community institutions without statutory authority, namely the power to conduct foreign and security policy.
________________________________________
a Section 1 is set out at p 462 b to d, post
b Section 2(1) , so far as material, is set out at p 466 j, post
c Section 6 is set out at p 461 j to p 462 a, post
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Held – The application would be dismissed for the following reasons—

(1) Ratification of the Protocol on Social Policy would not increase the powers of the European Parliament without statutory approval and thereby be
contrary to s 6 of the 1978 Act, since the protocols were ancillary or incidental or supplementary to the Union Treaty and therefore ratification of the
treaty automatically involved ratification of the protocols. Furthermore, ‘the Treaty on European Union’ referred to in s 1(2) of the 1993 Act meant the
whole of the Union Treaty, including the protocols, since the purpose of s 1(2) was to ensure that the Union Treaty as a whole, including the protocols,
could be ratified without breach of s 6(2) of the 1978 Act (see p 464 a b f j to p 465 c f, post).
(2) By ratifying the Protocol on Social Policy the government would not be altering domestic law under the EEC Treaty without statutory approval
contrary to s 6 of the 1978 Act, since (a) if Parliament had intended to fetter the Crown’s treaty-making power in relation to Community law it would
have done so expressly, whereas there were insufficient grounds to hold that it had been fettered even by implication, (b) the Protocol on Social Policy
would not alter domestic law since it was not a ‘treaty’ for the purposes of s 2(1) of the 1972 Act since it had been specifically excluded by s 1(1) of that
Act and it did not become one of the treaties covered by s 2(1) merely by being annexed to the EEC Treaty (see p 467 d to g j, post).
458
(3) Title V of the Union Treaty establishing a common foreign and security policy among member states of the European Community was an
exercise, not an abandonment or transfer, of the Crown’s prerogative powers in relation to foreign affairs. Accordingly, even assuming that a question of
domestic law was involved and that the government could not lawfully transfer part of the Crown’s prerogative powers in relation to foreign affairs
without statutory authority, the applicant’s argument failed (see p 469 j to p 470 c, post); Blackburn v A-G [1971] 2 All ER 1380 and Maclaine Watson &
Co Ltd v Dept of Trade and Industry [1989] 3 All ER 523 considered.
Preamble
Notes
For the Crown’s treaty-making power and parliamentary sanction to treaties, see 8 Halsbury’s Laws (4th edn) paras 985–986, and for cases on the subject,
see 11 Digest (Reissue) 743–744, 597–604.
For the European Communities Act 1972, ss 1, 2, see 17 Halsbury’s Statutes (4th edn) (1993 reissue) 35, 37.
For the European Parliamentary Elections Act 1978, s 6, see 15 Halsbury’s Statutes (4th edn) (1990 reissue) 766.

A-G v De Keyser’s Royal Hotel Ltd [1920] AC 508, [1920] All ER Rep 80, HL.
Blackburn v A-G [1971] 2 All ER 1380, [1971] 1 WLR 1037, CA.
Crotty v An Taoiseach [1987] 2 CMLR 666, Ir SC.
King’s Prerogative in Saltpetre (1606) 12 Co Rep 12, 77 ER 1294.
Laker Airways Ltd v Dept of Trade [1977] 2 All ER 182, [1977] QB 643, [1977] 2 WLR 234, CA.
Maclaine Watson & Co Ltd v Dept of Trade and Industry [1989] 3 All ER 523, sub nom J H Rayner (Mincing) Lane Ltd v Dept of Trade and Industry
[1990] 2 AC 418, [1989] 3 WLR 969, HL.
Molyneaux, Ex p [1986] 1 WLR 331.
R v HM Treasury, ex p Smedley [1985] 1 All ER 589, [1985] QB 657, [1985] 2 WLR 576, CA.

A-G for Canada v A-G for Ontario [1937] AC 326, PC.
China Navigation Co Ltd v A-G [1932] 2 KB 197, [1932] All ER Rep 626, CA.
Costa v ENEL Case 6/64 [1964] ECR 585.
Council of Civil Service Unions v Minister for the Civil Service [1984] 3 All ER 935, [1985] AC 374, HL.
Defrenne v Sabena [1981] 1 All ER 122, [1976] ECR 455, CJEC.
Factortame Ltd v Secretary of State for Transport [1989] 2 All ER 692, [1990] 2 AC 85, HL.
Factortame Ltd v Secretary of State for Transport (No 2) Case C-213/89 [1991] 1 All ER 70, [1991] 1 AC 603, CJEC and HL.
Grimaldi v Fonds des maladies professionnelles Case C-322/88 [1989] ECR 4407.
Macarthys Ltd v Smith [1979] 3 All ER 325, [1979] 1 WLR 1189, CA; on reference [1981] 1 All ER 111, [1981] 1 QB 180, CJEC and CA.
459
NV Algemene Transport- en Expeditie Onderneming van Gend & Loos v Nederlandse administratie der belastingen (Netherlands Inland Revenue
Administration) Case 26/62 [1963] ECR 1.
Penal Statutes Case (1604) 7 Co Rep 36, 77 ER 465.
R v Secretary of State for Employment, ex p Equal Opportunities Commission [1993] 1 All ER 1022, [1993] 1 WLR 872, CA.
R v Secretary of State for Foreign and Commonwealth Affairs, ex p Everett [1989] 1 All ER 655, [1989] QB 811, CA.
R v Secretary of State for the Home Dept, ex p Brind [1991] 1 All ER 720, [1991] AC 696, HL.

The Rt Hon Lord Rees-Mogg applied, with the leave of the Divisional Court given on 19 July 1993, for judicial review by way of (1) an order of
certiorari to quash the decision of the Secretary of State for Foreign and Commonwealth Affairs to proceed to ratification of the Treaty on European
Union, signed at Maastricht on 7 February 1992, together with the Protocols adopted on that date and annexed thereto, (2) an order of prohibition to
prevent the Secretary of State from so proceeding, and (3) declarations that (a) by the refusal of Parliament to incorporate the Protocol on Social Policy
into the definition of ‘Community Treaties’ in s 1(2) of the European Communities Act 1972, the Crown could not lawfully ratify the Treaty on European
Union, (b) because Parliament had not approved the Protocols for the purposes of s 6 of the European Parliamentary Elections Act 1978 the Crown could
not lawfully ratify the Treaty on European Union or the Protocols and (c) any purported ratification of the Treaty on European Union containing Title V
without the authority of Parliament would be unlawful. The facts are set out in the judgment of the court.
David Pannick QC, Keith Lindblom, Rhodri Thompson and Jeremy Callman (instructed by Gouldens) for the applicant.
Sydney Kentridge QC, Stephen Richards and David Anderson (instructed by the Treasury Solicitor) for the Secretary of State.
Cur adv vult
30 July 1993. The following judgment of the court was delivered.
LLOYD LJ. The applicant in these proceedings, the Rt Hon Lord Rees-Mogg, seeks, inter alia, a declaration that the United Kingdom may not lawfully
ratify the Treaty on European Union including the Protocols and Final Act with Declarations (Maastricht, 7 February 1992; EC 3 (1992); Cm 1934). Mr
Pannick QC advances three main arguments on his behalf. First, by ratifying the Protocol on Social Policy the government of the United Kingdom would
be in breach of s 6 of the European Parliamentary Elections Act 1978. Secondly, by ratifying the protocol, the government would be altering the content
of Community law, without parliamentary approval. Thirdly, by ratifying Title V of the Union Treaty, the government would be transferring part of the
royal prerogative to community institutions without statutory authority, namely the power to conduct foreign and security policy.
Before considering each of these arguments in turn, it is as well to be clear what this case is not about. At the outset of his submissions, Mr Pannick
460 disclaimed any intention to question proceedings in Parliament, contrary to art 9 of the Bill of Rights (1688), or to impeach its privileges in any
way. Mr Kentridge QC for the Secretary of State for Foreign and Commonwealth Affairs, the nominal respondent to the proceedings, readily accepted
that by bringing these proceedings the applicant has not infringed those privileges. In the end it is, of course, for Parliament to say whether its privileges
have been infringed. But we have had heard nothing to support, or even suggest, that that is the case.
With the great increase in the number of applications for judicial review, the judges who sit in the Divisional Court of the Queen’s Bench are all
conscious of the need to confine judicial review within its proper sphere. As Donaldson MR said in R v HM Treasury, ex p Smedley [1985] 1 All ER 589
at 593, [1985] QB 657 at 666:
Preamble
‘It therefore behoves the courts to be ever sensitive to the paramount need to refrain from trespassing on the province of Parliament or, so far as
this can be avoided, even appearing to do so.’
In the present case we have been concerned, and concerned solely, with the legality of government actions and intentions. That is the common coin
of applications for judicial reviewd.
________________________________________
d Of the 4,333 applications for judicial review received between 1987 and 1989, ministers of the Crown were respondents in 1,558, or 36%. Local authorities were
respondents in 1,119, or 26%. Between 1989 and 1992 the total number of applications rose by 54%. We have no reason to suppose that the ratios have not remained
much the same: see Sunkin, Bridges and Mészáros Judicial Review in Perspective (1993).
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The issues in the present case are as clearly within the proper sphere of judicial review, as questions of policy are within the sphere of Parliament.
If there were ever any doubts as to the nature of what we were being asked to decide, those doubts were removed when Mr Pannick told us that he
did not intend to refer to any of the lengthy extracts from Hansard contained in Lord Rees-Mogg’s affidavit. There are passages in that affidavit, and in
Form 86A itself, which refer to the ‘deliberate’ amendment by Parliament of the Bill as originally presented, and the ‘conscious’ and ‘deliberate’
exclusion of the Protocol on Social Policy from s 1(1) of the European Communities (Amendment) Act 1993. But Mr Pannick has not relied on those
passages. Indeed he has not referred to the affidavit at all. The case thus wears a very different aspect from what it did when leave was granted.
We do not doubt that the questions we are asked to decide in this case are of great moment, because of the consequences either way. But it is in our
view an exaggeration to describe it as the most important constitutional case for 300 years.
There is no dispute as to the applicant’s locus standi, and in the circumstances it is not appropriate to say any more about it, save to refer to the
observations of Slade LJ in Ex p Smedley [1985] 1 All ER 589 at 595, [1985] QB 657 at 669. It is suggested by Mr Kentridge that these proceedings are
no more than a continuation by other means of arguments ventilated in Parliament. Be that as it may, we accept without question that Lord Rees-Mogg
brings the proceedings because of his sincere concern for constitutional issues.
461
The first issue

We come now to Mr Pannick’s three main arguments. The first turns on a narrow question of construction, as to which there is a ready answer.
Section 6 of the European Parliamentary Elections Act 1978 provides:
‘(1) No treaty which provides for any increase in the powers of the European Parliament shall be ratified by the United Kingdom unless it has
been approved by an Act of Parliament.
(2) In this section “treaty” includes any international agreement, and any protocol or annex to a treaty or international agreement.’
Section 1 of the European Communities (Amendment) Act 1993, which received royal assent on 20 July, provides:
‘(1) In section 1(2) of the European Communities Act 1972, in the definition of “the Treaties” and “the Community Treaties”, after paragraph
(j) (inserted by the European Communities (Amendment) Act 1986) there shall be inserted the words “and (k) Titles II, III and IV of the Treaty on
European Union signed at Maastricht on 7th February 1992, together with the other provisions of the Treaty so far as they relate to those Titles, and
the Protocols adopted at Maastricht on that date and annexed to the Treaty establishing the European Community with the exception of the Protocol
on Social Policy on page 117 of Cm 1934”.
(2) For the purpose of section 6 of the European Parliamentary Elections Act 1978 (approval of treaties increasing the Parliament’s powers) the
Treaty on European Union signed at Maastricht on 7th February 1992 is approved.’
Mr Pannick submits that the Protocol on Social Policy provides for an increase in the powers of the European Parliament. Accordingly it cannot
lawfully be ratified by the United Kingdom without parliamentary approval. Section 1(2) of the 1993 Act approves the Treaty on European Union (the
Union Treaty). But, according to Mr Pannick, it does not approve the protocols, and in particular does not approve the Protocol on Social Policy, which is
specifically excluded from the operation of s 1(1) of the 1993 Act.
Mr Kentridge accepts for present purposes that the protocol may increase the powers of the European Parliament to a slight degree. But he submits
that s 1(2) of the 1993 Act contains a clear and unambiguous approval by Parliament of the Union Treaty as a whole, including all the protocols.
The Union Treaty

In support of his argument Mr Pannick makes a number of points, some in relation to the Union Treaty and others in relation to the construction of s
1 of the 1993 Act. We start with the Union Treaty. It contains the following provisions. Title I contains common provisions. Title II contains provisions
amending the EEC Treaty. Title III makes provision for amending the treaty establishing the European Coal and Steel Community. Title IV makes a
provision for amending the treaty establishing the European Atomic Energy Community. Title V contains provisions on a common foreign and security
policy. We shall return to Title V when we consider Mr Pannick’s third argument. Title VI contains provisions on co-operation in the fields of justice
and home affairs. Title VII contains final provisions, one of which, art R, provides:
462
‘(1) This Treaty shall be ratified by the High Contracting Parties in accordance with their respective constitutional requirements. The
instruments of ratification shall be deposited with the government of the Italian Republic.
(2) This Treaty shall enter into force on 1 January 1993, provided that all the instruments of ratification have been deposited, or, failing that, on
the first day of the month following the deposit of the instrument of ratification by the last signatory State to take this step.’
Title VII concludes:
‘Done at Maastricht on seventh day of February in the year one thousand nine hundred and ninety-two.’
Beneath the date appear the signatures of the plenipotentiaries of the high Contracting Parties.
Preamble
On the next page, and bound up in the same issue of the Official Journal of the European Communities dated 29 July 1992 (OJ 1992 C191, p 1 at p
68), there follow 17 protocols. The Protocol on Social Policy is no 14. It notes that eleven of the member states, that is to say all except the United
Kingdom, have adopted among themselves an Agreement on Social Policy. By para 1 of the protocol, the twelve High Contracting Parties, including the
United Kingdom, authorised the eleven member states to have recourse to Community institutions for the purpose of giving effect to their agreement. By
para 2 of the protocol it was provided that acts adopted by the Council pursuant to the protocol, and the financial consequences of such acts, other than the
costs of administration, should not apply to the United Kingdom. Finally, under para 3 it was provided that the protocol should be annexed to the EEC
Treaty.
The only other protocol we need mention is no 17, which relates to art 40.3.3 of the Constitution of Ireland. Unlike all the other protocols, it was
provided that protocol 17 should be annexed to the Union Treaty as well as the EEC Treaty.
After the protocols there comes the Final Act. It provides as follows:
‘The Conferences of the Representatives of the Governments of the Member States … have adopted the following texts: I. The Treaty on
European Union II. Protocols [and it then sets out the titles of the 17 Protocols. It then continues] The Conferences agreed that the Protocols
referred to in 1 to 16 above will be annexed to the Treaty establishing the European Community and that the Protocol referred to in 17 above will
be annexed to the Treaty on European Union and to the Treaties establishing the European Communities … III. Declarations …’
The Final Act then sets out the terms of the 33 declarations. Last of all comes the date again, and a second set of signatures.
Mr Pannick submits that the Protocol on Social Policy is not a part of the Union Treaty. How can it be, he asks, when it is annexed to the EEC
Treaty, and not the Union Treaty? Thus when the preamble to the protocol refers to ‘this Treaty’ it does not mean the Union Treaty: it means the EEC
Treaty. The contrast with protocol 17, which is annexed to the Union Treaty as well as the EEC Treaty, speaks for itself.
Moreover the Final Act identifies three separate texts: (i) the Treaty on European Union; (ii) the protocols; and (iii) the declarations. This shows,
says Mr Pannick, that the protocols are not part of the Union Treaty. He accepts that 463 the Union Treaty contains a number of cross-references to
the protocol. But it is significant, he says, that all such cross-references are in Title II of the Union Treaty. Title II contains the amendments to the EEC
Treaty. There is no mention of the protocols in any of the other titles. It will be noted that Mr Pannick does not rely on the fact that the Union Treaty was
separately signed.
We would hesitate long and hard before holding, on the internal evidence to which Mr Pannick drew attention, that the protocols are not intended to
be part of the Union Treaty. The arguments the other way are much stronger. For example, the only provision relating to ratification is art R of Title VII.
There is no separate provision calling for ratification of the protocols or the declarations. It is inconceivable that the High Contracting Parties did not
intend art R to cover ratification of the protocols as well as ratification of the Union Treaty. If so, it follows they were using the word ‘Treaty’ to include
the protocols.
This is borne out by what has happened in practice. The instruments of ratification already lodged by France, Spain, Portugal, Ireland, the
Netherlands and Denmark contain no references to the protocols. They simply ratify the Union Treaty. We were told that this is how Her Majesty’s
government will draw up the instrument of ratification by the United Kingdom.
We attach little weight to the fact that the protocols are to be annexed to the EEC Treaty. This does not show that they are not also part of the Union
Treaty. Indeed the Irish protocol, on which Mr Pannick relied so strongly, seems to show that a protocol can be part of two separate treaties. So the point
is at best neutral.
Mr Kentridge drew our attention to Satow’s Guide to Diplomatic Practice (5th edn, 1979) para 29.27, where we find:
‘It is, however, correct to say that the protocol is now used principally as an instrument subsidiary to a treaty or convention, usually (but not
necessarily) drawn up by the same negotiators, and dealing with ancillary or incidental matters such as the interpretation of particular articles of the
main treaty or any supplementary provision of a minor character. Ratification of the Treaty or Convention will normally ipso facto involve
ratification of any supplementary or additional protocol of this nature.’
This bears out our view that the protocols here are ancillary or incidental or supplementary to the provisions of the treaty, and that ratification of the
treaty will automatically involve ratification of the protocols.
The European Community (Amendment) Act 1993

We now turn to Mr Pannick’s arguments on the construction of the 1993 Act. ‘Treaty on European Union’ in s 1(2) must, he says, mean the Union
Treaty without the protocols, because that is the meaning which it bears in s 1(1). If the word ‘Treaty’ in s 1(1) was intended to included the protocols,
then it would have been unnecessary to refer to the protocols. The words from ‘and the Protocols’ in the inserted para (k) to ‘European Community’
would have been otiose.
But the purposes of s 1(1) and s 1(2) are not the same. The purpose of s 1(1) is to incorporate certain parts of the Union Treaty into English domestic
law. It was necessary to refer specifically to Titles II, III and IV of the treaty because Titles I, V, VI and VII are not incorporated. It was necessary to
refer to the protocols, because the Protocol on Social Policy is not incorporated. But for the 464 exclusion of Titles I, V, VI and VII (save in so far as
they relate to Titles II, III and IV) and but for the exclusion of the Protocol on Social Policy, s 1(1) would have referred to the treaty in the same way as s
1(2).
The purpose of s 1(2) of the 1993 Act is, of course, quite different. It was to ensure that the treaty as a whole, including the protocols (see s 6(2) of
the 1978 Act), could be ratified by the United Kingdom without breach of the 1978 Act. It is plain, almost beyond argument, that this is what s 1(2)
achieves. If Mr Pannick’s argument were correct, and the reference to the Union Treaty in s 1(2) does not include the protocols, then all the protocols
would have been left hanging in the air. Without being able to ratify the protocols, the United Kingdom would have been unable to ratify the treaty, and
the whole exercise on which Parliament was engaged would have been reduced to futility. What could have been the point of incorporating all the
protocols, in English domestic law, save only protocol 14, unless it was intended by Parliament that the protocols should be approved for ratification? It
follows that ‘the Treaty’ in s 1(2) cannot bear the narrow meaning for which Mr Pannick contends. It must, and does, include all the titles, all the
protocols and all the declarations.
In reaching this view we are fortified by consideration of the long title. It reads:
‘An Act to make provision consequential on the Treaty on European Union signed at Maastricht on 7th February 1992.’
The days are long since past when courts declined to regard the long title as an aid to construction. Prima facie, ‘Treaty on European Union’ in s 1 of the
1993 Act should have the same meaning as in the long title. But in the long title it must include the protocols, because otherwise many of the provisions
Preamble
contained in ss 2 to 5, which are clearly consequential on the protocols, would not be consequential on the Union Treaty. Thus s 2 contains provisions
which are consequential on protocol 11. That is the protocol which concerns the United Kingdom’s other opt-out, namely the opt-out from the third stage
for achieving economic and monetary union. If it be said that s 2 of the 1993 Act is also ‘consequential on’ the treaty, namely Ch 4 of Title II, this only
shows how closely, and indeed inextricably, the treaty and the protocols are intertwined. We need not multiply examples.
For the reasons we have given, we would hold that ‘the Treaty on European Union’ in s 1(2) means the whole treaty, including the protocols. It
follows that Mr Pannick’s first main argument must be rejected.
Pepper v Hart
If we had thought that the language of s 1(2) of the 1993 Act was ambiguous, which we do not, Mr Kentridge invited us to look at Hansard in order
to resolve the ambiguity. The circumstances in which we are permitted to do so were laid down by the House of Lords in Pepper (Inspector of Taxes) v
Hart [1993] 2 All ER 42, [1993] AC 593. We need not quote from the speech of Lord Browne-Wilkinson in that case.
Mr Kentridge drew our attention to the observations of the Foreign Secretary, the Rt Hon Douglas Hurd MP, in the House of Commons on 5 May
1993. In answer to a question from Sir Peter Tapsell MP, Mr Hurd said (224 HC Official Report (6th series) cols 203–204):
‘My hon. Friend is, indeed—I do not blame him for this, because I have wandered through his tracks myself—showing himself to be a layman.
The 465 opt-out is in the treaty. The protocol is attached to the treaty. The protocol is part of the treaty. Its status in the treaty is not affected
by the amendment. I am seeking to show, following the advice from my right hon. and learned Friend the Attorney-General, that the effect of the
amendment is simply on the question whether the opt-out protocol should be embodied in domestic law. Its status in the treaty and its value as an
opt-out are not affected by the amendment, because the opt-out remains in the treaty.’
To similar effect is the observation of the Lord Privy Seal, the Rt Hon Lord Wakeham, in the House of Lords on 7 June 1993 as follows (546 HL
Official Report (5th series) col 548):
‘Clause 1(2) of the Bill satisfies the requirement in the 1978 European Parliamentary Elections Act that treaties increasing the powers of the
European Parliament should be approved by an Act of Parliament before UK ratification. Clause 1(2) gives a global approval to all three pillars of
the treaty, and to all the protocols.’
Mr Pannick argued that to rely on these passages would be to go beyond anything in Pepper v Hart for two reasons. First, the question whether the
protocols are part of the Union Treaty is a question of fact and law. If the protocols are not in fact and law part of the Union Treaty, then thinking cannot
make them so. Secondly, Mr Hurd’s thinking in particular was explicitly based on the advice of the Attorney General. In Mr Pannick’s submission the
Attorney General was simply wrong.
There is nothing in the first of these points. The question here is not whether the protocols are in ‘fact and law’ part of the Union Treaty. The
question is what Parliament intended when enacting s 1 of the 1993 Act.
As to the second point, it would, if correct, undermine the utility of Pepper v Hart in every case to which it would otherwise apply. Ministers act on
advice. It cannot make any difference whether or not the source of the advice is made explicit. Parliament has enacted s 1(2) of the 1993 Act in the light
of clear statements made in both Houses as to its intended scope. If there had been any ambiguity, which there is not, we would have regarded this as an
appropriate case in which to resort to Hansard, in accordance with the principles stated in Pepper v Hart.
The second issue

We come now to the second of Mr Pannick’s arguments. He submits that by ratifying the Protocol on Social Policy the government would be
altering Community law under the EEC Treaty. Community law is now, he says, the fundamental law of the United Kingdom. It is axiomatic that
Parliament alone can change the law. Mr Pannick accepts, of course, that treaties are not self-executing. They create rights and obligations on the
international plane, not on the domestic plane. He accepts also that the treaty-making power is part of the royal prerogative. Thus to talk of
parliamentary ratification of a treaty is, as the textbooks point out, a constitutional solecism. But the EEC Treaty is, he says, different for s 2(1) of the
European Communities Act 1972 provides:
‘All such rights, powers, liabilities, obligations and restrictions from time to time created or arising by or under the Treaties, and all such
remedies and procedures from time to time provided for by or under the Treaties … 466 are without further enactment to be given legal effect
… in the United Kingdom …’
Mr Pannick emphasises the words ‘from time to time’, which look to the future as well as the past. If the Protocol on Social Policy is ratified by all
member states, it will become part of the EEC Treaty, which is one of the treaties referred to in s 2(1) of the 1972 Act: see the definition of ‘the Treaties’
in s 1(2) of the 1972 Act. Accordingly, the protocol will have effect not only on the international plane but also, by virtue of s 2(1) of the 1972 Act, on
the domestic plane. By enacting s 2(1), Parliament must therefore have intended to curtail the prerogative power to amend or add to the EEC Treaty.
There is no express provision to that effect. But that is, according to the argument, the necessary implication.
The same implication is said to arise from s 2(2) of the 1972 Act, which makes express provision for the implementation of Community obligations
by Order in Council. Where Parliament has by statute covered the very same ground as was formerly covered by the royal prerogative, the royal
prerogative is to that extent, by necessary implication, held in abeyance: see A-G v De Keyser’s Royal Hotel Ltd [1920] AC 508, [1920] All ER Rep 80
and Laker Airways Ltd v Dept of Trade [1977] 2 All ER 182 at 203–205, [1977] QB 643 at 718–720 per Roskill LJ.
We find ourselves unable to accept this far-reaching argument. When Parliament wishes to fetter the Crown’s treaty-making power in relation to
Community law, it does so in express terms, such as one finds in s 6 the 1978 Act. Indeed, as was pointed out, if the Crown’s treaty-making power were
impliedly excluded by s 2(1) of the 1972 Act, s 6 of the 1978 Act would not have been necessary. There is in any event insufficient ground to hold that
Parliament has by implication curtailed or fettered the Crown’s prerogative to alter or add to the EEC Treaty.
Would the ratification of the Protocol on Social Policy alter the content of domestic law? The protocol itself makes clear that it was not intended to
apply to the United Kingdom. Nor is the United Kingdom party to the agreement which is annexed to the protocol. The protocol is not one of the treaties
(which for this purpose includes protocols: see s 1(4) of the 1972 Act) included within the definition of ‘the Treaties’ in s 1(2) of the 1972 Act for it is
specifically excluded by s 1(1) of the 1993 Act. It follows that the protocol is not one of the treaties covered under s 2(1) of the 1972 Act by which alone
Community treaties have force in domestic law. It does not become one of the treaties covered by s 2(1) merely because, by the Union Treaty, it is
annexed to the EEC Treaty: see s 1(3) of the 1972 Act.
Mr Pannick argues that under para 1 of the protocol the United Kingdom has agreed to authorise the other eleven member states to have recourse to
Preamble
the Community institutions for the purpose of giving effect to the agreement. But this is an obligation on the international plane, not the domestic plane.
He further argues that the protocol may have indirect effect on our domestic law, because some of the matters covered by the agreement are covered
elsewhere in Community law. Thus art 6 of the agreement, which enshrines the principle of equal pay for equal work, follows the language of art 119 of
the EEC Treaty. Accordingly, a decision of the European Court on the meaning of art 6 might affect, so it is said, the application of art 119 so as to
influence the development of United Kingdom domestic law. But, in our view, this possible indirect effect is far too slender a basis on which to support
Mr Pannick’s argument. We conclude that the government would not, by ratifying the 467 protocol, be altering or affecting the content of domestic
law without parliamentary approval. For the above reasons we would reject Mr Pannick’s second main argument.
The third issue

We come now the last of Mr Pannick’s arguments. It is the most interesting of the arguments jurisprudentially; but it is also the weakest.
Title V of the Union Treaty establishes a common foreign and security policy among the member states. The objectives are set out in art J.1.2.
Article J.1.4 provides:
‘The Member States shall support the Union’s external and security policy actively and unreservedly in a spirit of loyalty and mutual solidarity.
They shall refrain from any action which is contrary to the interests of the Union or likely to impair its effectiveness as a cohesive force in
international relations. The Council shall ensure that these principles are complied with.’
Under art J.2.2 the Council is obliged to define a common position, whenever it deems it necessary. Member states must then ensure that their
policies conform to the common position. Article J.4.1 provides:
‘The common foreign and security policy shall include all questions related to the security of the Union, including the eventual framing of a
common defence policy, which might in time lead to a common defence.’
Under art J.5.1 the Presidency represents the Union in matters coming within the common foreign and security policy. There are other important
provisions, but we have quoted enough to give the flavour. Unless otherwise agreed under art J.3.2, the decisions of the Council must be taken
unanimously.
Title V is not, of course, included in s 1(1) of the 1993 Act, since it is an inter-governmental agreement, which could have no impact on United
Kingdom domestic law. The arguments advanced by Mr Pannick under this head are therefore of a very different nature from the arguments so far
considered. By English common law, the Crown is, he says, incapable of abandoning, or transferring, any of its ancient prerogative powers, without
statutory enactment. In support of his general proposition, Mr Pannick quotes a number of old authorities, starting with the King’s Prerogative in
Saltpetre (1606) 12 Co Rep 12, 77 ER 1294. He also relies on a very recent decision of the Irish Supreme Court in relation to the Single European Act
whereby the court held, by a majority, that it was not competent for the government of Ireland to ratify Title III of the Act without a referendum: see
Crotty v An Taoiseach [1987] 2 CMLR 666. We quote from the headnote:
‘It would be quite incompatible with the freedom of action in foreign relations conferred on the Government by the Irish Constitution for the
Government to qualify it or to inhibit it in any manner by formal agreement with other States to do so. That freedom does not carry with it the
power to abdicate the freedom or to enter into binding agreement with other States to exercise the power to decide matters of foreign policy in a
particular way or to refrain from exercising it save by particular procedures and so to bind the State in its freedom of action in its foreign policy.
Title III of the Single European Act requires such limitations on the 468 Government’s freedom of action in foreign relations and therefore may
not be ratified without a referendum.’
Mr Pannick submits that, by the same token, the effect of Title V of the Union Treaty is, or will be, that the Crown has transferred its prerogative
power in relation to foreign policy, security, and ultimately defence, to the Council without statutory enactment. But we do not consider that the Crotty
case affords any real assistance because the issues there turned solely on the provisions of the Irish Constitution.
Mr Kentridge’s first answer is that the questions raised under this head are simply not justiciable in the English courts. A similar point arose in
Blackburn v A-G [1971] 2 All ER 1380, [1971] 1 WLR 1037. In that case Mr Raymond Blackburn sought a declaration that by signing the EEC Treaty
the government would be surrendering forever a part of the sovereignty of the Crown in Parliament, and that by so doing it would be in breach of the law.
There was an application to strike out the action. The application succeeded both at first instance and on appeal. Lord Denning MR set out the general
principle in relation to treaties and continued ([1971] 2 All ER 1380 at 1382, [1971] 1 WLR 1037 at 1040):
‘Mr Blackburn acknowledged the general principle, but he urged that this proposed treaty is in a category by itself, in that it diminishes the
sovereignty of Parliament over the people of this country. I cannot accept the distinction. The general principle applies to this treaty as to any
other. The treaty-making power of this country rests not in the courts, but in the Crown; that is, Her Majesty acting on the advice of her Ministers.
When her Ministers negotiate and sign a treaty, even a treaty of such paramount importance as this proposed one, they act on behalf of the country
as a whole. They exercise the prerogative of the Crown. Their action in so doing cannot be challenged or questioned in these courts.’
The authority of Blackburn v A-G has recently been confirmed by the House of Lords in Maclaine Watson & Co Ltd v Dept of Trade and Industry
[1989] 3 All ER 523 at 544, [1990] 2 AC 418 at 499–500 per Lord Oliver. Mr Kentridge submits that what was true in 1971 before the EEC Treaty was
signed is as true today in relation to Title V of the Union Treaty. Since no question of domestic law is involved, the court has no jurisdiction even to
consider the questions raised by Mr Pannick under this head.
It would be possible for us to accept this argument, and leave it at that. But Mr Pannick pointed out in reply that the principle of non-justiciability is
not universal and absolute. There are exceptions. Thus it is clear from s 6 of the 1978 Act that the court would be entitled, and indeed bound, if required,
to consider whether any treaty which the government proposed to ratify involved an increase in the powers of the European Parliament. Fortunately we
have not been concerned with that problem in this case.
Similarly in Ex p Molyneaux [1986] 1 WLR 331 Taylor J considered the text of the inter-governmental conference established between the
government of the United Kingdom and the government of the Republic of Ireland in November 1985 to see if it contravened any statute or rule of
common law, or any constitutional convention. He held that it did not.
So we will assume, contrary to Mr Kentridge’s argument, that we are entitled to consider the questions raised by Mr Pannick. We will also assume
(what was not in dispute) that the government could not lawfully transfer any part of the 469 Crown’s prerogative powers in relation to foreign affairs
without statutory enactment. Where does that take us? It takes us to this: that, even if one reads Title V with an eye most favourable to Mr Pannick’s
submissions, it cannot be regarded as a transfer of prerogative powers. As Mr Kentridge succinctly put it, Title V does not entail an abandonment or
Preamble
transfer of prerogative powers, but an exercise of those powers. We agree. So far as we know, nobody has ever suggested that the Charter of the United
Nations, for example, or of the North Atlantic Treaty Organisation, involves a transfer of prerogative powers. Title V should be read in the same light. In
the last resort, as was pointed out in argument, though not pursued, it would presumably be open to the government to denounce the Union Treaty, or at
least to fail to comply with its international obligations under Title V. It follows that we reject Mr Pannick’s third argument, either on the ground that the
questions raised are not justiciable or, if they are, that it fails on the merits. For the reasons given the applicant is not entitled to any of the declarations
for which he asks.

[1994] 1 All ER 470
Pan Ocean Shipping Ltd v Creditcorp Ltd

The Trident Beauty
SHIPPING
HOUSE OF LORDS
LORD KEITH OF KINKEL, LORD GOFF OF CHIEVELEY, LORD LOWRY, LORD SLYNN OF HADLEY AND LORD WOOLF
24 NOVEMBER 1993, 27 JANUARY 1994
Shipping – Time charterparty – Hire – Repayment of advance hire while vessel off hire – Assignment of receivables due under charterparty including hire
– Owners of chartered vessel assigning receivables due under the charterparty including hire – Charterers paying hire in advance to assignees of
receivables – Vessel off hire throughout period for which advance hire paid – Charterers unable to recover advance hire from owners – Whether
charterers entitled to recover advance hire from assignees.
The appellant charterers entered into a time charterparty with the disponent owners of a vessel under which hire at a daily rate was payable 15 days in
advance commencing on the day of the vessel’s delivery. The owners entered into a credit facility arrangement with the respondents, acting as agents for
a group of investors, under which the owners assigned to the investors irrevocably and exclusively and free of all encumbrances and third party interests
their right, title and interest in and to the receivables due under the charterparty, including hire. The respondents notified the charterers of the assignment,
which required the charterers to make all payments due under the charterparty direct to the respondents. In compliance with that notice, on 31 May 1991
the charterers made the third payment in advance, totalling $US93,600, to the respondents to cover the period of hire from 31 May to 15 June 1991.
However, the vessel was off hire for repairs for the whole of that period and was unable to go back into service when 470 the repairs were completed
because the owners were unable to pay for the repairs. The charterers then repudiated the charterparty and sought recovery of the hire paid in advance
from the respondents as the financial position of the owners was such that they were not worth suing. By their writ issued against the respondents the
charterers claimed to be entitled to recover the advance hire on the grounds of a total failure of consideration. On summonses by the charterers for
summary judgment and by the respondents to strike out the claim on the grounds that there was no cause of action against them and that the charterers’
only remedy lay against the owners, the judge held that the respondents as assignees of the right to receive payments of hire were liable to repay to the
charterers hire which was not earned. The respondents appealed to the Court of Appeal, which allowed their appeal. The charterers appealed to the
House of Lords, contending that payment of hire in advance was conditional or provisional on it being earned and that the total failure of consideration
gave them a general restitutionary right to be repaid the unearned hire.
Held – An assignee of receivables due under a charterparty, including hire, who received an advance payment of hire pursuant to the assignment was not
liable to repay it to the charterer in the event of the hire not being earned by reason of the fact that the vessel was off hire throughout the period for which
that hire had been paid. In such circumstances the charterer’s only remedy was against the shipowner under the terms of the charterparty contract.
Although advance hire under a charterparty was provisional or conditional, in that any part of the hire payment which had not been earned had to be
repaid to the charterer, that merely created rights and obligations as between the charterer and the shipowner and an assignee’s rights to receivables due to
the shipowner remained unaffected by the the shipowner’s obligations to the charterer. The respondents had, quite independently of the charterparty,
purchased from the owners the right to receive the contractual debt which the charterers were seeking to recover from the respondents in restitution
notwithstanding that the charterparty contract imposed an obligation on the owners to repay unpaid hire and that the assignment did not contemplate, still
less impose, any additional obligation on the respondents to repay the unearned hire. Moreover, there was no reason why the charterers should have two
alternative parties to whom to look for repayment merely because the owners, as part of their own financial arrangements, had assigned their right to
receive payment to a third party, the respondents. The appeal would therefore be dismissed (see p 472 e f, p 473 g to p 474 b to f j to p 475 c g to p 476 b
and p 480 d to g j, post).
Notes
For repayment of unearned hire under a charterparty and the assignment of freight, see 43 Halsbury’s Laws (4th edn) paras 444, 720, and for cases on the
subject, see 43 Digest (Reissue) 102–139, 464–467, 7319–7491, 9994–10013.

Aiken v Short (1856) 1 H & N 210, [1843–60] All ER Rep 425, 156 ER 1180.
Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd [1979] 3 All ER 522, [1980] QB 677, [1980] 2 WLR 218.
Fibrosa SA v Fairbairn Lawson Combe Barbour Ltd [1942] 2 All ER 122, [1943] AC 32, HL.
Preamble
471
French Marine v Cie Napolitaine d’Eclairage et de Chauffage par le Gaz [1921] 2 AC 494, [1921] All ER Rep 726, HL.
Stewart (C A) & Co v Phs Van Ommeren (London) Ltd [1918] 2 KB 560, CA.
Tito v Waddell (No 2) [1977] 3 All ER 129, [1977] Ch 106, [1977] 2 WLR 496.
Tonnelier v Smith & Weatherall & Co (1897) 2 Com Cas 258, CA.
Appeal
Pan Ocean Shipping Co Ltd, the charterers of the vessel Trident Beauty in respect of which all receivables due to the disponent owners, Trident Shipping
Co Ltd, had been assigned to the respondents, Creditcorp Ltd, appealed with leave granted by the Appeal Committee on 1 July 1993 from the decision of
the Court of Appeal (Neill, Beldam and Kennedy LJJ) ([1993] 1 Lloyd’s Rep 443) delivered on 1 December 1992 allowing the appeal of the respondents
from the decision of Judge Diamond QC, sitting as a High Court judge on 11 December 1991 whereby he held that the appellants were entitled to recover
from the respondents an advance payment of hire amounting to $US93,600 made on 31 May 1991 for a period when the vessel was off hire throughout
that period. The facts are set out in the opinion of Lord Woolf.
Jonathan Hirst QC and Tom Adam (instructed by Sinclair Roche & Temperley) for the appellants.
Angus Glennie QC and Karen Maxwell (instructed by Lawrence Graham) for the respondents.
27 January 1994. The following opinions were delivered.
LORD KEITH OF KINKEL. My Lords, for the reasons given in the speech to be delivered by my noble and learned friend Lord Woolf, which I have
read in draft and with which I agree, I would dismiss this appeal.
LORD GOFF OF CHIEVELEY. My Lords, I have had the opportunity of reading in draft the speech of my noble and learned friend Lord Woolf. I
agree with him that the appeal should be dismissed, substantially for the reasons he has given. Even so, I wish to express in my own words the reasons
for which I have reached the same conclusion.
Since my noble and learned friend has set out the relevant facts, it is unnecessary for me to repeat them. Here the appellant company, Pan Ocean
Shipping Co Ltd (Pan Ocean), is seeking to recover from the respondent company, Creditcorp Ltd (Creditcorp), an instalment of time charter hire paid by
Pan Ocean as time charterers of the vessel Trident Beauty (the vessel) to Creditcorp as assignee from the disponent owner of the vessel, Trident Shipping
Co Ltd (Trident), of receivables due under the charterparty, such assignment having been made as part of an arrangement under which Creditcorp, on
behalf of a group of investors, made finance available to Trident. Pan Ocean is not seeking to recover the hire instalment from Trident, because it does
not consider Trident worth suing. Instead, it seeks to recover the money from Creditcorp on the ground of total failure of consideration, since the vessel
was off hire for the whole of the period in respect of which the relevant hire instalment was paid. In an unreserved judgment the learned judge held that
Pan Ocean was entitled to succeed in its claim. His 472 decision was however unanimously reversed by the Court of Appeal ([1993] 1 Lloyd’s Rep
443).
To consider the question whether Pan Ocean is entitled to recover the money from Creditcorp on this ground, it is necessary first to turn to the time
charter which governed the relationship between Trident and Pan Ocean. Under the charter the hire was, as normal, payable in advance—here 15 days in
advance. Provision was made, also as normal, for the vessel to be off hire in certain specified circumstances. This is to be found in the usual off hire
clause, cl 15 in the printed form. In addition, other circumstances were specified in some of the additional typed clauses, under which the vessel would or
might be off hire (see cll 37, 56, 61, 74 and 79). In another typed clause (cl 59), there was provision for the hire to be reduced pro rata in certain
circumstances. I should also record that, again as normal, the charter contained an arbitration clause (cl 17 of the printed form), providing for any dispute
to be referred to arbitration in the manner there prescribed.
Now, given the circumstances that the charter hire was payable in advance and that the vessel might be off hire under one or other of the relevant
clauses during a period in respect of which hire had been paid, it was inevitable that, from time to time, there might have to be an adjustment of the hire
so paid. Such adjustments are a normal feature of the administration of time charters. The usual practice is, I understand, for an adjustment to be made
when the next instalment of hire falls due, by making a deduction from such instalment in respect of hire previously paid in advance which has not been
earned; in the present charter, provision is to be found to that effect in cl 29(f), one of the additional typed clauses. If the relevant period is the last hire
period under the charter, such a deduction may not be possible. Any overpayment will then have to be repaid by the shipowner, and no doubt this will
normally be taken care of in the final account drawn up at the end of the charter period.
Sometimes, the event which gives rise to the charterer being deprived of the services of the vessel, in whole or in part, which in its turn renders the
vessel off hire under one of the applicable clauses, may constitute a breach of contract by the shipowner. If so, the charterer will have a claim for
damages for breach of contract, which may embrace the amount of hire paid in advance in respect of the period during which the vessel was off hire. But
this need not be so; and in any event the charter will usually make express provision for the repayment of hire which has been overpaid. In the present
charter, such a provision is to be found in cl 18 of the printed form, which provides that ‘any overpaid hire’ is ‘to be returned at once’. This provision
gives rise to a contractual debt payable in the relevant circumstances by the shipowner to the charterer. But even in the absence of any such express
contractual provision, advance hire which proves to have been paid in respect of a period during which the vessel was rendered off hire under a term of
the contract must ordinarily be repaid, and if necessary a term will be implied into the contract to that effect. That such an implied obligation may arise is
implicit in such early cases as Tonnelier v Smith & Weatherall & Co (1897) 2 Com Cas 258 and C A Stewart & Co v Phs Van Ommeren (London) Ltd
[1918] 2 KB 560. This will of course be dealt with in the ordinary case as a matter of administration of the time charter; if any dispute should persist, it
will fall to be resolved by arbitration.
All this is important for present purposes, because it means that, as between shipowner and charterer, there is a contractual regime which legislates
for the recovery of overpaid hire. It follows that, as a general rule, the law of restitution has no part to play in the matter; the existence of the agreed
regime renders the imposition by the law of a remedy in restitution both unnecessary and 473 inappropriate. Of course, if the contract is proved never
to have been binding, or if the contract ceases to bind, different considerations may arise, as in the case of frustration (as to which see French Marine v
Cie Napolitaine d’Eclairage et de Chauffage par le Gaz [1921] 2 AC 494, [1921] All ER Rep 726, and now the Law Reform (Frustrated Contracts) Act
1943). With such cases as these, we are not here concerned. Here, it is true, the contract was prematurely determined by the acceptance by Pan Ocean of
Trident’s repudiation of the contract. But, before the date of determination of the contract, Trident’s obligation under cl 18 to repay the hire instalment in
Preamble
question had already accrued due; and accordingly that is the relevant obligation, as between Pan Ocean and Trident, for the purposes of the present case.
It follows that, in the present circumstances and indeed in most other similar circumstances, there is no basis for the charterer recovering overpaid
hire from the shipowner in restitution on the ground of total failure of consideration. It is true that sometimes we find in the cases reference to there
having been in such circumstances a failure of consideration (see eg C A Stewart & Co v Phs Van Ommeren (London) Ltd [1918] 2 KB 560 at 563 per
Scrutton LJ). But it should not be inferred that such statements refer to a quasi-contractual, as opposed to a contractual, remedy. Consistently with this
view, the remedy is not limited to the recovery of money paid for a consideration which has wholly failed. A contractual remedy is not, of course, so
circumscribed and so, in Stewart’s case itself, overpaid hire was recoverable where it was recognised that there had been a partial failure of consideration
(at 562 per R A Wright KC arguendo).
It is against this background that we have to consider Pan Ocean’s claim now made against Creditcorp for repayment of the hire instalment paid to it
as assignee of the charter hire. First, although the benefit of the contract debt had been assigned to Creditcorp, with the effect that payment to Creditcorp
by Pan Ocean constituted a good discharge of the debt, nevertheless the burden of the contract remained upon Trident. From this it follows that Trident
remained contractually bound to repay to Pan Ocean any overpaid hire, notwithstanding that such hire had been paid not to Trident but to Creditcorp as
assignee. Mr Hirst QC for Pan Ocean accepted in argument that this was so; but he nevertheless maintained that Pan Ocean had alternative courses of
action open to it—either to proceed against Trident in contract, or to proceed against Creditcorp in restitution. His argument proceeded on the basis that,
in ordinary circumstances, a charterer has alternative remedies against the shipowner for the recovery of overpaid hire, either in contract or in restitution;
and that here, since the hire had been paid to Creditcorp as assignee, Pan Ocean’s remedy in restitution lay against Creditcorp in place of Trident.
However, for the reasons I have already given, I am unable to accept this argument. This is because, in my opinion, Pan Ocean never had any remedy
against Trident in restitution on the ground of failure of consideration in the present case, its only remedy against Trident lying under the contract.
In these circumstances, Pan Ocean was thrown back on the arguments canvassed below which, although accepted by the judge, were rejected by the
Court of Appeal. Of these, the principal argument was to the effect that, since a payment in advance of time charter hire has been described as a
‘provisional’ or ‘conditional’ payment, therefore the hire payment must be regarded as having that character in the hands of an assignee, as it does in the
hands of the shipowner, with the consequence that the assignee is liable to repay the hire to the charterer to the extent that it proves to have not been
earned. I myself agree with the Court of Appeal that this argument is not well founded, because it rests on a misconception as to what is meant by the
terms ‘provisional’ or ‘conditional’ in this context. As I 474 understand the position, in a case such as the present they mean no more than that the
payment is not final since under the contract there is an obligation, express or implied, to repay to the charterer any part of the hire payment which has not
been earned. If this is not clear (as I believe it to be) from the judgments of Bankes and Scrutton LJJ in C A Stewart & Co v Phs Van Ommeren (London)
Ltd [1918] 2 KB 560, it was made clear by Lord Sumner in French Marine v Cie Napolitaine d’Eclairage et de Chauffage par le Gaz [1921] 2 AC 494 at
517, [1921] All ER Rep 726 at 736. In truth, all that happened in the present case was that the benefit of receiving the hire payment was assigned to
Creditcorp and, in accordance with the terms of the charter, Trident remained liable to repay to Pan Ocean any part of the hire so paid to Creditcorp which
was not earned. Under the charter there were two separate contractual obligations—an obligation on Pan Ocean to pay instalments of hire in advance, and
an obligation on Trident to repay any part of any such instalment which was not earned. The assignment to Creditcorp of Trident’s right to receive
advance hire payments left undisturbed Trident’s obligation to repay any hire which was unearned; and I cannot see that in these circumstances the
assignment to Creditcorp can have carried with it any obligation upon Creditcorp, additional to the contractual obligation imposed upon Trident, to repay
unearned hire on the ground of failure of consideration. As Neill LJ said in the Court of Appeal ([1993] 1 Lloyd’s Rep 443 at 449):
‘No doubt it would be possible to construct a tripartite agreement whereby the assignee of a debt from a creditor would acknowledge that the
sum assigned might be repayable in whole or in part to the debtor in specified circumstances. In the present case, however, by the terms of the
assignment Creditcorp were assured that the receivables were not subject to any set-off or any counterclaim. The debts assigned were not of trust
moneys or subject to any form of quasi-trust. The fact that the payment may have been “provisional” as between Pan Ocean and Trident did not
mean, as I see it, that the moneys retained some special characteristic when they reached the hands of a third party.’
I am of course well aware that writers on the law of restitution have been exploring the possibility that, in exceptional circumstances, a plaintiff may
have a claim in restitution when he has conferred a benefit on the defendant in the course of performing an obligation to a third party (see eg Goff and
Jones on Restitution (4th edn, 1993) pp 55ff, and (for a particular example) Burrows on Restitution (1993) pp 271–272). But, quite apart from the fact
that the existence of a remedy in restitution in such circumstances must still be regarded as a matter of debate, it is always recognised that serious
difficulties arise if the law seeks to expand the law of restitution to redistribute risks for which provision has been made under an applicable contract.
Moreover, it would in any event be unjust to do so in a case such as the present where the defendant, Creditcorp, is not the mere recipient of a windfall
but is an assignee who has purchased from Trident the right to receive the contractual debt which the plaintiff, Pan Ocean, is now seeking to recover from
Creditcorp in restitution despite the facts that the relevant contract imposes on the assignor (Trident) an obligation of repayment in the circumstances in
question, and that there is nothing in the assignment which even contemplates, still less imposes, any additional obligation on the assignee (Creditcorp) to
repay. This is the point which, as I understand it, concerned Neill LJ in the Court of Appeal, when he said that ‘Creditcorp were in a position analogous
to that of a bona fide purchaser for value’ (see [1993] 1 Lloyd’s Rep 443 at 449).
For these reasons, I would dismiss the appeal.
475
LORD LOWRY. My Lords, I have had the advantage of reading in draft the speeches prepared by my noble and learned friends Lord Goff of Chievely
and Lord Woolf. I agree with them and, for the several reasons given by my noble and learned friends, I, too, would dismiss this appeal.
LORD SLYNN OF HADLEY. My Lords, I agree that this appeal should be dismissed for the reasons given in the draft speech of my noble and learned
friend Lord Woolf.
LORD WOOLF. My Lords, Pan Ocean Shipping Co Ltd (Pan Ocean), by a time charter dated 19 April 1991 on New York Produce Exchange Form,
chartered from the Trident Shipping Co Ltd (Trident), one of their vessels, the mv Trident Beauty. The charter was for a single time charter trip at the
rate of $US6,400 per day, payable 15 days in advance commencing on the day of the vessel’s delivery.
In order to finance its activities Trident had arranged credit facilities from Creditcorp Ltd (Creditcorp), the respondents, on terms set out in a facility
letter dated 21 March 1991 (which replaced an earlier facility arrangement). Creditcorp entered into the facility arrangement on behalf of a group of
investors. As part of the arrangement, on the same date as the time charter was executed, Trident ‘irrevocably and exclusively’ assigned to the investors,
‘free of all encumbrances and third party interests’, its right, title and interest in and to the receivables, including the sums which were payable for the
charter of the vessel.
The vessel was delivered under the charterparty on 1 May 1991. Pan Ocean duly made two payments in advance on 3 May and 17 May 1991. On
Preamble
21 May 1991 Creditcorp notified Pan Ocean in writing of the assignment and required all payments due to Trident to be paid directly to Creditcorp. In
compliance with that notice, on 31 May 1991 Pan Ocean made the third payment in advance (totalling $US93,600) to Creditcorp to cover the period from
31 May to 15 June 1991. In fact the Trident Beauty had been off-hire since 27 May 1991 and at the time of the third payment was about to undergo
repairs in Singapore. The vessel remained off-hire throughout the period for which the third payment had been made to Creditcorp and on 12 June 1991
Pan Ocean was notified that the vessel had been withdrawn from Trident by the head owners. Repairs were by then complete but the vessel was unable to
proceed because Trident had failed to pay the yard at which it was repaired. On 10 July 1991 Pan Ocean accepted Trident’s conduct as amounting to a
repudiation of the charterparty and the charter came to an end. By then the financial position of Trident meant that it was not worth suing.
The issue for determination is whether in these circumstances Pan Ocean can recover from Creditcorp the advance payment which was made on 31
May 1991. Surprisingly, there is no direct authority on the point. Judge Diamond QC, sitting as a High Court judge, at first instance decided the issue in
favour of Pan Ocean but the Court of Appeal (Neill, Beldam and Kennedy LJJ) ([1993] 1 Lloyd’s Rep 443) allowed the appeal of Creditcorp.
For the purpose of considering the issue which is before the House, it is important to have in mind the relevant terms of the charterparty. They are in
a common form for this type of contract and provide as follows:
‘4: That the charterers shall pay for the use and hire of the said vessel at the rate of U.S.$6,400 daily including overtime, payable 15 days in
advance United States currency, commencing on and from the day of her delivery as aforesaid, and at and after the same rate for any part of a day;
hire to continue until the hour of the day of her redelivery ...
476
5: Payment of said hire to be made in London in cash in United States currency in advance, and for the last half month or part of same the
approximate amount of hire, but always subject to the wordings of clause 29 ...
15: That in the event of the loss of time from [certain specified causes], the payment of hire shall cease for the time thereby lost; and if upon the
voyage the speed be reduced by defect in or breakdown of any part of her hull, machinery or equipment, the time so lost, and the cost of any extra
fuel consumed ... shall be deducted from the hire.
16: That should the vessel be lost, money paid in advance and not earned ... shall be returned to the charterers at once ...
18: That the owners have a lien upon all cargoes, and all sub-freights for any amounts due under this charter ... and the charterers to have a lien
on the ship for all monies paid in advance and not earned, and any overpaid hire or excess deposit to be returned at once ...’
Added to the charterparty were the following additional typed clauses which are relevant:
‘29(a) ... Charterers are entitled to deduct from last sufficient hire payments any fines and estimated owners’ disbursements … as well as value
for estimated bunkers on redelivery, and all accounts to be settled within two (2) months after the vessel’s redelivery provided all relevant vouchers
have been received ...
(f) Charterers have the right to withhold from charter hire, during the period of this charter such reasonable amounts due to them for off-hire
time and owners’ disbursements, but proper supporting statements are to be sent to owners as soon as possible.’
There were other clauses which also contained provisions for the vessel to be ‘off-hire’ (see cll 56, 61, 74 and 79) but the clauses cited provide a
sufficient illustration as to how the time charter was intended to operate. There is also a typed provision contained in cl 59 which provides for ‘the hire to
be reduced pro rata’ in the event of breakdown of some of the vessel’s cranes.
The time charter makes it clear that as between Pan Ocean and Trident, Pan Ocean was required to make payments 15 days in advance. If, after the
hire had been paid in advance, there occurred an event which caused the vessel to be off hire during the period for which the hire had been paid, then part
or all of the hire paid in advance would not have been earned. In that situation an adjustment of account between the parties would have to be made. The
necessary adjustment could be achieved by deducting an appropriate amount from the next payment of advance hire or, if there would be no further
payment due, by Trident making a repayment to Pan Ocean. The fact that such an adjustment or repayment would have to be made would not alter the
fact that under the time charter Trident had been contractually entitled to receive payment in advance, in full, of the instalment which was to be paid prior
to the occurrence of the event. Although after the happening of that event Pan Ocean would have a right of set-off as against a future instalment of hire or
a right of repayment, the right to receive the payment of the hire instalment was separate and distinct from the right to receive credit for hire which had
been paid but not earned and those rights would give rise to independent causes of action.
This being the position between the immediate parties to the time charter, as Trident had only assigned its rights under the time charter to Creditcorp,
you would expect: (a) that Creditcorp would be entitled to receive the third instalment of hire or at least part of that sum; and (b) that Pan Ocean’s right to
repayment 477 would be confined to enforcing their contractual rights against Trident since the burden of the contract had not been assigned to
Creditcorp. (As Neill LJ points out, the vessel had been off-hire since 27 May so that at the time of payment of the third instalment Pan Ocean may have
been entitled to withhold a proportion of the instalment.)
Mr Hirst QC on behalf of Pan Ocean vigorously disputes that this should be the result. He concedes that Pan Ocean would not be entitled to enforce
its contractual rights to receive a repayment against Creditcorp since the assignment by Trident of its right to receive payment of the hire instalments to
Creditcorp would not involve a transfer to Creditcorp of Trident’s contractual obligations under the time charter. However, Mr Hirst submits that where a
person receives, as of right, a payment in advance, it is liable to be repaid if the payment is not earned, since it is a condition of retaining the payment that
the consideration for which it is paid is provided. He contends that if there had been no assignment, Pan Ocean would have had both a contractual right of
repayment and a right of restitution as against Trident. That while after the notice of the assignment and payment to Creditcorp, Pan Ocean’s contractual
rights would still only be against Trident, there would also be a personal right of restitution which would then be against Creditcorp. The personal right
would arise, so it is argued, because Creditcorp, once it had given notice of assignment, was entitled to receive the advance payment as of right from Pan
Ocean and the payment being an advance payment was one which was conditional or provisional on the payment being earned. If at the end of the period
for which the payment was made all or part of the hire had not been earned Pan Ocean would be entitled to the return of that part of the payment which
had not been earned in the same way as it could admittedly be deducted from a future instalment of hire not yet paid.
In support of his contentions, Mr Hirst was not able to rely upon any authorities which involved an assignment but he submitted that he could derive
support from Tonnelier v Smith & Weatherall & Co (1897) 2 Com Cas 258, C A Stewart & Co v Phs Van Ommeren (London) Ltd [1918] 2 KB 560 and
Fibrosa SA v Fairbairn Lawson Combe Barbour Ltd [1942] 2 All ER 122, [1943] AC 32. The two earlier cases both involved charterparties where the
charterer was required to pay for the hire in advance. In Tonnelier’s case it was held by a majority that the charterer was liable to pay the monthly hire to
the owners at the beginning of each month, even if it was obvious that the vessel would be redelivered to the owners before the month had expired.
However, although the payments were to be made in advance, in the words of the judgment of the majority (see 2 Com Cas 258 at 265 per Lord Esher
MR and Rigby LJ), they were ‘to be provisional only and not final’ and the charterer was entitled to have repaid all moneys paid in advance and not
earned. In Stewart’s case [1918] 2 KB 560 at 562 the Court of Appeal applied the decision in Tonnelier’s case and Bankes LJ stated that under the
Preamble
charterparty the payment was to be—
‘made of a fixed sum on a fixed in date each month in advance for the opportunity of using the ship for every day in that month, but upon the
terms that in certain events, which are named, if the charterers are deprived of that opportunity for any of those days, the owners are liable to repay
the amount attributable to those days.’
In Stewart’s case it was an express term of the charterparty that hire paid in advance and not earned should be returned to the charterers. Mr Hirst
therefore relies on the statement of Scrutton LJ (at 564) that if the ship during a month, in respect of which hire had been paid, came off hire, ‘there is a
failure of consideration for the 478 payment’ for the days upon which the ship is off hire and the sum paid for those days can be recovered by action.
The Fibrosa case [1942] 2 All ER 122, [1943] AC 32 is relied on for what was said by their Lordships as to the position with regard to payments in
advance which, because a contract was frustrated by a supervening event, were not earned. The House held that a party who has paid money under a
contract in advance, which is frustrated, is entitled to recover the money on the ground that the consideration for which the sum had been paid wholly
failed. In that situation, as Viscount Simon LC said ([1942] 2 All ER 122 at 128, [1943] AC 32 at 46) the claim—
‘is not based upon any provision contained in the contract, but arises because, in the circumstances that have happened, the law gives a remedy
in quasi-contract to the party who has not got that for which he bargained. It is a claim to recover money to which the defendant has no further
right because, in the circumstances that have happened, the money must be regarded as received to the plaintiff’s use.’
While it is understandable that Mr Hirst should submit that support for his submissions is provided by these cases, the statements on which he relies were
made in a different context and it is disputed by Mr Glennie QC, on behalf of Creditcorp, that they can be applied to the advance payment here so that
unearned hire can be recovered not from the other party to the contract but from the other party’s assignee to whom the payment was made.
To this issue the cases really provide no direct assistance. The claims in quasi-contract with which they deal arise as a result of the failure of the
other party to the contract to provide the consideration for which the payment was made. It is one thing to require the other party to the contract to repay
if he does not provide the consideration which under the contract he was under obligation to supply, it is another to make the assignee, who was never
intended to be under any obligation to supply the consideration, liable to make the repayment. It is conceded that there is no right to trace moneys which
are paid to an assignee and there is never any question of their being any restriction on the assignee preventing him dealing with the money as his own.
There is no justification for subjecting an assignee, because he has received a payment in advance, to an obligation to make a repayment because of the
non-performance of an event for which he has no responsibility.
Mr Hirst also referred to general statements of principle which were made by Megarry V-C in Tito vWaddell (No 2) [1977] 3 All ER 129, [1977] Ch
106. In that case, under the heading ‘Benefit and burden’ Megarry V-C considered conditional benefits and independent obligations (see [1977] 3 All ER
129 at 280, [1977] Ch 106 at 290). In a passage of his judgment on which Mr Hirst relies, Megarry V-C draws a distinction between what ‘for brevity
may be called conditional benefits on the one hand, and on the other hand, independent obligations’. Megarry V-C stated ([1977] 3 All ER 129 at 281,
[1977] Ch 106 at 290):
‘An instrument may be framed so that it confers only a conditional or qualified right, the condition or qualification being that certain restrictions
shall be observed or certain burdens assumed, such as an obligation to make certain payments. Such restrictions or qualifications are an intrinsic
part of the right: you take the right as it stands, and you cannot pick out the good and reject the bad. In such cases it is not only the original grantee
who is bound by the burden: his successors in title are unable to take the right without also assuming the burden. The benefit and the burden have
been annexed to each other ab initio, and so the benefit is only a conditional benefit. In the other 479 class of case the right and the burden,
although arising under the same instrument, are independent of each other.’
This statement of principle by Megarry V-C only helps Mr Hirst if Creditcorp’s right to receive payment in advance was a conditional right or what
Megarry V-C describes as a ‘conditional benefit’. In fact the right was not conditional. There was nothing qualified about the right, notwithstanding the
fact that if a payment in advance was made but not earned an independent right to be repaid the unearned advance instalment would accrue to Pan Ocean.
Mr Hirst drew our attention to an interesting article reviewing the decision in this case in the Court of Appeal by Andrew Tettenborn, ‘Restitution
and assignees’ [1993] CLJ 220. The article indorses the approach of Judge Diamond QC. Mr Tettenborn (at 222) asks what he describes as the
fundamental question:
‘Having paid Creditcorp for something they did not get, why should Pan Ocean not have got their money back? There is every reason in justice
why they should: the Court of Appeal, it is suggested, has given no reason why they should not.’
With respect to Mr Tettenborn, he has not given sufficient credit to the reasoning of the judgments, in particular of Neill LJ, in the Court of Appeal.
Pan Ocean are in exactly the same position as against Trident as they would have been if there had been no assignment to Creditcorp of the right to
receive payment. The assignment occurred quite independently of Pan Ocean’s contract with Trident. If Pan Ocean were entitled to recover from
Creditcorp, the consequence would be that they would have two different parties instead of a single party from whom they could recover; on Mr Hirst’s
argument, against Trident under the contract and against Creditcorp for money had and received. It is equally possible to frame a different fundamental
question. Why should Pan Ocean have two alternative parties to whom to look for a repayment merely because Trident, as part of their own financial
arrangements, have assigned their right to receive payment to a third party, Creditcorp?
I should also refer to the fact that Mr Hirst criticises the reliance which Beldam LJ made in his judgment in the Court of Appeal on Aiken v Short
(1856) 1 H & N 210, [1843–60] All ER Rep 425 and Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd [1979] 3 All ER 522, [1980] QB 677,
which were apparently not considered in the course of argument. Those cases were dealing with payments made by mistake and I would not, myself, rely
on them in order to come to the conclusion that this appeal has to be dismissed.
Finally, I should indicate that I make no comment about Creditcorp’s second line of defence. Their Lordships did not feel it necessary to hear
argument in support of this second line of defence. This defence is that Creditcorp could not be called upon to make repayment since Creditcorp, after
receiving the third instalment, had altered its position without notice of the claim of Pan Ocean by paying out the money received in the ordinary course
of its business.
For the reasons I have given I would dismiss this appeal with costs.
Appeal dismissed.
Preamble

480
[1994] 1 All ER 481
R v Canons Park Mental Health Review Tribunal, ex parte A

HEALTH; Mental health

MANN LJ AND SEDLEY J
22, 23 28 JULY 1993
Mental health – Patient – Discharge from hospital – Psychopathic disorder – Treatability – Patient suffering from psychopathic disorder detained in
hospital – Patient refusing to co-operate in appropriate treatment – Alternative treatment unlikely to alleviate or prevent deterioration of patient’s
condition – Mental health review tribunal refusing discharge – Whether patient suffering from psychopathic disorder entitled to be discharged if
condition not able to be alleviated by treatment – Mental Health Act 1983, ss 3, 16(2), 72 – Convention for the Protection of Human Rights and
Fundamental Freedoms 1950, art 5.
The applicant was detained in a hospital pursuant to s 3a of the Mental Health Act 1983 on the ground of mental illness. Subsequently her condition was
reclassified as psychopathic disorder. When the hospital managers refused to discharge her she applied to a mental health review tribunal under s 72b of
the 1983 Act for her discharge. The tribunal refused to discharge her, on the grounds that it was necessary for her to be detained for nursing care under
medical supervision in the interests of her own health and safety and for the protection of others. The tribunal further found that her condition was not
being alleviated by the treatment she was receiving, that the appropriate treatment was group therapy, which depended on the voluntary co-operation of
the patient, and that she was not willing to co-operate in that treatment but might be willing to do so later. The applicant sought judicial review of the
tribunal’s decision on the ground, inter alia, that she had an absolute right to discharge under s 16(2)c of the 1983 Act, which provided that, where a
patient had been reclassified by a medical officer as having a psychopathic disorder and the medical officer’s report stated that the patient’s condition was
not likely to be alleviated by further medical treatment in hospital, the authority of the hospital managers to detain the patient ceased. The applicant
contended that because she had been reclassified as suffering from psychopathic disorder and her condition was not likely to respond to treatment in
hospital she could not continue to be detained. It was contended on behalf of the respondent tribunal that, although treatability was necessary under other
sections of the 1983 Act, such as ss 3, 16 and 20, the tribunal were entitled to decide under s 72(1)(b)(ii) that a patient was liable to be detained if they
were satisfied that he was suffering from, inter alia, psychopathic disorder of a nature or degree which made it ‘appropriate for him ... to be detained’ in a
hospital irrespective of whether or not he was treatable.
________________________________________
a Section 3 is set out at p 486 b to f, post
b Section 72, so far as material, is set out at p 487 g to p 488 a, post
c Section 16, so far as material, is set out at p 487 b to e, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – It was clear from the terms of and the legislative policy manifest in 1983 Act that, in respect of admission, renewal or reclassification, a
psychopathic or 481 mentally impaired person could not be detained in a hospital if he could not be therapeutically or preventively treated. It was
never ‘appropriate’ under the provisions of the 1983 Act relating to admission, renewal or reclassification for a patient to be ‘liable to be detained in a
hospital for medical treatment’ for psychopathic disorder if he was not at that point in time treatable and (per Mann LJ) it was clear from the terms of Act
that an untreatable psychopath however dangerous could not be detained. Further, it was inconsistent with art 5d of the Convention for the Protection of
Human Rights and Fundamental Freedoms, which the 1983 Act was intended to implement, for a mental health review tribunal to have power to decide
that a person was to be detained, even though not treatable, since the tribunal would then be deciding on liability to detention on criteria different from
and wider than those available to the medical authorities whose decisions they reviewed, rather than deciding whether a patient’s detention was lawful.
The tribunal had not found that medical treatment would alleviate the applicant’s condition, but merely that it was hoped that the applicant would agree to
appropriate treatment by being kept in hospital, which was not a lawful ground of detention. It followed that the tribunal’s findings obliged them under s
72(1)(b) to release the applicant. The tribunal’s decision would accordingly be quashed and the case remitted to the tribunal (see p 488 b e h, p 489 f, p
490 a to f and p 493 h to p 494 b f, post).
________________________________________
d Article 5, so far as material, is set out at p 492 j to p 493 a, post
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Dictum of McCullough J in R v Hallstrom, ex p W (No 2) [1986] 2 All ER 306 at 314 applied.
X v UK (1981) 1 BMLR 98 considered.
Notes
For the powers of a mental health review tribunal to direct discharge of non-restricted hospital patients, see 30 Halsbury’s Laws (4th edn reissue) para
1360.
For the Mental Health Act 1983, ss 16, 72, see 28 Halsbury’s Statutes (4th edn) 653, 712.
Preamble

R v Greater Manchester Coroner, ex p Tal [1984] 3 All ER 240, [1985] QB 67, [1984] 3 WLR 643, DC.
R v Hallstrom, ex p W (No 2), R v Gardner, ex p L [1986] 2 All ER 306, [1986] QB 1090, [1986] 2 WLR 883.
R v Mersey Mental Health Review Tribunal, ex p D (1987) Times, 13 April, DC.
R v Oxford Regional Mental Health Review Tribunal, ex p Secretary of State for the Home Dept [1986] 3 All ER 239, [1986] 1 WLR 1180, CA; affd
[1987] 3 All ER 8, sub nom Campbell v Secretary of State for the Home Dept [1988] AC 120, [1987] 3 WLR 522, HL.
Winterwerp v The Netherlands (1979) 2 EHHR 387, E Ct HR.
X v UK (1981) 1 BMLR 98, 4 EHRR 188, E Ct HR.

Padfield v Minister of Agriculture Fisheries and Food [1968] 1 All ER 694, [1968] AC 997, HL.
Poyser and Mills’s Arbitration, Re [1963] 1 All ER 612, [1964] 2 QB 467.
R v Mental Health Review Tribunal, ex p Clatworthy [1985] 3 All ER 699.
482
R v Mental Health Review Tribunal, ex p Pickering [1986] 1 All ER 99.
R v Nottingham Mental Health Review Tribunal, ex p Secretary of State for the Home Dept (1988) Times, 12 October, CA.

A, a patient detained under s 3 of the Mental Health Act 1983, applied, with the leave of Hidden J given on 17 June 1993, for judicial review by way of,
inter alia, an order of certiorari to quash the decision of the Canons Park Mental Health Review Tribunal dated 24 May 1993 that she would not be
discharged from liability to be detained. The facts are set out in the judgment of Sedley J.
Richard Gordon (instructed by Steel & Shamash) for the applicant.

Ian Ashford-Thom (instructed by the Treasury Solicitor) for the tribunal.
Cur adv vult
SEDLEY J (giving the first judgment at the invitation of Mann LJ). The applicant is aged 28 and is the mother of two children, who are at present in
voluntary care. On 2 October 1992 she was detained under s 3 of the Mental Health Act 1983 on the statutory ground of mental illness and was
transferred to an interim secure unit at Horton Hospital, Epsom, Surrey. The specific diagnosis was of reactive depression in an impulsive personality. At
the beginning of April 1993 her liability to detention was renewed under s 20 of the 1983 Act, again on the ground of mental illness.
On 20 April 1993, represented by her solicitor Nicola Mackintosh, the applicant applied unsuccessfully under s 23 of the 1983 Act to the hospital
managers for discharge. (I record without having to decide it that there is a question about the propriety of procedure adopted, it being alleged that the
following day the managers took evidence in the applicant’s absence from her responsible medical officer, Dr James.)
The applicant then applied to the mental health review tribunal for discharge under s 72 of the 1983 Act. The hearing was set for 24 May 1993.
Shortly before that day, Dr James changed his diagnosis of the applicant’s condition to one of psychopathic disorder.
Until shortly before the hearing of this matter, it was not known when Dr James had done this, but it is now known that it was on 12 May 1993 that
he reclassified the applicant pursuant to s 16 of the 1983 Act. The form on which the reclassification is recorded, Form 22, which is apparently a
prescribed form and is published by HMSO, contains the following entries:
‘It appears to me that this patient who is recorded on the application for admission to this hospital as suffering from mental illness is now
suffering from psychopathic disorder. In my opinion further medical treatment in hospital is likely to alleviate or prevent a deterioration of the
patient’s condition.’
All these words are pro forma except the entries ‘mental illness’ and ‘psychopathic disorder’. Against the first group appears a marginal note:
‘(Original classification as amended by any previous reclassification)’. Against the second: ‘Insert mental illness, severe mental impairment,
psychopathic 483 disorder or mental impairment’. Against the third: ‘Delete unless patient is reclassified above as suffering from psychopathic
disorder or mental impairment.’
The assumptions upon which this form is based and the consequent choice it offers to responsible medical officers is likely to need revision in the
light of this court’s judgment.
Before the mental health review tribunal, the applicant was again represented by her solicitor and was able to call the evidence of an independent
consultant psychiatrist, Dr Frank. In the event, the two doctors did not disagree about the applicant’s condition or prognosis. They differed only on the
question, which is essentially a question of law, whether in the light of their view the applicant was entitled to be discharged.
Although we have before us the reports of the psychiatrist, a very thorough attendance note of Miss Mackintosh and, unusually, an affidavit from Dr
Raymond, the medical member of the material mental health review tribunal, seeking to explain the tribunal’s decision, in my judgment the only
admissible basis for the present challenge is the reasons given in writing by the tribunal as required by r 23(2) of the Mental Health Review Tribunal
Rules 1983, SI 1983/942, which reads:
‘The decision by which the tribunal determines an application shall be recorded in writing; the record shall be signed by the president and shall
give the reasons for the decision and, in particular, where the tribunal relies upon any of the matters set out in section 72(1) or (4) or section 73(1)
or (2) of the Act, shall state its reasons for being satisfied as to those matters.’
The tribunal had a reclassification form among its papers. The first part of its reasons is set out in pro forma entries, concluding with para 8. This is
captioned: ‘Findings of the Tribunal concerning the main issues affecting the exercise of the Tribunal’s discretion.’ As will appear, this is unfortunate
wording. The tribunal has to find facts and make judgments but it may also have consequential obligations into which no discretion enters. It is Mr
Preamble
Gordon’s contention on the applicant’s behalf that this is such a case. Paragraph 8 continues:
‘Is it likely that medical treatment is alleviating or preventing a deterioration of the patient’s conditions?’
Under this, the tribunal has selected the answer No. Again, the use of the present tense is unfortunate. The question may well be relevant, but it may
divert the tribunal’s attention from a more important question, namely whether it is likely that medical treatment will alleviate or prevent a deterioration of
the patient’s condition. There then follow the tribunal’s decision and their reasons for reaching it:
‘(1) The patient until recently was considered to be suffering from mental illness and refusing medical treatment. Now it is agreed by all (RMO
Dr Frank for the patient and the patient herself) that she is suffering from psychopathic disorder. The Tribunal is satisfied this is the correct
classification.
(2) The only appropriate medical treatment which might alleviate the patients disorder would be psychotherapy in a group setting. This
treatment requires the voluntary co-operation of the patient. The patient 484 is not now willing to co-operate. She told the Tribunal (in
corroboration of the evidence from Dr James RMO) that she wishes to harm herself and considers she has the right to do that. She specifically
stated she was unwilling to participate in group therapy but would participate in one to one therapy, an inappropriate treatment for her. There is a
long history of self harm and of threatened self harm.
(3) There is also a well established history of threats to a previous therapist, Dr Nichol, including the production of a concealed knife. The
Tribunal is satisfied from the medical evidence that the patient formed an unnatural obsession for this doctor. The RMO has an understandable
anxiety that if not detained the safety of Dr Nichol would be prejudiced.
(4) We accept the view of the RMO that the patients mental condition may deteriorate for a time and there is evidence that this has happened.
There is also evidence that she deteriorated during a period of absconsion. However this deterioration may in due course give way to subsequent
alleviation of her condition and she may then be willing to co-operate with appropriate therapy. Until then it is necessary that the patient should
continue to be detained for nursing care under medical supervision. Consideration of her discharge is premature.
(5) It was argued that the patient’s aggressive behaviour should have been subjected to criminal investigation rather than detention under the
Mental Health Act 1983. However the Tribunal takes the view that detention for medical treatment is appropriate for this patient. We are satisfied
that it is in the interests of the patient’s health and safety and for the protection of others that she should now be detained.’
This is signed by the three members of the tribunal, the president, a medical member and a lay member.
Upon this material Mr Gordon makes three principal submissions: (1) as a matter of law, a patient such as the applicant whose condition is not likely
to respond to treatment is not liable to be detained under the 1983 Act and so has an absolute right to be discharged; (2) alternatively, if continued
detention is discretionary, it is both irrational and contrary to the policy and objects of the 1983 Act to elect to detain a probably untreatable patient; (3)
alternatively, the tribunal’s reasons are defective because the findings are out of kilter with the conclusion.
I turn to the statutory provisions: all references are to the 1983 Act. By s 1(1) it is provided:
‘The provisions of this Act shall have effect with respect to the reception, care and treatment of mentally disordered patients, the management
of their property and other related matters.’
Section 1(2) provides definitions of ‘mental disorder’, ‘severe mental impairment’, ‘mental impairment’ and ‘psychopathic disorder’, these being the
categories or classifications used subsequently in the statute. It may be convenient where appropriate to refer to these compendiously by the phrase used
in art 5 of the Convention for the Protection of Human Rights and Fundamental Freedoms (Rome, 4 November 1950; TS 71 (1953); Cmd 8969), ‘unsound
mind’.
By s 145, medical treatment is defined in this way. It is important to observe that it is an inclusive but not an exhaustive definition:
485
‘“medical treatment” includes nursing, and also includes care, habilitation and rehabilitation under medical supervision.’
Section 3 provides for the admission of patients for treatment as follows:
‘(1) A patient may be admitted to a hospital and detained there for the period allowed by the following provisions of this Act in pursuance of an
application (in this Act referred to as “An application for admission for treatment”) made in accordance with this section.
(2) An application for admission for treatment may be made in respect of a patient on the grounds that—(a) he is suffering from mental illness,
severe mental impairment, psychopathic disorder or mental impairment and his mental disorder is of a nature or degree which makes it appropriate
for him to receive medical treatment in a hospital; and (b) in the case of psychopathic disorder or mental impairment, such treatment is likely to
alleviate or prevent a deterioration of his condition; and (c) it is necessary for the health or safety of the patient or for the protection of other persons
that he should receive such treatment and it cannot be provided unless he is detained under this section.
(3) An application for admission for treatment shall be founded on the written recommendation in the prescribed form of two registered medical
practitioners, including in each case a statement that in the opinion of the practitioner the conditions set out in subsection (2) above are complied
with; and each such recommendation shall include—(a) such particulars as may be prescribed of the grounds for that opinion so far as it relates to
the conditions set out in paragraphs (a) and (b) of that subsection; and (b) a statement of the reasons for that opinion so far as it relates to the
conditions set out in paragraph (c) of that subsection, specifying whether other methods of dealing with the patient are available and, if so, why they
are not appropriate.’
Once admitted, the detention of a patient is governed first by s 20, which deals with the duration and renewal of the authority to detain. In summary,
s 20(1) and (2) provide that within six months of admission and then at maximum intervals of one year, authority to detain a patient upon the same criteria
as for admission is necessary if the continued detention of the patient is to be lawful. I will read the subsections in full because their approach is not
administrative, but is couched in terms of a recurrent right to discharge in the absence of due renewal of authority:
‘Duration of authority.—(1) Subject to the following provisions of this Part of this Act, a patient admitted to hospital in pursuance of an
application for admission for treatment, and a patient placed under guardianship in pursuance of a guardianship application, may be detained in a
hospital or kept under guardianship for a period not exceeding six months beginning with the day on which he was so admitted, or the day on which
Preamble
the guardianship application was accepted, as the case may be, but shall not be so detained or kept for any longer period unless the authority for his
detention or guardianship is renewed under this section.
(2) Authority for the detention or guardianship of a patient may, unless the patient has previously been discharged, be renewed—(a) from the
expiration of the period referred to in subsection (1) above, for a further period of six months; (b) from the expiration of any period of renewal
486 under paragraph (a) above, for a further period of one year, and so on for periods of one year at a time.’
The conditions of renewal are spelt out in sub-ss (3) and (4) and they are parallel to the conditions for admission.
During the patient’s detention he or she may, however, be reclassified. Reclassification is dealt with by s 16:
‘Reclassification of Patients.—(1) If in the case of a patient who is for the time being detained in a hospital in pursuance of an application for
admission for treatment, or subject to guardianship in pursuance of a guardianship application, it appears to the appropriate medical officer that the
patient is suffering from a form of mental disorder other than the form or forms specified in the application, he may furnish to the managers of the
hospital, or to the guardian, as the case may be, a report to that effect; and where a report is so furnished, the application shall have effect as if that
other form of mental disorder were specified in it.
(2) Where a report under subsection (1) above in respect of a patient detained in a hospital is to the effect that he is suffering from psychopathic
disorder or mental impairment but not from mental illness or severe mental impairment the appropriate medical officer shall include in the report a
statement of his opinion whether further medical treatment in hospital is likely to alleviate or prevent a deterioration of the patient’s condition; and
if he states that in his opinion such treatment is not likely to have that effect the authority of the managers to detain the patient shall cease …’
In all these provisions it is central to Mr Gordon’s case that in relation to psychopathic disorder they contain what he calls the treatability test, that is
to say, the requirement that medical treatment in a hospital is likely to alleviate or to prevent a deterioration in the patient’s condition.
Section 23 makes provision for discharge. This is essentially an interim discretionary power to order discharge without prescribed criteria but with
recourse to the mental health tribunal if the managers do not feel able to order discharge. This brings us to the section at the heart of this case. It is in a
part of the statute cross-headed ‘Discharge of patients’. Section 72 provides:
‘(1) Where application is made to a Mental Health Review Tribunal by or in respect of a patient who is liable to be detained under this Act, the
tribunal may in any case direct that the patient be discharged … and (b) the tribunal shall direct the discharge of a patient liable to be detained
otherwise than under section 2 above if they are satisfied—(i) that he is not then suffering from mental illness, psychopathic disorder, severe mental
impairment or mental impairment or from any of those forms of disorder of a nature or degree which makes it appropriate for him to be liable to be
detained in a hospital for medical treatment; or (ii) that it is not necessary for the health or safety of the patient or for the protection of other persons
that he should receive such treatment …
(2) In determining whether to direct the discharge of a patient detained otherwise than under section 2 above in a case not falling within
paragraph (b) of subsection (1) above, the tribunal shall have regard—(a) to the likelihood of medical treatment alleviating or preventing the
deterioration of the patient’s condition; and (b) in the case of a patient suffering from 487 mental illness or severe mental impairment, to the
likelihood of the patient, if discharged, being able to care for himself, to obtain the care he needs or to guard himself against serious exploitation …’
It is material that this part of the Act, Pt V, deals separately with criminal offenders who are restricted patients under Pt III. The court too is limited,
by s 37, to making a hospital order in relation to psychopaths only where, inter alia, the treatability test is satisfied. Section 41 empowers the court in
certain cases to make a restriction order placing further limits on the offender’s liberty. For such patients, Mr Gordon points out, separate provision is
made in s 73(1) and (2) for rights to discharge which draw, however, on s 72 for their criteria. Section 73(1) provides:
‘Where an application to a Mental Health Review Tribunal is made by a restricted patient who is subject to a restriction order, or where the case
of such a patient is referred to such a tribunal, the tribunal shall direct the absolute discharge of a patient if satisfied—(a) as to the matters
mentioned in paragraph (b)(i) or (ii) of section 72(1) above; and (b) that is it not appropriate for the patient to remain liable to be recalled to hospital
for further treatment.’
Before turning to Mr Gordon’s submissions of law and Mr Ashford-Thom’s answers to them, it is appropriate to decide whether on the mental health
review tribunal’s findings the applicant’s condition meets the treatability test. In my judgment, it does not. The tribunal have found very clearly indeed
that it is unlikely that treatment in hospital will either alleviate or prevent deterioration of the applicant’s psychopathic disorder. At best such an outcome
is in the tribunal’s view a hope or a possibility.
Having looked, at counsel’s invitation, at the medical reports, one can readily see why, although such reports do not of course bind what is an expert
tribunal. However, if it were admissible, which I do not think it is, I would reject as inconsistent with the tribunal’s expressed reasons Dr Raymond’s
affidavit evidence:
‘We considered there was a likelihood of improvement in due course and this is reflected in our decision where we say, in paragraph 4.
“However, this deterioration may in due course give way to subsequent alleviation and she may well then be willing to co-operate with appropriate
therapy.”’
The expressed reason quoted by Mr Raymond is more consistent, in my view, with Mr Gordon’s submission that the tribunal hoped that keeping the
applicant in hospital would persuade her to agree to group therapy. Such an aim, though understandable, is not a lawful ground of detention—see R v
Hallstrom, ex p W (No 2), R v Gardner, ex p L [1986] 2 All ER 306 at 314, [1986] QB 1090 at 1104, where McCullough J said:
‘Alternatively, counsel for the doctors submits, if the meaning of s 3 is ambiguous, the construction for which he contends should be adopted
because it enables doctors in such a situation to do what is, in accordance with good modern psychiatric practice, in the best interests of patients
like W, ie treat them in the community, but compel them to accept the medication which their condition requires, but which, because of their illness,
they do not think they need and therefore refuse. There is, however, no canon of construction which presumes that Parliament 488 intended that
people should, against their will, be subjected to treatment which others, however professionally competent, perceive, however sincerely and
however correctly, to be in their best interests. What there is is a canon of construction that Parliament is presumed not to enact legislation which
interferes with the liberty of the subject without making it clear that this was its intention. It goes without saying that, unless clear statutory
authority to the contrary exists, no one is to be detained in hospital or to undergo medical treatment or even to submit himself to a medical
examination without his consent. This is as true of a mentally disordered person as anyone else.’
Preamble
Before turning to the key issue, it is as well to deal with Mr Gordon’s two alternative grounds. His argument on s 72(2) of the 1983 Act, in my
judgment, is unsound. If s 72(1) does not compel the applicant’s release, s 72(2) furnishes a wide region of discretion in which treatability is no more
than a factor to which regard is to be had. There is no requirement of an affirmative likelihood of success; the likelihood may be only slender. Here the
hope or possibility found by the tribunal is enough to rule out any suggestion that there was nothing whatever under this head to which the tribunal could
have regard, and one cannot read into the section a higher test, either on grounds of rationality or statutory policy—although the latter in my view plays
an important role in relation to s 72(1).
The argument that the reasons given by the tribunal do not accord with their conclusion is a fallback which is needed only if the reasons do not, in
law, compel discharge without more. I turn therefore to that critical question.
Mr Gordon’s main argument is, in essence, that the manifest policy of the 1983 Act is that detention in hospital for medical treatment is permitted
only where those responsible are satisfied (a) that the patient is suffering from a specified form of unsoundness of mind and (b) that where that condition
is one of psychopathic disorder or mental impairment, medical treatment in hospital is likely to alleviate or prevent a deterioration in it. More shortly, the
submission is that the detention of psychopaths is lawful only where they are treatable.
Mr Ashford-Thom accepts that this is the clear effect of s 3 in relation to admission, of s 20 in relation to renewal of authority, and of s 16 in relation
to reclassification. But he founds upon a difference of wording in s 72(1)(b)(ii) for his submission that a different test applies to a mental health review
tribunal, and one which makes the present decision—accepting its meaning to be what I have held it to be—lawful. Asked to identify the legislative
policy underlying such a differential, Mr Ashford-Thom candidly admits that he cannot do so.
Nevertheless, his argument from the wording requires careful consideration. It is that the words ‘appropriate for him to be liable to be detained’ in
the material sub-paragraph do not and cannot import the entire ingredients of the earlier sections, ss 3 and 20, which authorise compulsory admission and
renewal of authority to detain: they simply refer back to how the patient has factually come to be detained. If it meant that those conditions needed still to
be present, Mr Ashford-Thom submits, a patient who recovered would be entitled to instant release. The phrase ‘appropriate for him to be’ gives the
tribunal the power to make a value judgment not of treatability but of liability to be detained. To expand the meaning of the sub-paragraph as Mr Gordon
seeks to do so as to include the treatability test would mean, Mr Ashford-Thom 489 submits, that in those other sections which do spell it out the
inclusion of the test is otiose.
Mr Gordon accepts that the treatability test is not spelt out in s 71(1)(b)(ii) but he contends that this is precisely because there is no need to do so: it
is directly imported by the phrase ‘appropriate for him to be liable to be detained in hospital for medical treatment’, since nobody suffering from
psychopathic disorder is liable to be detained or to continue to be detained if they are not treatable (see ss 3, 20, 16 and 37).
As a straightforward matter of construction I prefer Mr Gordon’s argument. Put simply, it is never ‘appropriate’ under the provisions of the 1983
Act relating to admission, renewal or reclassification for a patient to be ‘liable to be detained in a hospital for medical treatment’ for psychopathic
disorder if he or she is not at that point in time treatable. The phrase ‘appropriate for him to be liable’, while clumsy, picks up the language of ss 3 and 20
which include in their criteria for liability to detention the appropriateness of medical treatment as well as the likelihood of its being effective, and thus
reasserts the role of expert assessment by the tribunal in its turn.
The fallacy of the respondent’s construction is that it regards the tribunal hearing as a further stage at which a fresh decision to detain can be made.
But it is no such thing: as its name suggests, the mental health review tribunal is a body charged with reviewing the operative decision or decisions of the
responsible authorities to detain the patient, and its functions are to reappraise the patient’s condition as it is at the time of the hearing and in the light of
its findings to do one of three things—to direct discharge as of right, to direct discharge in the exercise of its discretion or to decline to do either. One of
Mr Gordon’s most telling points is that if on reclassification the responsible medical officer’s certificate had read:
‘In my opinion further medical treatment in hospital is not likely to alleviate or prevent deterioration of the patient’s condition’,
which on the tribunal findings it should have done, a right would instantly have arisen under s 16(2) to be discharged. How then can it be open to a
review tribunal, on so finding, to reach any different conclusion?
The meaning of the contentious sub-paragraph of s 72(1) has been touched on by this court in a decision upon which Mr Ashford-Thom places some,
though not heavy, reliance. In R v Mersey Mental Health Review Tribunal, ex p D (1987) Times, 13 April this court had before it the application of a
restricted patient, who therefore entered s 72 via s 73. The submission made on his behalf was that the tribunal’s only finding, namely that the applicant
ought to be detained in conditions of high security, was an inadequate basis for continued detention, for which a finding that detention for medical
treatment was appropriate was also necessary. The court held that, properly read, the tribunal’s findings did afford a sufficient and lawful basis for its
conclusion. The present point was not a topic of argument, but in the course of his judgment Russell LJ cited from s 145 the definition which I have
quoted above of ‘medical treatment’ and continued:
‘It is to be observed that there is no requirement that the medical treatment envisaged in ss 72 and 73 should be such medical treatment as might
have the effect of alleviating or improving the condition of the applicant. It is simply medical treatment as so defined in s 145, namely care and
habilitation and rehabilitation under medical supervision.’
490
Thus the decision turned not on liability to be detained but on what constitutes medical treatment for a person so liable. That the applicant was liable
to be detained by virtue of the finding of psychopathy notwithstanding that only containment could be prescribed was decided, if at all, sub silentio. This
court will of course follow earlier decisions of Divisional Courts on material points unless such decisions were per incuriam or plainly wrong: see R v
Greater Manchester Coroner, ex p Tal [1984] 3 All ER 240, [1985] QB 67. But the radical construction point now taken by Mr Gordon was not before
the court which decided Ex p D, and the meaning of ‘medical treatment’ adverted to by Russell LJ does not bear upon it. Decisions sub silentio are
persuasive but no more. Mr Gordon’s case looks not to the nature of the treatment envisaged but to the ingredients of the power to detain a patient for
such treatment. The two are of course related, however, so that if Mr Gordon’s construction argument is well founded, medical treatment in s 72(1)(b)(ii)
must, I would think, amount to treatment judged capable of fulfilling the treatability test. This is an outcome which will necessarily modify the outcome
of Ex p D, but will respect the fact that the definition of ‘medical treatment’ in s 145 is not exhaustive. In other words, while the s 145 meaning of
‘medical treatment’ does not necessarily involve treatability, the requirement of liability to be detained in s 72(1)(b)(ii) does.
Not being bound by any earlier decision, therefore, I would be disposed to hold that on the internal evidence of the statutory language and purposes
alone the applicant’s construction is the right one. However, if I have been too sanguine in my approach to construction, the meaning of the statute is at
best unclear, and on first principles any such doubt must be resolved in favour of personal liberty. But because this conclusion, however it is reached, has
ramifications of real public concern, it is appropriate also to consider the statute in its wider context. Can it be right that a person with a diagnosis of
Preamble
psychopathic disorder is intended to have an inalienable right to liberty unless and until they commit a criminal offence? This court is very much aware
of public concern at recent cases in which mentally disordered individuals have been set at large and have killed or maimed others, although it should be
stressed at once that these appear to have been suffers from mental illness, not psychopaths, who were treatable but, at large in the community, failed to
keep up their treatment. But if the law is clear and unequivocal, as I consider it is, in entitling psychopathic but untreatable persons to discharge from
compulsory detention, the rule of law binds this court to say so and equally requires the mental health review tribunal to give effect to it, however deep
and understandable their reservations about doing so.
It is not difficult to ascertain the underlying reasons for the legislative policy manifest in the 1983 Act. To deprive citizens of their freedom when
they have committed no crime is a drastic step, requiring clear justification. The justification in cases of psychopathy or mental impairment is, explicitly,
the likelihood that they can be therapeutically or preventively treated. For the rest, liberty is to be forfeited only on commission of a criminal offence, and
even then the Act prevents the making of a hospital order if the treatability test is not satisfied: see s 37(2)(a)(i). As Lawton LJ said in R v Oxford
Regional Mental Health Review Tribunal, ex p Secretary of State for the Home Dept [1986] 3 All ER 239 at 245, [1986] 1 WLR 1180 at 1186:
491
‘It is clear that the intention of Parliament under section 72(1)(b) was that people should not be detained in hospital when it was no longer
appropriate that they should be there for medical treatment.’
That the problem of taking their liberty from untreatable individuals on the ground that they were potentially dangerous was in the forefront of
Parliament’s mind in 1983 is clear not only from the careful framing of the 1983 Act but from the White Paper Review of the Mental Health Act 1959
(Cmnd 7320) which responded to the report of the Butler committee (Report of the Committee on Mentally Abnormal Offenders (Cmnd 6244)) and set out
the objectives and reasoning which were to inform the 1983 Act. Paragraph 1.26 of Cmnd 7320 said:
‘Comments on the Consultative Document gave little backing to the proposal that the term “personality disorder” be adopted. However, there
was considerable support for the recommendation on the conditions under which a court may make a hospital order and in particular on the need for
an expectation of therapeutic benefit from admission … the Government accepts that the Act should establish a clear requirement that psychopaths
should only be detained under compulsory powers where there is a good prospect of benefit from treatment. The present definition of psychopathic
disorder includes the wording “and requires or is susceptible to medical treatment”. The Government proposes that this should be omitted from the
definition in section 4 of the Act, since it does not seem appropriate as part of a definition, but that a “prospect of benefit from treatment”
requirement should instead be incorporated into the criteria for compulsory admission and renewal of detention.’
This reasoning reflected that of the earlier report of the Percy Commission (Royal Commission on the Law Relating to Mental Illness and Mental
Deficiency 1954–1957 (Cmnd 169)), which had concluded that apart from certain specific classes of case—
‘we do not consider that there is sufficient justification for special compulsory powers in relation to adult psychopathic patients except when
their conduct is anti-social to the extent of constituting an offence against the criminal law.’ (See para 356.)
Thus the moral dilemma highlighted by the present case, against the backdrop of public anxiety about its practical repercussions, has been very much
present to the minds of policy-makers and legislators in formulating the regime which it is this court’s duty to interpret and give effect to. It is not a case
of legislative oversight or accident.
This being so, there is only one further space into which the argument for the respondent tribunal might fit, and that is the space which Mr
Ashford-Thom seeks to find in the wording of s 72(1) of the 1983 Act for a different and wider remit for review tribunals than for those responsible for
admission, renewal or reclassification. This space too, in my view, is blocked not only on the grounds of straightforward construction which I have
already given, but on policy grounds. Article 5 of the European Convention on Human Rights provides:
‘(1) Everyone has the right to liberty and security of person. No one shall be deprived of his liberty save in the following cases and in
accordance with 492 a procedure prescribed by law … (e) the lawful detention of … persons of unsound mind …
(4) Everyone who is deprived of his liberty by arrest or detention shall be entitled to take proceedings by which the lawfulness of his detention
shall be decided speedily by a court and his release ordered if the detention is not lawful …’
Under the Mental Health Act 1959 the mental health review tribunal had the power only to recommend discharge. In X v UK (1981) 1 BMLR 98, 4
EHRR 188 the European Court of Human Rights rejected the United Kingdom government’s alternative contentions that the mental health review tribunal
was a court within art 5(4), and that habeas corpus provided sufficient safeguards to comply with art 5(4) holding, according to the accurate headnote (see
4 EHHR 188 at 189):
‘The right guaranteed by Article 5(4) to test the lawfulness of detention does not incorporate a right for the court to substitute its discretion on
all matters for that of the decision-making authority; but the scope of the judicial review must be sufficient to enable enquiry to be made whether, in
the case of the detention of a mental patient, the reasons which initially justified the detention continue thereafter to subsist. Habeas corpus
proceedings, which in the matter of the exercise of discretion by the executive are limited to enquiring into the conformity of that discretion with
the relevant statute, do not on their own secure the enjoyment to the full of the right guaranteed by Article 5(4). Moreover, that right is not secured
by the informal methods as a result of which the continuing detention of a mental patient in a secure hospital may be reviewed (i.e. intervention by
a Member of Parliament, requests by the detainee and a recommendation by the responsible medical officer), for none of these constitutes an
independent review procedure. Further, although a Mental Health Review Tribunal might be regarded as a “court” for the purposes of Article 5(4),
it could not be said to be competent to review the lawfulness of detention for those purposes as its jurisdiction was purely advisory … The right to
have the lawfulness of detention speedily decided incorporated a right under Article 5(4) to be promptly and adequately informed of the facts and
legal authority relied on to deprive him of his liberty.’
It is accepted on both sides, as I understand it, that thereafter Parliament is to be taken to have sought by its legislation to conform with the decision of the
European Court of Human Rights.
In my judgment, the construction of s 72(1) of the 1983 Act advanced by Mr Ashford-Thom would put the legislation into conflict with the
convention. It would mean that, far from being a court in which the lawfulness of a patient’s detention can be decided, a mental health review tribunal
would be a primary decision-making body judging a patient’s liability to be detained on criteria different from and wider than those by which the
Preamble
authorities whose decision is being reviewed were empowered to cause the patient to be detained. It is one thing, and a valuable thing, to allow such a
body to make fresh and up-to-date expert findings of fact. It is another to let it apply to them a legal test found nowhere else in the 1983 Act and
conflicting with the explicit policy-based criteria governing admission, renewal and reclassification. Metaphorically, it 493 would be inconsistent
with art 5 of the convention if s 72(1) of the 1983 Act had been designed to allow a review tribunal to move the goalposts.
I would therefore hold that the mental health review tribunal’s findings obliged it under s 72(1)(b) of the 1983 Act to direct the discharge of the
applicant. Pursuant to the court’s power under Ord 53 r 9(4), I would grant certiorari to quash the decision that she should continue to be detained and I
would remit the case for the substitution by the mental health review tribunal of a direction that the applicant be discharged.
MANN LJ. I agree. Section 1 (2) of the Mental Health Act 1983 defines psychopathic disorder as meaning—
‘A persistent disorder or disability of mind (whether or not including significant impairment of intelligence) which results in abnormally
aggressive or seriously irresponsible conduct on the part of the person concerned.’
There is no dispute but that applicant in this case is suffering from a psychopathic disorder. Her responsible medical officer writes in these terms:
‘Her recent dangerous behaviour and threatening correspondence suggests that she required continued detention in hospital for the purposes of
treatment. This is necessary, both in the interests of her own safety and for the protection of others, namely her ex-doctor and her children.’
A consultant psychiatrist writes in these terms:
‘It is clear that the clinical team treating [the applicant] are in a dilemma. If she were to be released from hospital there would undoubtly be
further episodes of self harm and other risky behaviours.’
Those statements of opinion are alarming. I am, however, persuaded for the reasons given by Sedley J that Parliament has enacted that an
untreatable psychopath however dangerous cannot be detained. I therefore concur in the order which Sedley J proposes.
Application allowed.

494
[1994] 1 All ER 495
Enderby v Frenchay Health Authority and another

(Case C-127/92)
EUROPEAN COMMUNITY; Social policy: EMPLOYMENT; Discrimination
COURT OF JUSTICE OF THE EUROPEAN COMMUNITIES

JUDGES DUE (PRESIDENT), MANCINI, MOITINHO DE ALMEIDA, EDWARD (PRESIDENTS OF CHAMBERS), JOLIET, SCHOCKWEILER, GRÉVISSE, ZULEEG AND MURRAY
ADVOCATE GENERAL LENZ
15 JUNE, 14 JULY, 27 OCTOBER 1993
European Economic Community – Equality of treatment of men and women – Equal pay for equal work – Objectively justified factors unrelated to
discrimination on grounds of sex – Onus of proof on employer – Whether shortage of candidates for job and need to attract suitable candidates by higher
pay constituting objectively justified economic ground for difference in pay – Whether for national court to determine whether reason for pay differential
objectively justified – Whether collective bargaining agreements sufficient justification for difference – EEC Treaty, art 119.
The applicant, a speech therapist employed by the respondent health authority at an annual salary of £10,106, claimed equality of pay with two male
comparators also employed by the health authority, a clinical psychologist receiving £12,527 per annum and a pharmacist receiving £14,106, on the
ground that she was engaged on work of equal value and that she was unlawfully discriminated against on the ground of sex. The relevant rates of pay
were those required under statute to be paid by the employers under collective bargaining agreements within the national health service and approved by
the Secretary of State. The industrial tribunal and, on appeal, the Employment Appeal Tribunal dismissed her claim, holding that the difference in pay
was the result of structures specific to each profession and that the collective bargaining arrangements were not discriminatory. The Employment Appeal
Tribunal also held that market forces played some part in the difference of pay between speech therapists and pharmacists and that that was enough to
justify the whole of the difference. On appeal the Court of Appeal referred to the Court of Justice of the European Communities for a ruling under art 177
of the EEC Treaty the questions (1) whether the principle of equal pay for men and women required the employer to prove, by providing objective
justification, that a difference in pay between two jobs assumed to be of equal value, of which one was carried out almost exclusively by women and the
other predominantly by men, did not constitute sex discrimination, (2) whether the employer could rely as sufficient justification for the difference in pay
on the fact that the rates of pay for the jobs in question had been decided by collective bargaining processes which, although carried out by the same
parties, were distinct and which, considered separately, had no discriminatory effect, and (3) to what extent, whether wholly, in part or not at all, the fact
that part of the difference in pay was attributable to a shortage of candidates for one job and to the need to attract them by higher salaries could
objectively justify that pay differential.
Preamble
Held – (1) The objective of art 119a of the EEC Treaty was equal pay for men and women for work of equal value and where significant statistics
disclosed an 495 appreciable difference in pay between two jobs of equal value, one of which was carried out almost exclusively by women and the
other predominantly by men, there was a prima facie case of discrimination and the onus was on the employer to show that that difference was based on
objectively justified factors unrelated to any discrimination on grounds of sex (see p 522 g to p 523 c and p 524 h, post); Bilka-Kaufhaus GmbH v Weber
von Hartz Case 170/84 [1986] ECR 1607 at 1627 (para 31), Kowalska v Freie und Hansestadt Hamburg Case C-33/89 [1990] ECR I-2591 at 2612 (para
16) and Nimz v Freie und Hansestadt Hamburg Case C-184/89 [1991] ECR I-297 at 320 (para 15) followed; Handels- og Kontorfunktionærernes Forbund
i Danmark v Dansk Arbejdsgiverforening, acting on behalf of Danfoss Case 109/88 [1989] ECR 3199 at 3226 (para 13) applied.
________________________________________
a Article 119, so far as material, is set out at p 498 b, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
(2) Moreover, the fact that the respective rates of pay for two jobs of equal value had been arrived at by collective bargaining processes was not
sufficient objective justification for the difference in pay between those two jobs even though the bargaining had been carried out by the same parties, was
distinct and, taken separately, had in itself no discriminatory effect (see p 523 f to h, and p 524 j, post).
(3) It was for the national court to determine, if necessary by applying the principle of proportionality, whether and to what extent the shortage of
candidates for a job and the need to attract them by higher pay constituted an objectively justified economic ground for the difference in pay between the
jobs in question (see p 524 f j to p 525 a, post); Bilka-Kaufhaus GmbH v Weber von Hartz Case 170/84 [1986] ECR 1607 at 1628 (para 36) and Nimz v
Freie und Hansestadt Hamburg Case C-184/89 [1991] ECR I-297 at 319 (para 14) applied.
Notes
For equal treatment of men and women regarding terms and conditions of employment, see 16 Halsbury’s Laws (4th edn reissue) paras 214–215 and 52
Halsbury’s Laws (4th edn) paras 21·11–21·12, and for cases on the subject, see 20 Digest (Reissue) 579–595, 4466–4523.
For the EEC Treaty, arts 119, 177, see 50 Halsbury’s Statutes (4th edn) 306, 325.
Cases cited
Arbeiterwohlfahrt der Stadt Berlin eV v Bötel Case C-360/90 [1992] ECR I-3589, [1992] IRLR 423, CJEC.
Bilka-Kaufhaus GmbH v Weber von Hartz Case 170/84 [1986] ECR 1607.
Defrenne v Sabena Case 43/75 [1981] 1 All ER 122, [1976] ECR 455, CJEC.
Dekker v Stichting Vormingscentrum voor Jong Volwassenen (VJV-Centrum) Plus Case C-177/88 [1990] ECR I-3941.
Dirección General de Defensa de la Competencia v Asociación Española de Banca Privada Case C-67/91 [1992] ECR I-4785, (1992) Times, 26
November, CJEC.
EC Commission v Belgium Case C-229/89 [1991] ECR I-2205.
EC Commission v Denmark Case 143/83 [1985] ECR 427.
EC Commission v France Case 312/86 [1988] ECR 6315.
EC Commission v UK Case 61/81 [1982] ECR 2601, [1982] ICR 578, CJEC.
EC Commission v UK Case 165/82 [1984] 1 All ER 353, [1983] ECR 3431, CJEC.
Gmurzynska-Bscher v Oberfinanzdirektion Köln Case 231/89 [1990] ECR I-4003.
Griggs v Duke Power Co (1971) 401 US 424, US SC.
Handels- og Kontorfunktionærernes Forbund i Danmark v Dansk Arbejdsgiverforening, acting on behalf of Danfoss Case 109/88 [1989] ECR 3199.
496
Jenkins v Kingsgate (Clothing Productions) Ltd Case 96/80 [1981] 1 WLR 972, [1981] ECR 911, CJEC.
Kowalska v Freie und Hansestadt Hamburg Case C-33/89 [1990] ECR I-2591.
Macarthys Ltd v Smith Case 129/79 [1981] 1 All ER 111, [1981] QB 180, [1980] 3 WLR 929, [1980] ECR 1275, CJEC.
Meilicke v ADV/ORGA F A Meyer AG Case C-83/91 [1992] ECR I-4871.
Nimz v Freie und Hansestadt Hamburg Case C-184/89 [1991] ECR I-297.
Pigs Marketing Board v Redmond Case 83/78 [1978] ECR 2347.
Rinner-Kühn v FWW Spezial-Gebäudereinigung GmbH & Co KG Case 171/88 [1989] ECR 2743.
Rummler v Dato-Druck GmbH Case 237/85 [1986] ECR 2101, [1987] ICR 774, CJEC.
Ruzius-Wilbrink v Bestuur van de Bedrijfsvereniging voor Overheidsdiensten Case 102/88 [1989] ECR 4311.
Srl CILFIT v Ministry of Health Case 283/81 [1982] ECR 3415.
Telemarsicabruzzo SpA v Circostel Joined cases C-320/90, C-321/90 and C-322/90 OJ 1993 C46, p11, (1993) Times, 10 February, CJEC.
Teuling v Bedrijfsvereniging voor de Chemische Industrie Case 30/85 [1987] ECR 2497.
Worringham v Lloyds Bank Ltd Case 69/80 [1981] 2 All ER 434, [1981] 1 WLR 950, [1981] ECR 767, CJEC.
Reference
By order dated 30 October 1991 the Court of Appeal ([1992] IRLR 15) referred to the Court of Justice of the European Communities for a preliminary
ruling under art 177 of the EEC Treaty three questions (set out at p 520 h to p 521 b, post) on the interpretation of art 119 of the Treaty, enshrining the
principle of equal pay for men and women. The questions were raised in the course of an appeal by Dr Pamela Enderby to the Court of Appeal from the
decision of the Employment Appeal Tribunal (Wood J, Mr T S Batho, Mrs M L Boyle and Mr R J Lewis) ([1991] ICR 382) on 21 December 1990
dismissing her appeal from the decision of an industrial tribunal held in London registered on 1 February 1989 hearing an original application claiming
equality of pay with two male comparators against the respondents, Frenchay Health Authority and the Secretary of State for Health. Dr Enderby, the
health authority, the United Kingdom, the German government and the EC Commission submitted written observations to the court. Oral observations
were presented to the court on behalf of Dr Enderby, by Anthony Lester QC and David Pannick QC, instructed by Robin Thompson & Partners,
solicitors, the health authority, by Eldred Tabachnik QC and Adrian Lynch, barrister, instructed by Bevan Ashford, solicitors, the United Kingdom, by
Patrick Elias QC and Eleanor Sharpston, barrister, instructed by Sue Cochrane, Treasury Solicitor’s Department, the German government, by Ernst Röder
and Claus-Dieter Quassowski, respectively Ministerialrat and Regierungsdirektor at the Federal Ministry of Economic Affairs, acting as agents, and the
Commission of the European Communities, by Karen Banks, a member of its Legal Service, acting as agent. The language of the case was English. The
facts are set out in the report for the hearing presented by the Judge Rapporteur.
Preamble
I—RELEVANT LEGISLATION AND HISTORY OF THE LITIGATION
A. Relevant provisions
1. The first paragraph of art 119 of the EEC Treaty provides:
‘Each Member State shall during the first stage ensure and subsequently maintain the application of the principle that men and women should
receive equal pay for equal work.’
Article 1 of Council Directive (EEC) 75/117 of 10 February 1975 on the approximation of the laws of the member states relating to the application of
the principle of equal pay for men and women provides:
‘The principle of equal pay for men and women outlined in Article 119 of the Treaty … means, for the same work or for work to which equal
value is attributed, the elimination of all discrimination on grounds of sex with regard to all aspects and conditions of remuneration …’
In art 4 it is provided:
‘Member States shall take the necessary measures to ensure that provisions appearing in collective agreements, wage scales, wage agreements
or individual contracts of employment which are contrary to the principle of equal pay shall be, or may be declared, null and void or may be
amended.’
2. In accordance with the regime established by the Equal Pay Act 1970, the Sex Discrimination Act 1975 and the Equal Pay (Amendment)
Regulations 1983, SI 1983/1794, contracts of employment of women in Great Britain include, or are deemed to include, an ‘equality clause’ giving them
the right to terms as favourable as those of the contract of a male worker carrying out work of equal value and serving as comparator.
However, s 1(3) of the Equal Pay Act provides that such an equality clause is not to operate if the employer proves that the variation between the
woman’s and the man’s contracts of employment is genuinely due to a factor other than the difference of sex.
Finally, s 1(1) of the Sex Discrimination Act defines the forms of discrimination, direct and indirect, against a woman. Applying to a woman a
requirement or condition which applies equally to a man but which is such that the proportion of women who can comply with it is considerably smaller
than the proportion of men, which cannot be justified irrespective of the sex of the person to whom it is applied and which is to the detriment of the
woman because she cannot comply with it, amounts to indirect discrimination.
B. Facts and procedure

1. Dr Enderby is employed as speech therapist (Chief III) by the Frenchay Health Authority (hereafter ‘FHA’) within the national health service
(hereafter ‘NHS’). She considers herself to be a victim of indirect sex discrimination due to that fact that, at her level of seniority within the NHS,
members of her profession, overwhelmingly a female profession, are appreciably less well paid than members of comparable professions in which, at an
equivalent professional level, there are more men than women.
497
2. In 1986 Dr Enderby brought proceedings against her employer before an industrial tribunal. Relying on the above-mentioned Community and
national provisions, she claimed that she was engaged in work of equal value to that of a principal clinical psychologist and a Grade III principal
pharmacist. Her annual pay was only £10,106, while those of employees in the other two professions taken as comparators were respectively £12,527 and
£14,106.
The applicant’s claim was initially dismissed on the ground that the employer was bound to respect the salary levels set by the Secretary of State for
Health in the National Health Service (Remuneration and Conditions of Service) Regulations 1974, SI 1974/296. But that dismissal was quashed in 1987
by the Divisional Court, moved by the applicant by way of judicial review, and the case was remitted to the industrial tribunal to be decided on its merits
(see R v Secretary of State for Social Services, ex p Clarke [1988] 1 CMLR 279).
In 1989 that court dismissed the application again on the ground that the differences in pay were the result of structures specific to each profession,
and in particular the separate collective bargaining arrangements, which were not discriminatory. The court, however, rejected the FHA’s argument that
the difference in pay between the speech therapists and the pharmacists was a consequence of market forces in employment, which it considered only
constituted a partial defence.
Dr Enderby then appealed to the Employment Appeal Tribunal. On 21 December 1990 that court dismissed the applicant’s appeal while allowing a
cross-appeal by the respondents based on the ‘market forces’ argument (see [1991] ICR 382). It considered that, once it had been found by the industrial
tribunal that market forces played some part in the difference in pay between speech therapists and pharmacists, that was enough to justify the whole
difference.
3. The Court of Appeal, to which the applicant then appealed, considering that the outcome of the proceedings depended on the interpretation of art
119 of the Treaty, decided to refer questions to the Court of Justice for a preliminary ruling (see [1992] IRLR 15).
In its order of 30 October 1991 the Court of Appeal first set out the facts as follows:
‘1. The complainant who is a woman does job A in a profession (speech therapy) in which the staff employed by the employer X are almost all
women and in which the holders of job A are almost all women.
2. The comparator who is a man does job B in a profession (pharmacy) in which a majority of the staff employed by the employer X are female
but where the majority of the holders of job B are men.
3. Job A and job B are different but are assumed for the purpose of these proceedings to be of equal value in terms of the demands they make
upon the job holder.
4. Employees doing job B receive higher remuneration than employees doing job A.
5. The rates of pay for the two professions (including the rates of pay for job A and job B) are and have been determined by collective
bargaining between the employer and the representative trade unions.
6. The same trade union (and the same trade union representative) represents the two professions and the collective bargaining in relation to the
pay of speech therapists (including employees in job A) is carried out 498 separately and independently from the collective bargaining in
relation to pharmacists (including employees in job B).
Preamble
7. It has been determined by the tribunal of fact that there has been no sex discrimination whether direct or indirect intentional or unintentional
in the manner in which the collective bargaining processes (considered separately) have been carried out or in regard to the arrangements for entry
or transfer into or promotion within either of the two professions.
8. Despite the absence of sex discrimination in the sense explained in paragraph 7 the system of separate collective bargaining for the two
professions has and has had an adverse impact in practice on women in that holders of job A (who are almost all women) receive lower pay than
holders of job B (who are mainly men) although the work of job A is of equal value to the work of job B.
9. The employer has established that part (being more than a de minimis part) but not the whole of the difference in pay between jobs A and B
is objectively justified by reason of a shortage of suitably qualified pharmacists.’
The Court of Appeal then asked the court the following questions:
‘Question 1
Does the principle of equal pay enshrined in Article 119 of the Treaty of Rome require the employer to justify objectively the difference in pay
between job A and job B?
Question 2
If the answer to question 1 is in the affirmative can the employer rely as sufficient justification for the difference in pay upon the fact that the
pay of jobs A and B respectively have been determined by different collective bargaining processes which (considered separately) do not
discriminate on grounds of sex and do not operate so as to disadvantage women because of their sex?
Question 3
If the employer is able to establish that at times there are serious shortages of suitable candidates for job B and that he pays the higher
remuneration to holders of job B so as to attract them to job B but it can also be established that only part of the difference in pay between job B
and job A is due to the need to attract suitable candidates to job B (a) is the whole of the difference of pay objectively justified or (b) is that part but
only that part of the difference which is due to the need to attract suitable candidates to job B objectively justified or (c) must the employer equalize
the pay of jobs A and B on the ground that he has failed to show that the whole of the difference is objectively justified?’
4. The order for reference by the Court of Appeal was received at the court registry on 17 April 1992.
Pursuant to art 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were submitted by Dr Enderby, appellant in
the main proceedings, represented by Anthony Lester QC and David Pannick QC, instructed by Robin Thompson & Partners, solicitors, the Frenchay
Health Authority, first respondent in the main proceedings, represented by Eldred Tabachnik QC and Adrian Lynch, barrister, instructed by Bevan
Ashford, solicitors, the United Kingdom, represented by Patrick Elias QC and Eleanor 499 Sharpston, barrister, instructed by Sue Cochrane, Treasury
Solicitor’s Department, the German government, represented by Ernst Röder and Claus-Dieter Quassowski, respectively Ministerialrat and
Regierungsdirektor at the Federal Ministry of Economic Affairs, and the Commission of the European Communities, represented by Karen Banks, a
member of its Legal Service, acting as agent.
Upon hearing the report of the Judge Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without any
preparatory inquiry. However, it put certain questions to the parties to the main proceedings and to the United Kingdom.
II—SUMMARY OF THE WRITTEN OBSERVATIONS SUBMITTED TO THE COURT
A. The first question

1. Dr Enderby, appellant in the main proceedings, submits that in the circumstances set out in the order of the Court of Appeal there is indirect sex
discrimination contrary to art 119 of the EEC Treaty and Directive 75/117 unless the employer can objectively justify the difference in pay. That follows
from the mere fact that a group of workers consisting almost exclusively of women is paid less than a group of workers consisting mainly of men and the
two groups do work of equal value.
According to the appellant, there is no need to establish any requirement or condition or barrier preventing the women in question from becoming
pharmacists or psychologists. As held by the Court of Appeal, the fact that the lower paid group, that of speech therapists, are almost exclusively female
is not a ‘statistical freak’ but is due to the fact that the nature of the work, which allows employees to work part-time, makes it particularly attractive to
women and the low pay makes it on the contrary especially unattractive to men.
Dr Enderby maintains that numerous cases decided by the court establish that a pay policy or practice which has an adverse impact on a group
consisting wholly or substantially of women constitutes indirect sex discrimination if the employer cannot objectively justify the difference in pay. She
cites in support of this the judgments in Bilka-Kaufhaus GmbH v Weber von Hartz Case 170/84 [1986] ECR 1607, Teuling v Bedrijfsvereniging voor de
Chemische Industrie Case 30/85 [1987] ECR 2497, Rinner-Kühn v FWW Spezial-Gebäudereinigung GmbH & Co KG Case 171/88 [1989] ECR 2743,
Ruzius-Wilbrink v Bestuur van de Bedrijfsvereniging voor Overheidsdiensten Case 102/88 [1989] ECR 4311, Kowalska v Freie und Hansestadt Hamburg
Case C-33/89 [1990] ECR I-2591, Nimz v Freie und Hansestadt Hamburg Case C-184/89 [1991] ECR I-297 and EC Commission v Belgium Case
C-229/89 [1991] ECR I-2205.
Finally, the applicant considers that the case law of the United States Supreme Court, to which the Employment Appeal Tribunal and the Court of
Appeal referred, is of little assistance in so far as it predates the Civil Rights Act 1991, which amended US legislation concerning indirect sex
discrimination wholly consistently with the above-mentioned case law of the Court of Justice.
For these reasons, Dr Enderby invites the court to answer the first question in the affirmative.
2. The Frenchay Health Authority, respondent in the main proceedings, submits that the scope of art 119 and Directive 75/117 is confined to sex
discrimination and cannot be expanded to a general principle directed to the elimination of wage differentials.
500
According to the FHA, direct sex discrimination is where the discriminator acts on grounds of sex and prima facie indirect sex discrimination occurs
where three conditions are satisfied: (a) a hurdle or a requirement applicable to men and women alike is imposed other than on grounds of sex by the
employer and has to be surmounted or satisfied in order to qualify for some advantage; (b) it is apparent that a considerably smaller proportion of
employees of one sex can surmount that hurdle or meet that requirement in comparison with the other sex, for reasons which are connected with their sex
and which may be biological, physiological or social; (c) the applicant cannot surmount the hurdle.
In the FHA’s view, it is only where there is prima facie indirect discrimination that the employer must objectively justify the hurdle imposed. If
Preamble
neither direct discrimination nor prima facie indirect discrimination can be discerned, the inequality in pay is removed from the sphere of art 119.
The respondent maintains that the findings of fact made by the industrial tribunal, from which there is no appeal on behalf of the applicant, make
wholly clear not only that there was no direct discrimination but also that no prima facie indirect discrimination existed. Furthermore, both the
Employment Appeal Tribunal and the Court of Appeal in their decisions accepted that the elements described above as constituting prima facie indirect
discrimination did not exist in the present case.
In those circumstances, employers cannot be required to provide objective justification of their professional practices since it has been established
that those practices were not influenced by considerations based on sex. The anomalies which would be entailed by such a requirement, founded on a
‘purely numerical basis’, were emphasised by the Employment Appeal Tribunal (see [1991] ICR 382 at 418).
In contrast to the appellant in the main proceedings, the FHA considers that the case law of the court does not establish that an adverse impact on a
group consisting mainly of women is sufficient in itself to trigger the requirement to provide objective justification. The judgments cited above, and
others such as Jenkins v Kingsgate (Clothing Productions) Ltd Case 96/80 [1981] 1 WLR 972 and Handels- og Kontorfunktionærernes Forbund i
Danmark v Dansk Arbejdsgiverforening, acting on behalf of Danfoss Case 109/88 [1989] ECR 3199, concerned cases where the adverse impact was not
the only issue but where hurdles to be surmounted or requirements to be satisfied were also in question.
Finally, the respondent adds that American case law since Griggs v Duke Power Co (1971) 401 US 424, discussed by the Advocate General in
Jenkins’s case [1981] ECR 911 at 936–937, supports the idea that ‘disparate impact’, that is to say indirect discrimination, requires the imposition of some
hurdle or barrier which disadvantages one group in contrast with another group. The respondent considers that UK law is also consistent with its
submissions.
Accordingly, the FHA invites the court to answer the first question in the negative, since there have been found to be no circumstances which
establish that the pay differential arises from the application of some criteria which a considerably smaller proportion of women than men can comply
with and which have discriminatory effects because of the sex of the worker concerned.
3. The United Kingdom also considers that art 119 of the Treaty is directed only at eliminating forms of discrimination on the grounds of sex and is
not a general provision requiring the elimination of all forms of pay differentiation between different groups of workers. As is illustrated by the judgment
in Macarthys Ltd v Smith Case 129/79 [1981] 1 All ER 111, [1981] QB 180, a difference in pay may be 501 attributed to factors unconnected with
any discrimination on grounds of sex. In such a case, the difference in pay does not constitute an infringement of art 119.
In this case, Dr Enderby, solely on the basis of the difference in average pay between the groups referred to and on the difference in the distribution
of workers of one or the other sex in those groups, concludes that there is a prima facie case of indirect discrimination. According to the United
Kingdom, however, indirect discrimination, as indicated by the above-mentioned cases, can only exist where criteria are used which have an adverse
impact on one sex because they are linked to that sex, for example where there are measures affecting part-time workers or where a minimum height is an
entry requirement for a job. The applicant is not claiming that the pay and pay structure of the professions which she is comparing create a hurdle which,
by its nature, impedes a much greater proportion of women than of men.
It may, it is true, be tempting to compare the fact that one has to be a pharmacist to receive the higher rate of pay with the requirement, considered in
the Bilka and Danfoss cases, that one has to work full-time to receive certain benefits. But there is, in the United Kingdom’s submission, a fundamental
difference: the competent national court found as a fact that the differences in pay between speech therapists and their comparators were not sex-related;
moreover, large numbers of women also enter the comparator professions, whose pay structures are governed by different processes of collective
bargaining.
Accordingly, the United Kingdom invites the court to reply to the first question in a way that retains the existing requirement that the applicant show
that the difference in pay is attributable to a factor that is casually related to sex in order to establish a prima facie case of indirect discrimination.
4. The German Government considers that the court may not, in order to rule on whether the unequal pay for the jobs in question infringes art 119 of
the Treaty, base itself on the assumption that those jobs are of equal value. The criteria according to which two jobs may be compared so that equal value
may be attributed to them must first be ascertained.
According to the German Government, jobs in different professions may only be regarded as comparable if it is possible to establish criteria for
comparison which can be applied by the courts. When such jobs are in the same undertaking, they may be equivalent by virtue of the fact that, for
example, they are both intended to achieve a common tangible end-product or they possess a specific common point of reference. So far as indicated in
the order for reference, the jobs of speech therapist and pharmacist do not satisfy such criteria for comparison.
The two jobs not being comparable, the German Government therefore maintains that art 119 of the EEC Treaty has not been infringed and that there
is accordingly no need to provide objective justification for the unequal pay.
5. The Commission of the European Communities considers that on the contrary the first preliminary question should be answered in the affirmative.
According to the Commission, the court’s case law, and in particular the judgments already cited, makes it clear that where a disadvantage is
imposed upon a group composed predominantly of women that disadvantage constitutes discrimination contrary to art 119 of the Treaty unless the rule
from which it derives can be objectively justified on the basis of factors having nothing to do with sex discrimination. No distinction should be made
between 502 situations in which the disadvantage derives directly from a ‘rule’ properly so called and those in which it may stem from discriminatory
assumptions or historical accident. In this case, the ‘rule’ or phenomenon which necessitates objective justification is the difference in pay between two
comparable categories of workers.
The fact that nothing indicates that on average women are less well paid than men in the professions in issue or even the fact that those professions
are in general predominantly female should not be regarded as significant. The comparison must be made solely between persons doing an equivalent job
who are in the senior grades of their respective professions.
In that context, the Commission maintains that the approach which it advocates, even if it may lead to the need to compare the objective worth of
various jobs and to justify pay differences only on the basis of statistics which may or may not be stable, is indispensable if it is desired to counter hidden
discrimination. As the court held in Rummler v Dato-Druck GmbH Case 237/85 [1986] ECR 2101 at 2114 (para 13), ‘the principle of equal pay requires
essentially that the nature of the work to be carried out be considered objectively’, which necessitates a system of objective job evaluation and
justification by employers of a failure to remunerate equally work of equal value.
Finally, the Commission considers that, in order to avoid the danger of converting the rule against sex discrimination into a general obligation of
equal pay independent of such discrimination, the court can limit the requirement of its case law to cases in which the unfavourable rule or phenomenon
has a substantially greater impact on women and where, on the other hand, a significant majority of the favoured group are men. In this case, that would
at least enable a valid comparison to be made with the group of pharmacists referred to in the order for reference since men constitute 70% of that group.
B. The second question

1. Dr Enderby submits that the employer cannot rely as sufficient justification for the difference in pay upon the fact that the pay rates derive from
different collective bargaining processes which, considered separately, do not discriminate on grounds of sex.
The appellant, who refers to the identical position taken on this point by the United Kingdom in Danfoss Case 109/88, considers that the existence of
different collective agreements cannot, of itself, provide an objective justification for a serious disparate adverse impact on women. In support of that
Preamble
view, she submits among other things that to accept the contrary would amount to denying the possible discriminatory effects of collective agreements,
notwithstanding the fact that they are specifically recognised in art 4 of Directive 75/117 and by the case law of the court.
Accordingly, Dr Enderby invites the court to answer the second question in the negative.
2. The FHA submits, on the contrary, that the existence of different collective bargaining processes is capable of providing and in the present case
does provide objective justification for the difference of pay.
In its view, since, as found by the industrial tribunal, the collective bargaining processes were reasonable and uninfluenced by direct or indirect
gender consideration, the employer can naturally rely on them to defend himself against a claim that he had discriminated in pay rates. In issue is a
process of industrial democracy in which those affected by the terms and conditions of 503 employment can participate, and in the case of the NHS,
within which there are numerous groups of employees, it is plain that separate bargaining processes for different groups are necessary. For each of the
relevant professions, many years of negotiations, supported by exhaustive studies, enabled all the factors specific to each to be taken into account, in
particular as far as concerns the qualifications required and the state of the employment market.
The respondent also refers to UK case law, which accepts that collective bargaining can constitute objective justification.
The FHA accordingly invites the court to answer the second question in the affirmative.
3. The United Kingdom also submits, referring in particular to the judgment in Bilka Case 170/84 and to the Advocate General’s opinion in Danfoss
Case 109/88, that the existence of different collective bargaining processes is in principle capable of being considered as objective justification.
Like the FHA, the United Kingdom submits that in this case such justification has been shown since the separate processes of collective bargaining
have been found as a fact to be untainted by any form of sexual discrimination.
In the alternative, it submits that the pay structures arrived at as a result of those bargaining processes reflect the undertaking’s real needs and are
appropriate for the purpose of attaining its economic objectives. That finding is, according to the United Kingdom, such as to constitute an objective
justification within the meaning of the judgment in Bilka.
4. The German Government observes in substance that there may be a conflict between the prohibition against all discrimination in art 119 of the
Treaty and the freedom of workers and employers to conclude collective agreements. The establishment of a wage structure within the framework of
those agreements takes into account very varied economic, social or geographical factors, not limited to criteria for assessing the specific job.
The German Government considers that where an employer has concluded a number of collective agreements with the same union, the fact that those
agreements are valid does not in itself automatically justify the difference in pay set in each one. If it were otherwise, the employer could easily, by
separate bargaining processes, circumvent the principle of equal pay.
However, it is possible for different collective agreements to be concluded on the basis of an objective criterion of differentiation, and accordingly
for any comparison between the jobs to be precluded. In the context, the fact that each agreement considered in isolation is apparently not discriminatory
may be significant.
5. The Commission submits that it is the result which has to be justified, not the process by which it was reached. In the judgments in Kowalska v
Freie und Hansestadt Hamburg Case C-33/89 [1990] ECR I-2591 and Nimz v Freie und Hansestadt Hamburg Case C-184/89 [1991] ECR I-297, the court
has already recognised that the fact that a rule unfavourable to women has been agreed upon by employers and workers is no reason to allow the result to
stand if, in itself, it is not justified.
In this case, it is not the difference in pay which was collectively agreed upon since the rates of pay were agreed upon in separate bargaining
processes. Even if those processes did not disclose any intention to discriminate, that observation is irrelevant to the problem in issue since, according to
the above-mentioned case law, it is necessary to focus on results and not on intentions.
504
That is why the Commission considers that the second question calls for a negative answer.
C. The third question

1. Dr Enderby submits that, since only a very small part of the pay difference is due to the state of the employment market, the employer cannot rely
on that factor to justify the difference in whole or in part (solution (c)). In the same way as it is for a woman claiming equal pay to show that her work is
of equal value, it must be for the employer to show, if he is to justify the pay difference of work of equal value, to show that the whole of the difference is
due to a gender-neutral factor.
In the alternative, the appellant submits that to the extent that the employer establishes that the difference is due to a neutral factor, such as the need
to attract suitable candidates to a job, the pay difference is only justified to that extent (solution (b)).
2. The FHA invites the court to reply that the whole of the difference in pay is justified, as held by the Employment Appeal Tribunal, by market
forces (solution (a)). It is unrealistic, illogical and artificial to ask an employer to establish what part of the wage paid is attributable to market forces.
Since such forces constrain an employer to agree to a particular level of pay in order to attract candidates it is that total amount which is entirely
explained by the state of the employment market.
In the alternative, the respondent contends that such part of the differences as can be attributed to market forces is objectively justified.
3. The United Kingdom’s position is comparable to that of the FHA.
As its principal argument, it submits that, if a national court determines that a particular salary is paid in order to attract suitable candidates, that
justifies the whole difference in pay, because the court cannot determine what would have been paid in the absence of the factor deriving from market
forces (solution (a)).
In the alternative, the United Kingdom considers that, if the national court can make such a determination, that part of the difference which is
attributable to market forces is objectively justified (solution (b)).
4. The German Government observes, in the light of the case law of the court, that it is permissible for an employer to offer higher wages to attract
workers with a particular qualification who are in short supply on the labour market. But the shortage of workers justifies the difference in pay only in so
far as necessary in order to fill the vacant post (solution (b)).
5. The Commission submits that only that part of the difference in the pay levels which is attributable to the particular need to attract candidates can
be justified on that basis (solution (b)). To allow an employer to justify the whole difference in pay by claiming that a part of it is explained by
recruitment difficulties would evidently lead to an undervaluing of the female job.
It appears however to follow from Macarthys Ltd v Smith Case 129/79 [1981] 1 All ER 111, [1981] QB 180, which rules out ‘hypothetical’
comparisons in favour of concrete situations, that the choice is between totally equal pay and no equality at all, an approach which should clearly be
applied both to a woman claiming equal pay and to an employer trying to justify the inequality. But the development of the court’s case law on the direct
effect of art 119 of the Treaty in cases of disguised discrimination should, according to the Commission, culminate in allowing an employer to justify that
part of the difference 505 corresponding to the extra amount he has to pay in order to attract suitable candidates.
III—REPLIES TO THE QUESTIONS PUT BY THE COURT

Preamble
A. Questions to Dr Enderby, the Frenchay Health Authority and the United Kingdom
The United Kingdom included as Annex 1 to its written observations a schedule of comparative information on certain grades, the percentage of
women, the pay and the conditions of service of members of the professions of speech therapist and pharmacist. Further details of that schedule are
required, in that the data relating to certain grades are for the year 1985 whereas those relating to their grades appear to be for the current period (namely
the year 1992, during which the written observations of the United Kingdom were submitted).
In particular, it is apparent from that document that in the profession of speech therapist, in 1985, the pay of Chief III Grade, in which 97·9% were
women, was between £9,175 and £10,160, while the pay of Grade 2 (points 25 to 31), in which 98·6% are women, is currently between £15,420 and
£19,512. In the profession of pharmacist, in 1985, the pay of Grade III, in which 29·23% were women, was between £13,225 and £17,829, while the pay
of Grades C, D and E (points 11 to 20), in which 79·9% are women, is currently between £20,907 and £27,909.
Dr Enderby and the Frenchay Health Authority, parties to the main proceedings, are requested to indicate whether they agree with those data and
whether they have any observations to submit on that topic.
The United Kingdom is requested to indicate: (a) whether, as far as concerns speech therapists, Grade 2 is inferior to Chief III Grade and whether, as
far as concerns pharmacists, Grades C, D and E are below Grade III; (b) if so, the reasons for which the current pay of those ‘inferior’ grades is higher
than the pay of the ‘superior’ grades in 1985; (c) if those grades are not inferior, what significance is to be attributed to a comparison between the current
circumstances of those grades and those of the other grades in 1985.
In order to remove any uncertainty as to those statistics, the court would like the United Kingdom to produce a comprehensive comparative table
indicating, for 1985, reference year for the main proceedings: the total number of speech therapists and pharmacists employed within the National Health
Service and the overall breakdown between men and women in those two professions; the number, the breakdown between men and women and the pay
of persons in Chief III Grade of the profession of speech therapist and in Grade III (or Principal III) of the profession of pharmacist; the number, the
breakdown between men and women and the pay of persons in the other grades of those professions.
The court would also like to see, if possible, a table showing the same statistics for the year 1992.
B. Replies to the questions

1. Dr Enderby, while observing that the relevant facts were agreed by the parties and approved by the Court of Appeal for the purpose of the order
for reference, has produced some information, which indicates in particular that: (a) in 1985, in the profession of speech therapist, 98% of Chief III Grade
(which was that of the appellant) and 99% of the profession as a whole were women; in 506 the profession of pharmacist, 30% of the grade ‘Principal’
(used as the point of comparison) and 63% of the profession as a whole were women; it was not disputed that in the inferior grades in those professions
the pay was similar and that in the superior grades speech therapists were significantly less well paid; (b) since 1985, speech therapists have been subject
to two successive regrading exercises: the former grade Chief III was assimilated into a new Grade C, which was then assimilated into a new Grade 2 with
25 to 33 pay points; 98·6% of Grade 2 are women and the pay of that grade is between £12,187 (point 19) and £21,103 (point 33); (c) pharmacists have
also been reclassified, but the appellant, who is no longer employed by the FHA, is not in a position to provide the court with details.
2. The Frenchay Health Authority agrees with the information provided in Annex 1 to the observations of the United Kingdom, subject to two
comments: (a) the information as to holiday entitlement for speech therapists needs to be corrected (five weeks on entry; five weeks and three days after
five years’ service; the management may grant up to three additional days before five years’ service; six weeks for staff with 30 points or more); (b) as far
as concerns the equivalence between the 1985 and 1992 grades, the FHA accepts that some health authorities accepted the assimilation of the former
Grade III into the new Grade 2 (25 to 31 points). However, it considers that, as the larger health authorities have accepted, the former Grade III equates to
the new Grade 3 (36 to 38 points), the pay of which is between £23,738 and £25,676.
3. The United Kingdom, while pointing out that the data which are relevant to the proceedings are those for 1985, has produced the following
information to the court in response the questions raised: (a) the grade structures for speech therapists and pharmacists were revised between 1985 and
1992. That revision has not resulted in an exact equivalence between the previous and the new grades, nor to a precise and automatic transfer. Its
purpose was to give competent local health authorities greater room for manoeuvre in defining the requirements of each post and in determining the
appropriate classification scale. That having been said, most health authorities concluded that the former Chief III Grade and the new Grade 2 in speech
therapy, and the former Principal III Grade and the new C, D, E and sometimes F Grades in pharmacy, should be equated. (b) Since those new grades are
not ‘inferior’ to the former grades but their approximate equivalents, it is unsurprising, given the general increase in rates of pay between 1985 and 1992,
that the corresponding rates of pay are higher. (c) The comparison between the data for 1985, which are the only data to be taken into account in these
proceedings, and those for 1992 was provided to the court by way of information, It illustrates above all the difficulty of comparing levels of pay in the
different grades of two professions which have different structures and which have been separately reclassified.
The United Kingdom has included with its replies a series of tables concerning NHS speech therapists and pharmacists in England in September
1985, which indicate in particular that: the number of employees (statistics in ‘whole time equivalent’) in speech therapy was 2,338, of which 2,296
(98·2%) were women, and in pharmacy was 2,836, of which 1,704 (60·1%) were women; the number of Chief III Grade speech therapists was 153, of
which 150 (98%) were women, and the number of Principal III Grade pharmacists was 247, of which 84 (34%) were women; in speech therapy, the pay
of the highest gradesb 507 (165 employees, of whom 160 were women) was between £10,556 and £13,770, that of the middle gradesc (1,125
employees, of whom 1,107 were women) between £8,187 and £10,160 and that of the lower gradesd (1,026 employees, of whom 1,008 were women)
between £5,754 and £8,187; in pharmacy, the pay of the highest gradese (166 employees, of whom 29 were women) was between £17,820 and £22,166,
that of the middle gradesf (125 employees, of whom 27 were women) between £16,805 and £19,850 and that of the lower gradesg (2,537 employees, of
whom 1,643 were women) between £7,014 and £17,829.
________________________________________
b This category comprises grades Chief II, Chief I and Senior Chief
c Senior I, Chief IV and Chief III
d Graduate Entry and Senior II
e This category comprises Pharmaceutical Officers, Area Pharmaceutical Officers and Regional Pharmaceutical Officers
f Principal Pharmaceutical Officer Grade 4 and Principal Pharmaceutical Officer Grade 5
g Basic Grade Pharmacist, Staff Pharmacist and Principal Grade III Pharmacist
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
A series of tables covers the same information for March 1992, and indicates in particular that: the number of employees in speech therapy was
2,936, of which 2,879 (98%) were women, and in pharmacy was 3,153, of which 2,007 (63·7%) were women; the number of Grade 2 speech therapists
Preamble
was 2,090, of which 2,059 (98%) were women, and the number of Grade C to F pharmacists was 2,103, of which 1,445 (68·7%) were women; in speech
therapy, the pay of Grade 3 (459 employees, of whom 446 were women) was between £21,103 and £30,036, that of Grade 2 (2,090 employees, of whom
2,059 were women) between £12,187 and £21,103 and that of Grade 1 (211 employees, of whom 203 were women) £11,718; in pharmacy, the pay of
Grades G and H (215 employees, of whom 40 were women) was between £31,799 and £38,801, that of Grades E and F (783 employees, of whom 357
were women) between £25,275 and £33,355 and that of Grades A to D (2,154 employees, of whom 1,610 were women) between £13,905 and £26,353.
Finally, the United Kingdom has provided some corrections to the schedule of comparative information included as Annex 1 to its written
observations. Apart from those concerning holiday entitlement, already indicated by the FHA, those corrections concern in substance the current
classification of the grades compared (points 25 to 28 instead of 25 to 31 in Grade 2 in speech therapy and Grade F added to Grades C, D and E in
pharmacy).
14 July 1993. The Advocate General (C O Lenz) delivered the following opinionh.
________________________________________
h Translated from the German
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
A. Introduction
1. The reference by the Court of Appeal for a preliminary ruling in this case is concerned with the interpretation and application of the principle of
equal pay for men and women laid down in art 119 of the EEC Treaty. The Court of Appeal has summarised the relevant facts as follows:
‘1. The complainant who is a woman does job A in a profession (speech therapy) in which the staff employed by the employer X are almost all
women and in which the holders of job A are almost all women.
508
2. The comparator who is a man does job B in a profession (pharmacy) in which a majority of the staff employed by the employer X are female
but where the majority of the holders of job B are men.
3. Job A and job B are different but are assumed for the purpose of these proceedings to be of equal value in terms of the demands they make
upon the job holder.
4. Employees doing job B receive higher remuneration than employees doing job A.
5. The rates of pay for the two professions (including the rates of pay for job A and job B) are and have been determined by collective
bargaining between the employer and the representative trade unions.
6. The same trade union (and the same trade union representative) represents the two professions and the collective bargaining in relation to the
pay of speech therapists (including employees in job A) is carried out separately and independently from the collective bargaining in relation to
pharmacists (including employees in job B).
7. It has been determined by the tribunal of fact that there has been no sex discrimination whether direct or indirect intentional or unintentional
in the manner in which the collective bargaining processes (considered separately) have been carried out or in regard to the arrangements for entry
or transfer into or promotion within either of the two professions.
8. Despite the absence of sex discrimination in the sense explained in paragraph 7 the system of separate collective bargaining for the two
professions has and has had an adverse impact in practice on women in that holders of job A (who are almost all women) receive lower pay than
holders of job B (who are mainly men) although the work of job A is of equal value to the work of job B.
9. The employer has established that part (being more than a de minimis part) but not the whole of the difference in pay between jobs A and B
is objectively justified by reason of a shortage of suitably qualified pharmacists.’
2. The Court of Appeal then asked the Court of Justice the following questions:
‘Question 1
Question 2
Question 3
and 509 job A is due to the need to attract suitable candidates to job B (a) is the whole of the difference of pay objectively justified or (b) is that
part but only that part of the difference which is due to the need to attract suitable candidates to job B objectively justified or (c) must the employer
equalize the pay of jobs A and B on the ground that he has failed to show that the whole of the difference is objectively justified?’
3. The parties have submitted their observations on those questions, as described in the report for the hearing (see pp 501–507, ante). Details of the
facts, as set out in the written observations of the parties, and the positions adopted by the parties will be reproduced hereinafter only in so far as is
necessary for the purposes of the argument.
B. Analysis
PRELIMINARY OBSERVATIONS
4. The Court of Appeal has not based the reference expressly either on a case of direct or a case of indirect sex discrimination. The parties’
Preamble
arguments appear to fall within the legal framework of indirect discrimination. According to the Court of Appeal’s statement of the relevant facts, the
tribunal of fact considered that neither intentional or unintentional direct discrimination nor intentional or unintentional indirect discrimination had been
proved. It cannot be established with certainty whether the appeal to the Court of Appeal by the plaintiff in the main proceedings has resulted in the
subject matter of the proceedings being actually restricted to particular forms of discrimination. The appraisal of the case must be based on the statement
of the facts of the court making the reference which is authoritative for the purposes of the Court of Justice.
THE ASSUMPTION THAT THE JOBS ARE OF EQUAL VALUE

5. The court must also proceed on the Court of Appeal’s premise that job A and job B are to be considered to be of equal value for the purposes of
the proceedings. The existence of the same work or work to which equal value is attributed within the meaning of art 1 of Council Directive (EEC)
75/117 on the approximation of the laws of the member states relating to the application of the principle of equal pay for men and women, which to that
extent facilitates the practical application of the principle of equal pay laid down in art 119 of the EEC Treaty, is fundamental to a claim that there has
been sex discrimination with regard to pay (see Jenkins v Kingsgate (Clothing Productions) Ltd Case 96/80 [1981] 1 WLR 972 at 984 (para 22)).
6. The reservations of the German Government regarding the assumption that the jobs being compared are of equal value are indeed probably due to
the fact that a major part of the burden of making out a case and the burden of proof which are incumbent on a plaintiff alleging pay discrimination relates
to the work being the same or of equal value.
7. The fact that the Court of Appeal, like the lower courts hearing the case, assumed the equal value of the jobs to be compared is a result of the
possibilities afforded by the procedural rules in the legal system of the member state concerned. Examination whether two jobs are of equal value may
sometimes entail an extensive and costly study. Under national procedural law the hearing of evidence can be postponed pending the consideration of
points of law.
510
THE COMPARABILITY OF THE JOBS

8. It was stated in the course of these proceedings that under the law of the member state concerned it is in principle possible to have a report made
on whether different jobs performed in the same undertaking or in any case for the same employer are of equal value. Only if the jobs are manifestly not
comparable may the court decline to have their comparability examined.
9. The German Government’s reservations that only comparable circumstances can and may be compared ought to be taken into account, first, when
the admissibility of the comparative study is considered and, secondly, when the comparability is examined.
10. In the circumstances of the present case, it cannot be assumed that the jobs are manifestly incomparable. The main proceedings are concerned
not with an abstract comparison between the jobs of members of two professional groups, namely speech therapists on the one hand and pharmacists on
the other, but with a comparison between particular jobs specified by reference to actual name persons who are performing those jobs. Apart from the
criterion of the profession of which they form part, the jobs being compared are also classified by reference to further material characteristics, such as
their position within the hierarchy, management function, responsibility etc, the comparison being one expressly relating to particular managerial posts.
Comparisons of that type are moreover customary for grading purposes in the public service, whether for civil servants or military personnel.
11. Under these circumstances, the factual premises cannot be regarded as improper. There is certainly no indication of an overhasty approach to the
constituent elements of pay discrimination, which must be carefully examined.
12. Moreover, since consideration of the relevance to the case pending before it of the question for a preliminary ruling lies in principle within the
discretion of the court making the reference (Pigs Marketing Board v Redmond Case 83/78 [1978] ECR 2347; Srl CILFIT v Ministry of Health Case
283/81 [1982] ECR 3415) and there are no indications of that power being misused (Gmurzynska-Bscher v Oberfinanzdirektion Köln Case 231/89 [1990]
ECR I-4003 at 4016–4018 (paras 15–26)), the Court of Justice cannot depart from the premises set out by the national court in its order for reference,
which circumscribe the factual and legal context of the questions to be answered by the Court of Justice (Telemarsicabruzzo SpA v Circostel Joined cases
C-320/90, C-321/90 and C-322/90 OJ 1993 C46, p11, (1993) Times, 10 February (para 6 of judgment)).
THE FIRST QUESTION
Preliminary comments
13. The first question in the order for reference is concerned with the apportionment of the burden of proof in a case of alleged pay discrimination.
The extent of the burden of making out a case and the burden of proof which are incumbent on the parties in a dispute concerning sex-related pay
discrimination can differ according to whether the case is one of direct or indirect discrimination. I refer to my opinion in Handels- og
Kontorfunktionærernes Forbund i Danmark v Dansk Arbejdsgiverforening, acting on behalf of Danfoss Case 109/88 [1989] ECR 3199 at 3212–3217
(paras 25–47) with regard to the basic criteria for distinguishing between those two forms of sex discrimination and the associated requirements as to
making out a case and the burden of proof in the proceedings.
511
14. From the description of the facts in the main proceedings it is not clear whether those proceedings concern a case of indirect or direct
discrimination. The basic legal position is that art 119 of the EEC Treaty and the directives adopted for its implementation (see in particular art 1 of
Directive 75/117 and art 2 of Council Directive (EEC) 76/207 of 9 February 1976 on the implementation of the principle of equal treatment for men and
women as regards access to employment, vocational training and promotion, and working conditions), as interpreted and applied by the Court of Justice,
prohibit all forms of sex-related discrimination. (In the court’s earlier case law it was at least doubtful whether both direct and indirect discrimination fell
directly within the scope of art 119 of the EEC Treaty: see Defrenne v Sabena Case 43/75 [1981] 1 All ER 122 at 134 (para 23) and Macarthys Ltd v
Smith Case 129/79 [1981] 1 All ER 111 at 119, [1981] QB 180 at 198–199 (para 15). Since the judgments in Worringham v Lloyds Bank Ltd Case 69/80
[1981] 2 All ER 434 at 447, [1981] 1 WLR 950 at 969 (para 23) and Jenkins v Kingsgate (Clothing Productions) Ltd Case 96/80 [1981] 1 WLR 972 at
983 (para 17), the court has regarded indirect discrimination as being expressly caught by art 119 of the EEC Treaty.) Sex-related pay discrimination
takes various forms, the categorisation of which can pose a legal problem. In order to render them susceptible to legal categorisation, the courts have
adopted the categories of direct and indirect discrimination. The conceptual scheme applied should in no way be construed in the sense of any
exclusiveness of possible forms of sex discrimination. A glance at the conceptual scheme applied in these proceedings under the laws of the United
Kingdom bears this out. The reference there to intentional or unintentional direct discrimination and to intentional or unintentional indirect discrimination
shows that there are four possible ways of categorising the same phenomenon for legal purposes.
15. The purpose of a conceptual scheme is to comprehend methods by which women are placed at a disadvantage in their working lives and not to
create additional obstacles to claims being made before the courts in respect of sex-related pay discrimination. For this reason, a formalistic approach
should not be adopted when categorising actual instances where women are placed at a disadvantage at work. In accordance with the result-orientated
Preamble
line taken by the Court of Justice in the past, a pragmatic approach ought to be pursued. (On the obligation as to the result to be achieved laid down in art
119 of the EEC Treaty, see Defrenne Case 43/75, Rinner-Kühn v FWW Spezial-Gebäudereinigung GmbH & Co KG Case 171/88 [1989] ECR 2743 at
2760 (para 9) and the case law on indirect discrimination in general: Jenkins v Kingsgate (Clothing Productions) Ltd Case 96/80 [1981] 1 WLR 972,
Bilka-Kaufhaus GmbH v Weber von Hartz Case 170/84 [1986] ECR 1607, Kowalska v Freie und Hansestadt Hamburg Case C-33/89 [1990] ECR I-2591,
Nimz v Freie und Hansestadt Hamburg Case C-184/89 [1991] ECR I-297 and Arbeiterwohlfahrt der Stadt Berlin eV v Bötel Case C-360/90 [1992] ECR
I-3589.)
16. For example, in its judgment in Danfoss Case 109/88 the court did not expressly base itself on any of the sex discrimination concepts set out in
its previous case law but gave an answer couched in general terms to the question posed in that case regarding the burden of proof, although there was
there certainly cause for doubt as to whether it was direct or indirect sex discrimination that was in issue.
17. The present case is a good illustration of the difficulties caused by the classification of an actual phenomenon within one of the concepts, whilst
in the 512 result a woman can be clearly seen to be paid less than a man doing work of equal value for the same employer.
18. Nevertheless, in the following examination I will take as my starting point the conceptual scheme hitherto adopted by the court.
The burden of proof in cases of direct discrimination

19. In cases of direct discrimination it is necessary and sufficient to carry out an actual comparison of the pay received by a female employee and
that received by a male employee performing for the same employer work which is the same or of equal value. During the course of the proceedings the
plaintiff must put forward a male comparator from the same undertaking who is doing work which is the same or of equal value and who is being paid
more. (In cases of direct discrimination on the basis of the criterion of sex the requirement for a male comparator to be adduced may even not apply: see
Dekker v Stichting Vormingscentrum voor Jong Volwassenen (VJV-Centrum) Plus Case C-177/88 [1990] ECR I-3941 at 3974 (paras 17–18).)
20. Since in the case of direct discrimination sex is, by definition, the cause of the less favourable pay or treatment, there must also exist a causal
connection between the sex of the worker and the lower pay.
21. It is questionable whether the plaintiff bears the full burden of proof for establishing that causal connection. As the categorisation into
unconscious/unintentional direct discrimination shows, forms of direct sex discrimination are quite conceivable without sex being expressly mentioned in
the contract of employment, pay scales or collective agreement as the criterion for the higher or lower pay. The conceptual scheme of that category
makes it clear that discrimination does not even have to have been intentional.
22. The allocation of particular wage or salary scales to particular jobs can result in direct discrimination. Reference may here be made simply to the
classic example of a physically demanding job which requires the use of considerable effort in comparison with a job which requires a high degree of
manual dexterity. (On the permissible distinctions in rates of pay and on a non-discriminatory arrangement of the pay-rate classification system, see the
judgment in Rummler v Dato-Druck GmbH Case 237/85 [1986] ECR 2101 at 2117–2118 (paras 24–25).) Direct sex discrimination can be caused by the
adoption of distinguishing criteria of that kind for the purposes of pay. In order to prevent that, the test of work of equal value was expressly adopted as a
constituent factor under art 1 of Directive 75/117 (see the judgment in Rummler [1986] ECR 2101 at 2114–2115 (paras 11–17)). That is why the
Commission, when monitoring the implementation of the directive into national law, attached great importance to the inclusion in the legislation of the
member states of the criterion of work of equal value, and it received the full support of the Court of Justice in so doing (see EC Commission v UK Case
61/81 [1982] ECR 2601 and EC Commission v Denmark Case 143/83 [1985] ECR 427).
23. Since that form of direct pay discrimination is not expressly based on the sex of the worker, a female worker claiming equal pay encounters
evidential difficulties if she has to prove the causal connection between her sex and the lower pay.
24. Nor can the onus of proof be discharged by showing there were no other reasons for the unequal treatment. That would amount to proving a
negative which in principle cannot be required. For those reasons, when all the objective elements of discriminatory pay (work that is the same or of
equal value, lower 513 pay for a woman when compared with a man in the same undertaking) have been proved, there should be a rebuttable
presumption of sex discrimination.
25. As stated in para 19 above, therefore, it is sufficient for the plaintiff to prove an example of the same (or equivalent) work by a man being better
paid than that by a woman. It is then for the employer to furnish counter-evidence, for example by adducing objective grounds for the unequal pay which
are not based on the sex of the recipient.
26. It may be concluded at this stage, therefore, that in cases of direct discrimination, the employer must objectively justify difference in pay.
Indirect discrimination
27. The concept of indirect discrimination is a legal concept which enables cases of unequal treatment, for which there is an objective justification
but which in fact result in the woman being disadvantaged, to be included as an instance of unlawful sex discrimination.
28. The contention that amongst the factual ingredients of indirect discrimination there must be a requirement or a hurdle which is more difficult for
women to meet or to overcome and therefore results in women being disadvantaged (this is the position adopted by the United Kingdom and the
defendant in these proceedings) is only partly applicable to the nature of indirect discrimination. The fact that the application of an objective criterion
results in women being disadvantaged means that, for the disadvantage to be remedied, the very use of the objective criterion must be classified as part of
the unlawful conduct. In cases in which it is established that a group of women is being disadvantaged in comparison with a group of male workers
(doing work which is the same or of equal value in the same plant or undertaking) no additional factor, whereby unequal treatment is applied, need be
required.
29. In the cases concerning indirect discrimination hitherto brought before the court the disadvantaging of female workers was effected by reference
to an objective criterion (see Jenkins Case 96/80, Bilka Case 170/84, Rinner-Kühn Case 171/88, Kowalska Case C-33/89, Nimz Case C-184/89 and Bötel
Case C-360/90).
30. The resultant disadvantage arose from the fact that women were affected by the criterion more than men. The court has accepted as the cause of
that effect reasons linked to the social role of women. For example when the court considers indirect discrimination against women to be possible in the
reference to the characteristics of part-time employment ‘taking into account the difficulties encountered by women workers in working full-time’ (see
Bilka Case 170/84 [1986] ECR 1607 at 1627 (para 29); a substantively similar approach was set out in Jenkins Case 96/80 [1981] 1 WLR 972 at 983 (para
13); see also Bötel Case 360/90 [1992] IRLR 423 at 426 (para 18) with reference to the judgment in Rinner-Kühn Case 171/88), it is thereby recognising
that, as a result of their role in the family and in the bringing-up of children, women regularly meet considerable difficulties in working full-time. If under
those circumstances women have to rely on part-time employment, then the link to part-time employment affects women specifically.
31. At first sight a link to an objective criterion through which the discrimination is caused cannot be identified from the facts underlying the
reference for a preliminary ruling. The case to be decided is, however, characterised by the particularity that the professional group to which the plaintiff
belongs is a ‘purely female profession’. If 98% of all persons engaged in 514 that profession are women, then rules that are linked to membership of
the professional group can be rules specifically relating to women.
32. The plaintiff’s representative is correct in stating that in the case of a purely female profession the link to member ship of that profession can
Preamble
have effects which are similar to a link with part-time work. According to the information before the court, the fact that speech therapists are almost
exclusively women is also at least partly due to the connection between the social role of women and work. The opportunities of working part-time and
of flexible arrangement of working hours are particularly attractive to women.
33. A collective agreement, which in those circumstances includes rules applying exclusively to that professional group, may also represent rules
specifically relating to women.
34. If, on a purely formal view, in the course of the examination of a case of indirect discrimination, the existence of a reference criterion affecting
women as a group in a particular way is required, in the case of a ‘purely female profession’ that can be both the link to the membership of the profession
and also to the collective agreement relating to that profession.
35. As I have already stated in my basic comments regarding the nature of indirect discrimination, attention should be directed less to the existence
of a requirement or a hurdle by means of which women suffer a disadvantage, and more to the discriminatory result. (On the obligation as to the result to
be achieved, see Defrenne Case 43/75 and Rinner-Kühn Case 171/88 [1989] ECR 2743 at 2760 (para 9)). Against that background, it is part of the nature
of indirect discrimination that a comparison between the sexual groups is carried out in order to determine the alleged discriminatory effect (see also
Rinner-Kühn). With regard to the allocation of the burdens in the proceedings, that signifies that an actual comparison between two jobs is not sufficient.
What is called for is a comparison between representative groups of employees, each doing work of equal value.
36. In the case of the main proceedings that would require a comparison between particular managerial posts and that has in fact evidently been
commissioned. If it reveals that the group consisting principally of women suffered a significant disadvantage when compared with the male group
comparator, a presumption of indirect sex discrimination will thus arise.
37. According to the court’s case law (see Jenkins Case 96/80 [1981] 1 WLR 972 at 983 (para 13), Bilka Case 170/84 [1986] ECR 1607 at 1627
(para 31), Rinner-Kühn Case 171/88 [1989] ECR 2743 at 2760–2761 (para 12), Kowalska Case C-33/89 [1990] ECR I-2591 at 2611 (para 13), Nimz Case
C-184/89 [1991] ECR I-297 at 319 (para 14) and Bötel Case C-360/90 [1992] IRLR 423 at 426 (para 21)), the employer, in order to avoid the charge of
sex discrimination, would have to show that the measures that have led to that result were ‘based on objectively justified factors unrelated to any
discrimination on grounds of sex’ (see Bilka [1986] ECR 1607 at 1627 (para 31)) or could ‘be explained by factors which exclude any discrimination on
grounds of sex’ (see Jenkins [1981] 1 WLR 972 at 9983 (para 13) and Bilka [1986] ECR 1607 at 1627 (para 29)).
38. In a context of indirect discrimination the plaintiff can therefore also, by proving objective facts, raise a rebuttable presumption of sex
discrimination.
39. The structure of the reasoning for both direct discrimination and indirect discrimination is comparable with regard to the evidentiary aspect of the
proceedings inasmuch as a rebuttable presumption of discrimination can be raised, in one case by means of a specific comparison and, in the other, by a
515 comparison of groups, which places the onus on the employer to adduce evidence in rebuttal of that presumption or to produce a justification.
40. The answer to the first question in the order for reference must therefore be that the principle of equal pay enshrined in art 119 of the EEC Treaty
required the employer to justify objectively the difference in pay between job A and job B.
THE SECOND QUESTION

41. The Court of Appeal’s second question is concerned with how such a difference can be justified. The Court of Appeal would like to know
whether the difference in pay can be sufficiently justified by the fact that ‘the pay of jobs A and B respectively have been determined by different
collective bargaining processes being processes which (considered separately) do not discriminate on grounds of sex and do not operate so as to
disadvantage women because of their sex’.
42. The starting point must be that the principle of equal pay under art 119 of the EEC Treaty, as embodied in art 1 of Directive 75/117, is a superior
principle of law which the parties to a collective agreement cannot choose to disregard. The principle of equal pay is not only binding on the legislature
(see Rinner-Kühn Case 171/88 and Bötel Case C-360/90) but has been held by the court to be directly applicable (see Defrenne Case 43/75 [1981] 1 All
ER 122 at 135 (para 39)). Consequently the principle has effects in the relations between employer and employee (see Defrenne Case 43/75 and
Kowalska Case C-33/89 [1990] ECR I-2591 at 2611 (para 12)). See also art 4 of Directive 75/117 and art 5 of Directive 76/207 on the implementation of
the principle of equal treatment for men and women as regards access to employment, vocational training and promotion, and working conditions).
Collective agreements must also stand up to scrutiny under art 119 of the EEC Treaty (see EC Commission v Denmark Case 143/83 on the relevant
provisions of Directive 75/117; EC Commission v UK Case 165/82 [1984] 1 All ER 353 at 362–363 (para 11) and EC Commission v France Case 312/86
[1988] ECR 6315 at 6338 (para 23) on the relevant provisions of Directive 76/207; Danfoss Case 109/88, Kowalska Case C-33/89 and Nimz Case
C-184/89). The fact that the parties to the collective agreement are acting independently does not remove the need for them to observe the principle of
equal pay.
43. The Court of Appeal’s question asks in effect whether the fact that the jobs being compared fall within the scope of different collective
agreements is of itself a sufficient justification for the sex-related difference in salary which has been found to exist.
44. At the hearing the United Kingdom referred to what I said in my opinion in Danfoss Case 109/88 [1989] ECR 3199 at 3217 (para 46). I there
took the view that in the case of collective agreements negotiated and concluded for branches of trade or industry, membership of the particular branch
could serve as the objective distinguishing criterion for the difference in pay.
45. The representative of the German Government referred at the hearing to the collective agreements between associations (Verbandstarifverträge)
which are common in Germany and contended that a comparison between two jobs which fall within the scope of different collective agreements is not
permissible.
46. As I have already stated in my opinion in Case 109/88, I believe that in that type of collective agreement the very factor of work which is the
same or of equal value may be lacking. Moreover, objective justification for any differences in pay may be deduced from the conduct of the negotiations
for the collective agreement and from the collective agreement itself.
516
47. The justification cannot however be so extensive that a difference in pay which has arisen within the scope of two collective agreements would
be altogether excluded from review. That applies in particular in the case of collective agreements within the same firm where one element in the
principle of equal pay is present in so far as the employer is the same.
48. The particular facts of the main proceedings clearly reveal how, by means of a collective agreement concluded for only one professional group, a
special rule can be adopted which, in the present case, can even take effect as a rule relating specifically to women. Inasmuch as the collective agreement
itself is apt to produce inequality of treatment, it cannot at the same time serve as a justification for that same inequality of treatment. In those
circumstances the fact that the collective agreement exists does not render further examination unnecessary.
49. Nor does the finding that the negotiations for each of the collective agreements were carried out in a non-discriminatory manner and the
negotiated collective agreements are arranged in a non-discriminatory way suffice in itself to justify a difference in pay for work of equal value for the
same employer. Since justification of the discriminatory result is called for (see Defrenne Case 43/75 and Rinner-Kühn Case 171/88), it cannot be
sufficient to explain the causes leading to the discrimination. In particular, references to historical and social reasons cannot, in a case such as the main
Preamble
proceedings, be recognised as factors ‘which are objectively justified and unconnected with discrimination on the grounds of sex’ (see Bilka Case 170/84
[1986] ECR 1607 at 1627 (para 31)). The historical and social context of a purely ‘female profession’ is most probably sex-related. If an explanatory
approach were accepted as sufficient justification, that would lead to the perpetuation of sexual roles in working life. Instead of the equality of treatment
which is sought, there would be afforded a legal argument for maintaining the status quo.
50. The second question must therefore be answered as follows: it is not sufficient justification for the difference in pay for the common employer to
refer to the existence of different collective agreements even if, considered separately, neither discriminates on grounds of sex.
THE THIRD QUESTION

51. Finally, with its third question the Court of Appeal seeks to find out what other reasons can be adduced to justify objectively the difference in
pay and the extent to which they apply.
52. First of all, it cannot be disputed that an employer may be compelled by the state of the labour market to offer higher remuneration for members
of a particular professional group in order to attract suitable applicants. Inasmuch as the need for that enhanced rate of pay is justified, it must also be
taken into account when comparing pay for jobs A and B within the meaning of the order for reference. The only question then is the extent to which the
objective reason can serve to justify the difference in pay.
53. If a pro rata justification is to be permitted, the effect of the objective criterion on the level of pay must be quantifiable. The Employment Appeal
Tribunal, the United Kingdom and the defendant were all of the opinion that a series of factors go to determine the level of pay and it is not possible to
ascribe a particular amount to any one of those factors. But elsewhere it is asserted that the requirements of the labour market justify a difference in pay
of at most 10% (the plaintiff’s contention; also reproduced in the judgment of the Court of Appeal preceding the reference for a preliminary ruling: see
[1992] IRLR 15 at 517 22). On that basis it would appear to be quantifiable. The very fact that several factors influence the level of pay ought to
make it possible to ascribe part of the pay to each of those factors.
54. The only appropriate solution to the problem is, in my opinion, to recognise that the difference in pay is justified in part. An unlimited obligation
on the employer to equalise pay despite partial justification of the difference in pay (option (c)) would disregard the objective justification which has been
alleged and ought to be accepted. Blanket justification of any difference in pay (option (a)) would however go far beyond the justification which is
permissible and recognised. Inasmuch as it must be assumed that several factors influence the level of pay offered, blanket justification would also cover
other reasons which would mean abandoning to that extent an examination of the objective justification which may will be supplied by other factors.
55. If one factor, which is not the cause of the whole of the difference in pay, were allowed to justify the whole difference, that would again leave
open the door to potential discrimination.
56. In so far as the Commission’s observations reveal any reservations that a pro rata justification would lead to a hypothetical comparison which the
Court of Justice has not permitted in another context (see Macarthys Ltd v Smith Case 129/79 [1981] 1 All ER 111 at 119, [1981] QB 180 at 198–199
(para 15)), I am unable to share such doubts.
57. Although the court did not permit a plaintiff in a case concerning equal treatment to compare pay or conditions of employment with a
hypothetical comparator (see Macarthys Case 129/79), that is a substantively different situation from the position where the employer, on the basis of the
comparison undertaken and the evidence adduced therefor, is obliged to provide evidence in rebuttal or to justify his pay policy and, accordingly the
extent of an actual, existing justificatory factor falls to be assessed.
58. A court called on to assess the objective justification should seek to quantify the relevant factors. Where there are any difficulties in establishing
the respective figures, the court must use its discretion to carry out an apportionment in accordance with the rules on the free evaluation of evidence.
59. The third question must therefore be answered as follows: if the employer is able to establish that at a given time there is a considerable shortage
of suitable candidates for job B and that he pays the higher remuneration to holders of job B so as to attract them to job B but it can also be established
that only part of the difference in pay between job B and job A is attributable to the need to attract suitable candidates to job B, only that part of the
difference which is attributable to the need to attract suitable candidates to job B is objectively justified.
C. Conclusion
60. In summary I propose that the questions referred for a preliminary ruling be answered as follows:
‘1. The principle of equal pay enshrined in Article 119 of the Treaty of Rome requires the employer to justify objectively the difference in pay
between job A and job B.
2. It is not sufficient justification for the difference in pay for the common employer to refer to the existence of different collective agreements
even if, considered separately, neither discriminates on grounds of sex.
518
3. If the employer is able to establish that at a given time there is a considerable shortage of suitable candidates for job B and that he pays the
higher remuneration to holders of job B so as to attract them to job B but it can also be established that only part of the difference in pay between
job B and job A is attributable to the need to attract suitable candidates to job B, only that part of the difference which is attributable to the need to
attract suitable candidates to job B is objectively justified.’
27 October 1993. THE COURT OF JUSTICE delivered the following judgment.

1. By order of 30 October 1991, received by the Court of Justice on 17 April 1992, the Court of Appeal of England and Wales, pursuant to art 177 of
the EEC Treaty, referred for a preliminary ruling questions concerning the interpretation of art 119 of the Treaty, enshrining the principle of equal pay for
men and women.
2. Those questions were referred in the context of proceedings brought by Dr Pamela Enderby against the Frenchay Health Authority (hereinafter
‘FHA’) and the Secretary of State for Health concerning the difference in pay between two jobs within the National Health Service (hereinafter ‘NHS’).
3. The appellant in the main proceedings, who is employed as a speech therapist by the FHA, considers that she is a victim of sex discrimination due
to the fact that at her level of seniority within the NHS (Chief III) members of her profession, which is overwhelmingly a female profession, are
appreciably less well paid than members of comparable professions in which, at an equivalent professional level, there are more men than women. In
1986 she brought proceedings against her employer before an industrial tribunal, claiming that her annual pay was only £10,106 while that of a principal
clinical psychologist and of a Grade III principal pharmacist, jobs which were of equal value to hers, was £12,527 and £14,106 respectively.
4. Dr Enderby’s claim was dismissed by the industrial tribunal and then, on appeal, by the Employment Appeal Tribunal (see [1991] ICR 383). The
industrial tribunal considered that the differences in pay were the result of structures specific to each profession, and in particular the separate collective
bargaining arrangements, which were not discriminatory. The Appeal Tribunal also considered that the differences were not attributable to
discrimination. It held further that it had been established that the state of the employment market played some part in the difference in pay between
speech therapists and pharmacists and that that was enough to justify the whole of the difference between those two professions.
Preamble
5. On appeal, the Court of Appeal, considering the outcome of the proceedings depended on the interpretation of art 119 of the Treaty, decided to
refer questions to the Court of Justice for a preliminary ruling (see [1992] IRLR 15). In the statement of facts in its order, the Court of Appeal defined the
job of principal speech therapist as ‘job A’ and that of principal pharmacist as ‘job B’, and assumed for the purpose of the present proceedings that those
two different jobs were of equal value. It then asked the following questions:
‘Question 1
519
Question 2
Question 3
and job A is due to the need to attract suitable candidates to job B (a) is the whole of the difference of pay objectively justified or (b) is that part but
only that part of the difference which is due to the need to attract suitable candidates to job B objectively justified or (c) must the employer equalize
the pay of jobs A and B on the ground that he has failed to show that the whole of the difference is objectively justified?’
6. Reference is made to the report for the hearing for a fuller account of the facts, the procedure and the written observations submitted to the court,
which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the court.
The first question

7. In its first question, the Court of Appeal wishes to know whether the principle of equal pay for men and women requires the employer to prove, by
providing objective justification, that a difference in pay between two jobs assumed to be of equal value, of which one is carried out almost exclusively by
women and the other predominantly by men, does not constitute sex discrimination.
The relevance of the question

8. The German Government maintains that the court cannot rule on the question referred without first establishing whether the jobs in question are
equivalent. Since, in its view, the jobs of speech therapist and pharmacist are not comparable, there can be no infringement of art 119 of the Treaty and
the pay differentials do not therefore require objective justification.
9. That proposition cannot be accepted.
10. The court has consistently held that art 177 of the Treaty provides the framework for close co-operation between national courts and the Court of
Justice, based on a division of responsibilities between them. Within that framework, it is solely for the national court before which the dispute has been
brought, and which must assume the responsibility for the subsequent judicial decision, to determine in the light of the particular circumstances of each
case both the need for a preliminary ruling in order to enable it to deliver judgment and the relevance of the question which it submits to the court (see, in
particular, the judgment in Dirección General de Defensa de la Competencia v Asociación Española de Banca Privada Case C-67/91 [1992] ECR I-4785
(at para 25)). Accordingly, where the national court’s request concerns the interpretation of a provision of Community law, the court is bound to reply to
520 it, unless it is being asked to rule on a purely hypothetical general problem without having available the information as to fact or law necessary to
enable it to give a useful reply to the questions referred to it (see the judgment in Meilicke v ADV/ORGA F A Meyer AG Case C-83/91 [1992] ECR
I-4871).
11. In this case, the Court of Appeal, like the tribunals which heard the case below, decided in accordance with the British legislation and with the
agreement of the parties to examine the question of the objective justification of the difference in pay before that of the equivalence of the jobs in issue,
which may require more complex investigation. It is for that reason that the preliminary questions were based on the assumption that those jobs were of
equal value.
12. Where, as here, the court receives a request for interpretation of Community law which is not manifestly unrelated to the reality or the subject
matter of the main proceedings, it must reply to that request and is not required to consider the validity of a hypothesis which it is for the referring court to
verify subsequently if that should prove to be necessary.
The question referred

13. It is normally for the person alleging facts in support of a claim to adduce proof of such facts. Thus, in principle, the burden of proving the
existence of sex discrimination as to pay lies with the worker who, believing himself to be the victim of such discrimination, brings legal proceedings
against his employer with a view to removing the discrimination.
14. However, it is clear from the case law of the court that the onus may shift when that is necessary to avoid depriving workers who appear to be the
victims of discrimination of any effective means of enforcing the principle of equal pay. Accordingly, when a measure distinguishing between employees
on the basis of their hours of work has in practice an adverse impact on substantially more members of one or other sex, that measure must be regarded as
contrary to the objective pursued by art 119 of the Treaty, unless the employer shows that it is based on objectively justified factors unrelated to any
discrimination on grounds of sex (judgments in Bilka-Kaufhaus GmbH v Weber von Hartz Case 170/84 [1986] ECR 1607 at 1627 (para 31), Kowalska v
Freie und Hansestadt Hamburg Case C-33/89 [1990] ECR I-2591 at 2612 (para 16) and Nimz v Freie und Hansestadt Hamburg Case C-184/89 [1991]
ECR I-297 at 320 (para 15)). Similarly, where an undertaking applies a system of pay which is wholly lacking in transparency, it is for the employer to
prove that his practice in the matter of wages is not discriminatory, if a female worker establishes, in relation to a relatively large number of employees,
that the average pay for women is less than that for men (judgment in Handels- og Kontorfunktionærernes Forbund i Danmark v Dansk
Arbejdsgiverforening, acting on behalf of Danfoss Case 109/88 [1989] ECR 3199 at 3226 (para 16)).
15. In this case, as both the FHA and the United Kingdom observe, the circumstances are not exactly the same as in the cases just mentioned. First,
it is not a question of de facto discrimination arising from a particular sort of arrangement such as may apply, for example, in the case of part-time
workers. Secondly, there can be no complaint that the employer has applied a system of pay wholly lacking in transparency since the rates of pay of NHS
Preamble
speech therapists and pharmacists are decided by regular collective bargaining processes in which there is no evidence of discrimination as regards either
of those two professions.
521
16. However, if the pay of speech therapists is significantly lower than that of pharmacists and if the former are almost exclusively women while the
latter are predominantly men, there is a prima facie case of sex discrimination, at least where the two jobs in question are of equal value and the statistics
describing that situation are valid.
17. It is for the national court to assess whether it may take into account those statistics, that is to say whether they cover enough individuals,
whether they illustrate purely fortuitous or short-term phenomena, and whether, in general, they appear to be significant.
18. Where there is a prima facie case of discrimination, it is for the employer to show that there are objective reasons for the difference in pay.
Workers would be unable to enforce the principle of equal pay before national courts if evidence of a prima facie case of discrimination did not shift to
the employer the onus of showing that the pay differential is not in fact discriminatory (see, by analogy, the judgment in Danfoss Case 109/88 [1989]
ECR 3199 at 3226 (para 13)).
19. In these circumstances, the answer to the first question is that, where significant statistics disclose an appreciable difference in pay between two
jobs of equal value, one of which is carried out almost exclusively by women and the other predominantly by men, art 119 of the Treaty requires the
employer to show that that difference is based on objectively justified factors unrelated to any discrimination on grounds of sex.
The second question

20. In its second question, the Court of Appeal wishes to know whether the employer can rely as sufficient justification for the difference in pay
upon the fact that the rates of pay of the jobs in question were decided by collective bargaining processes which, although carried out by the same parties,
are distinct and which, considered separately, have no discriminatory effect.
21. As is clear from art 4 of Council Directive (EEC) 75/117 of 10 February 1975 on the approximation of the laws of the member states relating to
the application of the principle of equal pay for men and women, collective agreements, like laws, regulations or administrative provisions, must observe
the principle enshrined in art 119 of the Treaty.
22. The fact that the rates of pay at issue are decided by collective bargaining processes conducted separately for each of the two professional groups
concerned, without any discriminatory effect within each group, does not preclude a finding of prima facie discrimination where the results of those
processes show that two groups with the same employer and the same trade union are treated differently. If the employer could rely on the absence of
discrimination within each of the collective bargaining processes taken separately as sufficient justification for the difference in pay, he could, as the
German Government pointed out, easily circumvent the principle of equal pay by using separate bargaining processes.
23. Accordingly, the answer to the second question is that the fact that the respective rates of pay of two jobs of equal value, one carried out almost
exclusively by women and the other predominantly by men, were arrived at by collective bargaining processes which, although carried out by the same
parties, are distinct, and, taken separately, have in themselves no discriminatory effect, is not sufficient objective justification for the difference in pay
between those two jobs.
522
The third question

24. In its third question, the Court of Appeal wishes to know to what extent—wholly, in part or not at all—the fact that part of the difference in pay
is attributable to a shortage of candidates for one job and to the need to attract them by higher salaries can objectively justify that pay differential.
25. The court has consistently held that it is for the national court, which has sole jurisdiction to make findings of fact, to determine whether and to
what extent the grounds put forward by an employer to explain the adoption of a pay practice which applies independently of a worker’s sex but in fact
affects more women than men may be regarded as objectively justified economic grounds (judgments in Bilka-Kaufhaus Case 170/84 [1986] ECR 1607 at
1628 (para 36) and Nimz Case C-184/89 [1991] ECR I-297 at 319 (para 14)). Those grounds may include, if they can be attributed to the needs and
objective of the undertaking, different criteria such as the worker’s flexibility or adaptability to hours and places of work, his training or his length of
service (judgment in Danfoss Case 109/88 [1989] ECR 3199 at 3228 (paras 22–24)).
26. The state of the employment market, which may lead an employer to increase the pay of a particular job in order to attract candidates, may
constitute an objectively justified economic ground within the meaning of the case law cited above. How it is to be applied in the circumstances of each
case depends on the facts and so falls within the jurisdiction of the national court.
27. If, as the question referred seems to suggest, the national court has been able to determine precisely what proportion of the increase in pay is
attributable to market forces, it must necessarily accept that the pay differential is objectively justified to the extent of that proportion. When national
authorities have to apply Community law, they must apply the principle of proportionality.
28. If that is not the case, it is for the national court to assess whether the role of market forces in determining the rate of pay was sufficiently
significant to provide objective justification for part or all of the difference.
29. The answer to the third question therefore is that it is for the national court to determine, if necessary by applying the principle of proportionality,
whether and to what extent the shortage of candidates for a job and the need to attract them by higher pay constitutes an objectively justified economic
ground for the difference in pay between the jobs in question.
Costs
30. The costs incurred by the United Kingdom, the German Government and the Commission of the European Communities, which have submitted
observations to the court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the
national court, the decision on costs is a matter for that court.
On those grounds, the court, in answer to the questions referred to it by the Court of Appeal of England and Wales by order of 30 October 1991,
hereby rules: (1) where significant statistics disclose an appreciable difference in pay between two jobs of equal value, one of which is carried out almost
exclusively by women and the other predominantly by men, art 119 of the EEC Treaty requires the employer to show that that difference is based on
objectively justified factors unrelated to any discrimination on grounds of sex; (2) the fact that the respective rates of pay of two jobs of equal value, one
carried out almost exclusively by women and the other predominantly by men, were arrived at by collective bargaining processes which, although carried
out by the same parties, are distinct, and, taken separately, have in themselves no discriminatory effect, is not sufficient objective justification for the
difference in pay between those two jobs; (3) it is for the national court to determine, if necessary by applying the principle of proportionality, whether
and to what extent the shortage of candidates for a job and the need to attract them by higher pay constitutes an 523 objectively justified economic
ground for the difference in pay between the jobs in question.
Preamble

524
[1994] 1 All ER 525
R v Investors Compensation Scheme Ltd, ex parte Bowden and others

BANKING AND FINANCE

MANN LJ AND TUCKEY J
12, 13, 14 JANUARY, 16 FEBRUARY 1993
Investment business – Investors Compensation Scheme – Compensation – Compensation to extent ‘essential to provide fair compensation’ – Nature of
compensation – Whether scheme required to provide compensation equal to amount of defaulting broker’s liability – Whether board administering
scheme having discretion as to amount of compensation payable – Whether board’s decision to limit claims in respect of cost of professional advice or to
refuse claims in respect of illness, distress etc irrational – Whether application for compensation can be made by personal representative of deceased
eligible investor – Financial Services (Compensation of Investors) Rules 1990, rr 2.02.2(a), 2.04.1.
Investment business – Investors Compensation Scheme – Compensation – Home income plans – Elderly people raising money by mortgaging homes to
provide income – Homes liable to repossession because of falling house values, rising interest rates and declining investment performance – Plans
contravening Securities and Investments Board rules – Brokers worthless and in default – Investors claiming compensation from Investors Compensation
Scheme – Whether investors entitled to compensation equal to amount of defaulting brokers’ liability.
The applicants or their personal representatives applied to the board of the Investors Compensation Scheme (the ICS) for compensation under the
Financial Services (Compensation of Investors) Rules 1990 in respect of the acts of authorised brokers which had caused them loss. The applicants were
elderly persons living in mortgage-free accommodation, who had been advised by the brokers, in contravention of rules made under the Financial
Services Act 1986, to invest in home income plans by which the applicants raised money by a mortgage on their homes. The loan was then invested in an
equity-linked single premium bond to provide income for the investor and the interest on the loan was either deferred or rolled up until the mortgage debt
reached a specified percentage of the current market value of the house. The equity-linked bonds were intended both to provide income and to discharge
the mortgage interest, but because of a combination of falling house values, rising interest rates and 525 declining investment performance the
applicants’ homes became liable to repossession. The applicants could have brought an action against the brokers for damages under s 62(1) of the 1986
Act because they had acted in contravention of the 1990 rules or in tort and contract under common law but the brokers were in default and worthless.
The applicants’ claims for compensation were rejected by the ICS board or less compensation than that claimed was offered. In particular, the ICS board
(i) adopted a policy that, since it was required under r 2.04.1a of the 1990 rules to meet claims only to the extent considered ‘essential to provide fair
compensation’, it had a discretion to decide the amount payable and was not bound to pay compensation equal to the amount of the defaulting brokers’
civil liability, (ii) limited to £500 claims for professional fees incurred in seeking to mitigate loss, save in exceptional cases, (iii) rejected claims for
money from the loans which the applicants had either spent or given away thereby leaving a residual mortgage debt, (iv) rejected claims for compensation
for illness, distress, anxiety, stress and inconvenience suffered in consequence of acting on the brokers’ advice and (v) rejected claims made by the
personal representatives of deceased investors and refused to determine claims made by an investor who died before a decision on his claim had been
made. The applicants applied for judicial review of those decisions made by the ICS board.
________________________________________
a Rule 2.04 is set out at p 531 c d, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – (1) Rule 2.04.1 of the 1990 rules limited the amount of compensation payable to a claimant by the ICS board in respect of a claim which was not a
basic compensatable claim to the amount which the ICS board decided was ‘essential to provide fair compensation’ to an investor and the ICS board’s
discretion as to that amount could only be impugned if it was irrational or reached without regard to relevant considerations. The ICS board had not acted
irrationally in exercising its discretion to refuse to pay (i) claims for professional fees and costs above a certain limit, since it was neither indefensible nor
absurd to impose a ceiling on the amount of such compensation, or (ii) claims for reimbursement of moneys from mortgage loans which had been spent or
given away, since it was not irrational to take into account when assessing fair compensation the fact that investors would have had the benefit of the
amount spent or given away, or (iii) damages for illness, distress, anxiety, stress or inconvenience suffered in consequence of acting on a broker’s advice,
since the object of the contract was to release capital so as to generate income, not specifically to provide comfort, pleasure or enjoyment and any contact
relating to personal investment had an inherent capacity to result either in happiness or distress (see p 534 b to f, p 535 b, p 536 a to c and p 537 e to g,
post); Watts v Morrow [1991] 4 All ER 937 considered.
(2) On the true construction of the 1990 rules a personal representative of a deceased investor was unable to make or pursue a claim in his own right
against the ICS for compensation, since a personal representative was not an ‘eligible investor’ within r 2.02.2(a)b, which referred in terms to the person
who had actually made the investment. However, where a broker was already in default and no application had been made by the investor during his
lifetime or where an investor had died before his application had been determined, an application could be made or pursued by the personal representative
of a deceased eligible 526 investor, since the right to claim was a transmissible interest (see p 538 e j to p 539 d, post).
________________________________________
b Rule 2.02 is set out at p 530 h to p 531 a, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Preamble
Notes
For compensation schemes for the purpose of compensating investors, see Supplement to 32 Halsbury’s Laws (4th edn) para 343.
For the Financial Services Act 1986, s 62, see 30 Halsbury’s Statutes (4th edn) (1991 reissue) 235.

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527
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Ronex Properties Ltd v John Laing Construction Ltd (Clarke Nicholls & Marcel (a firm), third parties) [1982] 3 All ER 961, [1983] QB 398, CA.
Schuler (L) AG v Wickman Machine Tool Sales Ltd [1973] 2 All ER 39, [1974] AC 235, HL.
Secretary of State for Employment v Associated Society of Locomotive Engineers and Firemen (No 2) [1972] 2 All ER 949, [1972] 2 QB 455, CA.
Securities and Investments Board v Financial Intermediaries Managers and Brokers Regulatory Association Ltd [1991] 4 All ER 398, [1992] Ch 268.
Sheffield Corp v Luxford, Sheffield Corp v Morrell [1929] 2 KB 180, [1929] All ER Rep 581, DC.
Sugden v Sugden [1957] 1 All ER 300, [1957] P 120, CA.
Victoria Laundry (Windsor) Ltd v Newman Industries Ltd (Coulson & Co Ltd, third party) [1949] 1 All ER 997, [1949] 2 KB 528, CA.
Applications for judicial review

Arthur Edwin Bowden, Philip Haring and Margaret Jeanne Weyell applied, with the leave of Otton J given on 29 October 1992, for judicial review by
way of (1) an order of certiorari to quash the decision of the Investors Compensation Scheme Ltd (the ICS) on 7 August 1992 that in calculating the
amount of claims of applicants for compensation pursuant to the Financial Services (Compensation of Investors) Rules 1990 for the inability of certain
insolvent investment brokers to meet claims for damages against them for negligence, breach of statutory duty and breach of fiduciary duty arising from
unsuitable home income plans the ICS had a discretion to decide the amount payable and was not bound by the rules to pay compensation equal to the
amount of the defaulting brokers’ civil liability, and (2) declarations that (a) the ICS was obliged by the rules (i) to assess the amount of compensation as
the amount of the brokers’ civil liability to the applicants at common law and/or in equity and (ii) to pay such compensation to the applicants, subject only
to the qualifications in rr 2.06(2), 2.07 and 2.08 and (b) the ICS’s decisions, inter alia, to reduce the amount of the compensation sum below that amount
by excluding costs reasonably incurred in taking steps to mitigate losses including professional fees, damages for illness, distress, anxiety, stress and
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inconvenience, and by deducting money received by the applicants and spent by them in ignorance of their true financial position, which they would not
otherwise have spent, did not comply with the rules and/or were unreasonable, and accordingly unlawful and invalid. Mr Bowden, Mrs Weyell and Iris
Muriel Troon further applied, with the leave of Laws J given on 23 December 1992, for judicial review by way of, inter alia, (1) an order of certiorari to
quash the decision of the ICS, communicated by a letter on 30 November 1992, not to pay compensation to 528 the personal representatives of
deceased investors and (2) a declaration that on a true construction of the Financial Services Act 1986 and the 1990 rules the scheme (a) covered a claim
by the personal representative of a deceased investor in a case in which the deceased investor made no claim in his lifetime and (b) enabled the personal
representative of a deceased investor to pursue a claim made by the deceased investor but not completed in his lifetime. The facts are set out in the
judgment of the court.
Nicholas Strauss QC and Neil Kitchener (instructed by Barnett Sampson) for the applicants.
Michael Beloff QC and Presiley Baxendale QC (instructed by Wilde Sapte) for the ICS.
Cur adv vult
16 February 1993. The following judgment of the court was delivered.

529
The Judge Rapporteur (F Grévisse) presented the following report for the hearing.
MANN LJ. There are before the court two applications for judicial review which relate to various decisions of the board of Investors Compensation
Scheme Ltd (hereafter ‘the ICS’), which is a company whose liability is limited by guarantee. The ICS administers the scheme which is governed by the
Financial Services (Compensation of Investors) Rules 1990. That scheme was established by the Securities and Investments Board in the exercise of
powers conferred by s 54 of the Financial Services Act 1986 and which were transferred to the company by the Financial Services Act 1986 (Delegation)
Order 1987, SI 1987/942, under s 114 of that Act. The board of the ICS is composed of distinguished persons representative of various interests including
those of the public and is supported by a professional staff with experience in accountancy and the law. The scheme is funded by firms who are
authorised under the 1986 Act to engage in investment business. However, currently there is an excess of loss insurance in respect of claims exceeding
£25m in a year.
The 1986 Act is an Act which, amongst other things, regulates the carrying on of investment business so as to limit its conduct to defined, authorised
or exempted persons. Amongst the chapters which deal with this topic is Ch V, which relates to the conduct of business. In that chapter is s 54, which
provides for a compensation fund. Subsections (1) and (2) are in these terms:
‘(1) The Secretary of State may by rules establish a scheme for compensating investors in cases where persons who are or have been authorised
persons are unable, or likely to be unable, to satisfy claims in respect of any description of civil liability incurred by them in connection with their
investment businesses.
(2) Without prejudice to the generality of subsection (1) above, rules under this section may—(a) provide for the administration of the scheme
and, subject to the rules, the determination and regulation of any matter relating to its operation by a body appearing to the Secretary of State to be
representative of, or of any class of, authorised persons; (b) establish a fund out of which compensation is to be paid; (c) provide for the levying of
contributions from, or from any class of, authorised persons and otherwise for financing the scheme and for the payment of contributions and other
money into the fund; (d) specify the terms and conditions on which, and the extent to which, compensation is to be payable and any circumstances
in which the right to compensation is to be excluded or modified; (e) 530 provide for treating compensation payable under the scheme in respect
of a claim against any person as extinguishing or reducing the liability of that person in respect of the claim and for conferring on the body
administering the scheme a right of recovery against that person, being, in the event of his insolvency, a right not exceeding such right, if any, as
the claimant would have had in that event; and (f) contain incidental and supplementary provisions.’
The applicants did not suggest either that the rules had not properly been made or that they were outside the scope of the transferred powers. The
respondent did not suggest that its decisions under the rules were not susceptible to judicial review.
The applications impugn decisions under the rules which were made after authorised persons came to be in default. The circumstances in general
terms were these. Nine authorised persons acting as brokers advertised a home income plan and advised their respondents to enter into a contract with
them which embodied that plan. The plan was one whereunder an investor, who usually would be elderly and living in mortgage-free accommodation,
raised money on a mortgage of his house. The interest on the loan was either deferred or rolled up until the mortgage debt reached a specified percentage
of the current market value of the house. Usually the loan was invested in an equity-linked single premium bond which supposedly was to provide both
an income for the house-owner’s pleasure and a discharge of the mortgage interest. In a rising market the scheme was attractive but, if the market value
of the house fell whilst investment performance declined at a time when interest rates rose, the investor would quickly be confronted with a mortgage
obligation which could not be met. The investor’s house became exposed to repossession. The applicants are persons who either were advised to enter
into home income plans or represent such persons and it is common ground that engagement in the plan has been a misfortune. It is also common ground
that the investors were persuaded to enter into the scheme in contravention of rules made under the 1986 Act governing the conduct of financial advisers
and to which authorised persons were subject. This contravention exposed the brokers to actions for damages under s 62(1) of the 1986 Act. There may
also have been claims against them under the common law of tort if not of contract. The brokers are worthless and in default. The applicants (who are
representative of many other people in a similar misfortune) have applied for compensation under the scheme.
The relevant provisions of the rules are these (in them ‘the Management Company’ is the ICS):
‘2.02 Payment of compensation

1 The Management Company is responsible for paying compensation to investors in accordance with these rules.
2 The Management Company may pay compensation where it is satisfied, on the basis of evidence provided by an investor or which is available
to it from other sources, that: a. an eligible investor has duly applied for compensation; b. the investor has a claim against a participant firm in
default which is both a scheme business claim and a compensatable claim; c. the participant firm is unable or likely to be unable to meet the claim
within a reasonable period; and d. the investor has agreed, to the satisfaction of the Management Company, that his rights in the claim and, if the
Management Company so determines, any rights of his claim in a 531 claim against any other person which relate to the subject matter of the
claim, should pass to it.
3 An application for compensation is to be rejected if:—a. it is not duly made until more than 6 months after the investor became aware, or
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ought reasonably to have become aware, that the Management Company had determined the firm to be in default, unless the Management Company
determines that, by reason of exceptional circumstances, the application ought to be allowed; or b. the investor has any responsibility for, or has
directly or indirectly profited from, events relating to the firm or its business which gave rise to the firm’s financial difficulties.
4 An application may also be rejected if it is found to contain any inaccuracy or omission, unless this is clearly immaterial or is shown by the
investor to be wholly innocent.
5 The Management Company is to postpone paying compensation where it considers that the investor should first exhaust his rights against the
firm or any third party, or make and pursue an application for compensation to any other person …
2.04 Compensatable claims
1 The basic compensatable claims are claims for property held and claims arising from transactions which remain uncompleted at the
quantification date, and an application for compensation relating to any other claim is to be met only where the Management Company considers
that this is essential in order to provide fair compensation to the investor.
2 Any claim is not a compensatable claim unless it relates to a liability which has been established before a court of competent jurisdiction or
which the Management Company is satisfied would be established if proceedings were brought before such a court.
3 A claim is not in any event a compensatable claim to the extent that it relates to or depends on: a. failure of investment performance to match
a guarantee given or representation made (whether in writing or not), b. a contractual obligation or promise to pay (including a cheque or other
negotiable instrument) which the Management Company considers to have been undertaken without full consideration passing to the firm or in
anticipation of possible insolvency.
2.05 Varieties of claims
1 Where a person has claims in different capacities, these rules apply as if the claims in each different capacity were claims of different persons.
2 Where two or more persons have a joint beneficial claim, then, if they are carrying on business together in partnership, the claim is treated as a
claim of the partnership, and otherwise each of those persons is taken to have a claim for his share, and, in the absence of satisfactory evidence as to
their respective shares, is taken to be entitled to an equal share.
3 Where an agent has a claim for one or more principals, the principal or principals are to be treated as having the claim, to the exclusion of the
agent.
4 Where any group of persons has a claim as trustees, they are to be treated as a single and continuing person distinct from the persons who may
from time to time be the trustees, and where the same person has a claim as trustee for different trusts, these rules apply as if the claims relating to
each of the trusts were claims of different persons.
5 Where a trustee has a claim for one or more other persons, then, where the trustee is a bare trustee, the beneficiaries are taken to have the
claim, to 532 the exclusion of the trustee, and otherwise the trustee is taken to have the claim, to the exclusion of the beneficiaries.
2.06 Amount of the compensation sum
1 In principle, the amount payable by way of compensation is the amount of the investor’s overall net claim against the firm in default as at the
quantification date.
2 The Management Company is to adjust the amount of an investor’s overall net claim against a firm to the extent that it appears to it that
payment of the full amount would provide a benefit to the investor which is greater than the benefit which he might reasonably have expected or
than the actual benefit available on similar investments made with other firms.
2.07 Limits on the compensation sum
1 The maximum compensation sum payable to an investor on a default is £30,000 plus 90 per cent of the balance of his overall net claim up to a
maximum of £50,000, on which £48,000 is the maximum compensation sum payable.
2 There is also an overall limit on the amount which the Management Company may determine to pay in any financial year by way of
compensation sums to investors and interest on them. The overall limit is the amount determined by the Management Company as an amount
which may be expected not to cause the compensation costs of the year to exceed £100 million.
2.08 Reduced or interim payments
1 Where the Management Company is satisfied that in principle compensation is payable, but considers that immediate payment in full would
not be prudent, having regard to other applications for compensation made or likely to be made, or to any uncertainty as to the amount of the
investor’s overall net claim, it may determine to pay an appropriate lesser sum in final settlement or to make a payment on account.
2 A payment on account is, for the purposes of these rules, to be treated as the payment of a compensation sum and does not inhibit the
Management Company from making a determination in respect of any balance in the same or in any later year.
3 The Management Company may also determine to make a payment on account or to pay a lesser sum where the investor has any prospect of
recovery in respect of the claim from any third party or through an application for compensation to any other person.
2.09 Interest on the compensation sum
1 The Management Company is to pay interest to investors on compensation sums in such circumstances and in such amounts as it considers
appropriate.
2 Interest under this rule is not to be taken into account for the purposes of the limit contained in rule 2.07.1.’
The rules have a glossary. This provides that, unless the context otherwise requires, the expression ‘claim’ means ‘a valid claim on a firm in default
in respect of a civil liability owed by the firm’. The expression ‘eligible investor’ is to include:
‘(a) an investor who is not, within the meaning of the Financial Services (Conduct of Business) Rules 1987, a business or professional investor;
or (b) 533 a trustee who is not a bare trustee or unit trust trustee and who is trustee of a trust which is shown to be principally for the benefit of
individuals who are eligible investors not otherwise benefiting from the Scheme or for charitable purposes …’
The applicant’s applications for compensation have been considered under the rules. The applicants expressly accept by their counsel that their
applications have been fully and fairly considered by the board.
There have been informed discussions which have resulted in concessions from the board. None the less the applicants contend (but with no greater
hostility than an adversarial system requires) that the ICS has misinterpreted the rules and additionally or alternatively has reached decisions which are
irrational. Accordingly, they now seek relief from the court.
The applications for review raise discrete issues. The principal one is raised in the first application by Mr Arthur Bowden and others (for which
leave to move was given by Otton J on 29 October 1992). It relates to the quantification of compensation and requires a decision as to whether the ICS is
bound by the rules to assess the amount of compensation as being equal to the amount of the defaulting firm’s civil liability and to pay that compensation
subject only to expressed qualifications in the rules. The ICS in a decision of 7 August 1992 (which is the decision impugned) stated that it is not so
bound and a subsequent reconsideration has not affected the position in principle. The ICS maintains the position that it can meet a claim at a level below
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that which would be recoverable in a civil action for damages because it is only bound to meet the claim to the extent that it considers it ‘essential in order
to provide fair compensation’ (r 2.04.1).
The resolution of this issue depends on the construction of the rules and in particular of the closing words of r 2.04.1. The rules are not drawn with
the tightness to be found in primary or secondary legislation and we approach the arguments with a caution against adopting the approach which is
appropriate to enactments (cf R v Criminal Injuries Compensation Board, ex p Schofield [1971] 2 All ER 1011, [1971] 1 WLR 926).
Mr Nicholas Strauss QC for the applicants argued that the payment of compensation, which is dealt with in Pt 2 of the rules, is perceptibly divisible
into parts. Rules 2.02 to 2.05 set out the conditions an applicant has to meet to become eligible for compensation (that is to have a compensatable claim)
whilst rr 2.06 to 2.08 set out how compensation is to be quantified (r 2.09 deals with interest). Under r 2.04.1 ‘any other claim’ (such as are the
applicants’) means any cause of action and that which the ICS has to consider is simply whether it is essential to compensate in respect of it in order to
provide fair compensation to the investor. Mr Strauss especially relied on the provision of r 2.06 to the effect that the amount payable is the amount of the
net claim against the defaulter and suggested it would be a sensible construction of the rules to find them enjoining the compensation in full of a valueless
claim at law. He relied upon what he described as indicators elsewhere in the rules. However, Mr Strauss was constrained to accept that the concluding
words of r 2.04.1 are a limiting provision. He submitted they were apt only to exclude claims or parts of claims where the effect of the law is to entitle an
applicant to more than fair compensation. Counsel instanced as examples an entitlement to punitive damages, to contractually agreed damages or to
damages under a foreign proper law which recognised damages on a level above that of compensation.
534
Mr Michael Beloff QC for the ICS submitted that r 2.04.1 was a manifestation of the legislative power to make rules specifying ‘the extent to which’
compensation is to be payable (s 54(2)(d) of the 1986 Act), and gave a discretion as to the extent to which an application in regard to a claim other than a
basic compensatable claim is to be met. Once an extent is determined then the amount payable in respect of it is prescribed by r 2.06 subject to the
reduction and limitation provisions of rr 2.06 and 2.07. Counsel submitted there was no reason why the ICS should have been invested with a power of
admittance which was that of admitting either all or nothing. He drew our attention to the analogy presented by R v Law Society, ex p Reigate Projects
Ltd [1992] 3 All ER 232.
In our judgment Mr Strauss was correct to concede that the concluding words of r 2.04.1 are a limiting provision. They plainly are, because they
give a power to refuse to meet other than basic compensatable claims where the ICS considers that a meeting is not essential in order to provide fair
compensation to the investor. The consideration is a matter for a judgment which could be impugned if it were irrational but in our view not otherwise.
Mr Strauss’s own examples of punitive, liquidated or super-compensatory damages recognise that a claim in law need not be met. His reliance upon
indicators in the rules (for example the reference to ‘overall net claim’ in r 2.06.1 and to ‘full amount’ in r 2.06.2) seem to us to lack force once it is
appreciated ‘basic compensatable’ claims (to which the indicators also apply) are not the subject of the critical concluding words.
We accordingly hold that the concluding words of r 2.04.1 are a limiting provision to the effect that the ICS may decide how much it will meet of an
application in respect of a claim which is not a basic compensatable claim.
The first application also raises questions as to the validity of the ICS’s refusal to admit items in regard to certain professional fees and costs, to sums
received and spent and to illness and distress. Granted our opinion upon the principal issue the issues regarding these items can only be whether the
board’s decision upon them was either irrational or reached without regard to a relevant consideration.
The first item concerns professional fees which investors incurred in seeking advice on whether and how to encash investments purchased with their
mortgage loans or on how otherwise to mitigate their actual or impending financial predicament. These fees if reasonably incurred in mitigation of loss
would indisputably have been a recoverable head of damages against the broker. On 5 December 1992 the board took the decision impugned in the
application. It was in these terms:
‘The Board decided to adopt the following policy: to allow limited contribution (not exceeding £500) to costs necessarily and urgently incurred
by claimants in the immediate aftermath of the discovery of their exposure; but only in cases where there is a significant and deteriorating situation
and where advice is taken from a relevant adviser (such as an actuary or accountant) for the purpose of recovery or diminishing the exposure in an
exceptional case …’
The reasons given were these:
‘… by a majority, the Board accepted that some of the Applicants have incurred professional fees in seeking to unravel complications as to their
present position, for example, in taking advice on whether and if so, how to encash their investments and how to manage their finances so as to
535 enable them to retain their homes. Applicants may have consulted accountants or specialist financial consultants. Accordingly, the Board
considered payment of professional fees incurred in mitigation of losses suffered as a result of investment advice given by the IFAs [independent
financial advisers] to be essential in order to provide fair compensation to the investor.’
The applicants submit the stated reasons expose an irrational decision in that an investor is not fairly compensated (as the reasons suggest he should
be) unless his costs are met in total. We are unable to agree. There is neither indefensibility nor absurdity in imposing a ceiling on the amount of
compensation and this court is not appellate in regard to height. We reject the application in regard to professional fees and expenses.
The second item concerns money received by the applicants from investments purchased from their mortgage loans and which they spent or donated
in reliance on the advice of brokers that they could safely do so. The money is money the investor would not otherwise have spent and which is not now
represented by any realisable asset. The ICS refuses to the compensate the amount of the spending. The board’s appreciation of the position is expressed
by its chairman (Richard Henry Lawson) in para 36 of his affidavit of 17 December 1992 as follows:
‘Appreciating that investors will have spent the sums withdrawn in diverse ways, the directors nonetheless considered that investors had had the
benefit of the funds and that to provide compensation over again would make for an effective double benefit. The Board concluded that to refund
such withdrawals would not be fair to investors who took no such lump sums or income since these investors did not have the benefit of such
withdrawals and yet would receive the same level of compensation as those who did. Accordingly, the directors decided that to award such sums to
investors was not essential in order to be fair. In addition, the ICS Board considered that if it had to decide whether expenditure resulted in an
increase in investors’ realisable assets or whether the investor would have incurred the expenditure in any event, it would become embroiled in
extremely difficult value judgments which it cannot reasonably be expected to make.’
The result of this decision is that the investor who spent may after compensation still have a residual mortgage debt.
Mr Strauss advanced an exhaustive argument to the effect that in an action against the brokers the defendants could not have successfully contended
that the plaintiff should give credit for sums which they had spent in consequence of the wrongful advice and which they would not otherwise have
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expended. He was unable to cite any authority in point but based his argument upon two analogies. The first was the rule that a wrongdoer cannot claim
an abatement by reference to betterment where the victim had no mitigatory option but to spend as he did. The second is the rule now established in the
law of restitution, whereby a defendant who has bona fide changed his position in consequence of the plaintiff’s payment cannot be required to repay
what he has spent or given. The first analogy was derived from The Gazelle (1844) 2 Wm Rob 279, 166 ER 759, The Pactolus (1856) Sw 172, 166 ER
1079 and Harbutt’s Plasticine Ltd v Wayne Tank and Pump Co Ltd [1970] 1 All ER 225, [1970] 1 QB 447. The second analogy was derived from the
speech of Lord Goff of Chieveley in Lipkin Gorman (a firm) v Karpnale Ltd [1992] 4 All ER 512 at 533, [1991] 2 AC 548 at 579 and from Avon 536
CC v Howlett [1983] 1 All ER 1073, [1983] 1 WLR 605. The first analogy is not compelling because the investors’ expenditure was not compelled whilst
the second is none at all in relation to a person who is seeking to recover what he has spent. In our judgment Mr Strauss’s argument against a broker
would fail but this is not determinative.
The failure of the argument would be determinative only if there was an obligation to compensate for all civil liability. There is no such obligation.
The decisive question is whether the decision of the board was irrational. We cannot see how it comes within measurable distance of being irrational to
deduct benefit received from what otherwise would be fair compensation. Whether it should or should not be, is plainly susceptible of argument but the
court is not appellate on argument. Mr Strauss submitted that the board had been deflected in its decision on the argument by the difficulty of evaluating
benefit. We can perceive no deflection. The difficulty is obvious and it was given as a reason additional to that on which the decision was founded. We
would reject the application in respect of moneys received.
The third item concerns illness, distress, anxiety, stress and inconvenience suffered in consequence of acting on a broker’s advice. The board refuses
to pay the compensation for this item. Mr Lawson has explained the board’s decision as follows:
‘… the directors considered the Applicants’ contention that as the plans were specifically sold as a means of providing comfort and security in
the borrowers’ old age, such damages would be recoverable at law. The Board did not accept that the cases relied upon by the Applicants were
sufficiently similar to the HIPs [home income plans] defaults since, in the latter, the principal object of the contract was not to provide comfort,
pleasure or relief from an existing state of anxiety, but rather to release capital. Accordingly, the directors did not consider that the principal object
of the contracts between the Applicants and the financial advisers were frustrated. The Board, in particular, relied upon on extract from the
judgment of Bingham L.J. in Watts v Morrow ([1991] 4 All ER 937 at 959–960, [1991] 1 WLR 1421 at 1445) who said: “a contract breaker is not
in general liable for any distress, frustration, anxiety, displeasure, tension or aggravation which this breach of contract may cause to the innocent
party … but the rule is not absolute. Where the very object of the contract is to provide pleasure, relaxation, peace of mind or freedom from
molestation, damages will be awarded if the fruit of the contract is not provided or if the contrary result is provided instead”. (b) The directors did
not consider awards of compensation essential in order to be fair to the investor, noting that the advertisements used by the HIPs brokers, and relied
upon by the Applicants are of an ilk commonly found in promotional, investment product literature. Furthermore, the directors were agreed that all
investors who claim on the Scheme are in varying states of anxiety and one of the purposes of having a compensation scheme at all is to help to
alleviate that anxiety. It is therefore not essential in order to provide fair compensation to offer further monetary compensation for such anxiety.
Finally and overall, the directors agreed that such “losses” were not foreseeable and are too remote from the principal liability of the financial
adviser.’
Mr Strauss submitted that the decision was based upon and betrays a mistake in appreciation of the law and is thus flawed by the board’s failure to
have 537 regard to a relevant consideration, that is to say a true appreciation of the law relating to the applicants’ contracts with their brokers. He
submitted the subsidiary reasons relating to the common occurrence of anxiety and the ordinary prevalence of promotional advertisements were both
irrational. However, if the basic reason is unimpugnable any deficiency in the subsidiary reasons is insignificant.
Persons who entered into home income plans were responding to advertisements of which we have seen specimens. The specimens suggest the
investment would bring comfort, security and happiness. Unfortunately, the investment has brought anxiety and fear of dispossession. Mr Strauss
submitted that it was foreseeable at the time of the brokers’ breach of duty that if the plans failed in performance then the investor would suffer in mind
and body and that accordingly the suffering was not too remote a head of damage. He submitted that in the words of Bingham LJ where—
‘the very object of a contract is to provide pleasure, relaxation, peace of mind … damages will be awarded if the fruit of the contract is not
provided or if the contrary result is procured instead.’ (See Watts v Morrow [1991] 4 All ER 937 at 960, [1991] 1 WLR 1421 at 1445.)
Unless the very object of the contract is as stated by Bingham LJ, then a contract breaker is not liable to compensate for mental and physical distress
consequent upon his breach of contract. The law is clear. An example of liability arising is afforded where the object of the contract is that of providing a
happy holiday (see Jarvis v Swan Tours Ltd [1973] 1 All ER 71, [1973] QB 233).
The object of the contracts with the brokers was to release capital so as to generate income. A typical advertisement was placed in the Mail on
Sunday on 9 September 1990 and stated: ‘Turn your home into Retirement Income without having to sell it.’
Income is enjoyable. However, the enjoyment is consequent upon the achievement of the contract and is not the object of the contract. The object
was that of releasing capital. Any contact relating to personal investment has an inherent capacity to result either in happiness or distress and we do not
regard such contracts, whatever the puffery which preluded them, as being within the exceptional class identified by Bingham LJ. We cannot detect a
mistaken appreciation of the law in the ICS’s decision. Granted the correctness of its appreciation of the law, the board’s decision is not within
measurable distance of irrationality. We reject the applications in regard to illness, distress, anxiety, stress and inconvenience. Consequently we refuse
the first application before the court.
The second application before the court is by Mr Arthur Bowden and others. Leave to move was given by Laws J on 23 December 1992. The
application raises two questions. The first is as to the board’s decision on 19 October 1992 as amended on 9 December 1992 and relates to the terms of an
assignment of rights which the investor is required to agree as a condition of the payment of compensation under r 2.02.2(d) of the scheme.
A number of the points originally in issue as to the terms have been agreed. The only remaining one relates to the applicants’ request that the
assignment should provide that the board indemnify against all costs for which they may be liable in the event that they are joined as necessary parties to
any action which the board decides to take. The board have said that they accept there are compelling arguments for paying such costs but have decided
that—
538
‘it was premature for the scheme to agree such an indemnity, the claims for which are perfectly capable of being dealt with on a case by case
basis when, and if, they arise.’
The applicants persisted with their claim because they were concerned that unless the indemnity formed part of the assignment any subsequent
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payment or agreement to pay costs would be ultra vires the scheme. The board do not accept that it would be and rely on para 3(d) of Annex 1 to the
scheme, which enables them to pay out of the fund any expenses incurred by the ICS in its administration. Legal costs necessarily incurred by an investor
in pursuing an assigned claim for the benefit of the board would, it submits, be expenses incurred in the administration of the scheme. We accept this
submission. Accordingly, in our judgment any subsequent payment or agreement to pay an investor’s costs would not be ultra vires the scheme. For
present purposes, however, we are concerned only with the decision not to include the indemnity in the form of assignment. In the circumstances we can
find nothing illegal or irrational in that decision and so this part of the second application must fail.
The second question upon the second application is as to the board’s decision on 30 November 1992 not to entertain claims made by the personal
representatives of a deceased investor and not to determine claims made by an investor who died before a determination had been made. There is no
dispute about determined claims. They are met regardless of the subsequent death of the investor. There is a transmissible entitlement (see by analogy
Cato v Minister of Agriculture Fisheries and Food [1989] 3 CMLR 513 esp at 536–537 by Purchas LJ). This second question suggests two inquiries.
First, do the rules give personal representatives a right to claim and, secondly, is a right to claim a transmissible interest?
The first inquiry is an inquiry of construction and must focus upon whether a personal representative is an ‘eligible investor’ so as to satisfy r
2.02.2(a). In our judgment he is not within the definition, which in terms is one which looks to the person who actually made the investment. That there
may be an anomaly in regard to ill-advised life assurance cannot deter the application of a plain meaning. A personal representative cannot claim.
The second inquiry is more difficult. The satisfaction of a claim is dependent on an exercise of discretion by the board. Mr Strauss submitted that a
person may have a transmissible right even though its consent is dependent on discretion. He drew our attention to cases decided under the Workmen’s
Compensation Act 1897. Under s 1 of that Act an employer was in defined circumstances liable to pay compensation in accordance with Sch 1 to the
Act. The schedule dealt with the scale and conditions of compensation, which, in the case of death, was calculated by reference to dependency.
Dependency could be a disputed question. Where it was not, the right to compensation survived and passed to the personal representative of deceased
dependent (Darlington v Roscoe & Sons [1907] 1 KB 219). Where it was disputable then none the less the right to compensation also survived and passed
to the personal representative of an arguable dependent (see United Collieries Ltd v Simpson [1909] AC 383 at 389, 390, 397–399). The analogy is
remote and in our judgment inexact because the workman’s death without more gave a right to someone which was not in discretion. Who was entitled to
the fruits of that right and if so in what quantity were separate issues.
Mr Strauss submitted that it was absurd that an application could not be made or continued by a personal representative and that we should construe
the rules so as to avoid absurdity. We think this submission is a strong one and we hope that we do no injustice to Mr Beloff if we gained the impression
that he appeared to recognise the curiosity of a personal representative’s inability. Moreover, the board’s standard preliminary information form
contemplates that applications for compensation may be made on behalf of deceased investors (see note 3(b) to section C and the note at the end of
section D). Death is inevitable but its occurrence before an application or before determination is accidental. The scheme is for the compensation of
small investors and ordinarily they will have regarded their savings as a benefit of their family. They would be surprised if the moment of death was to
injuriously affect the inheritance. Does the law require the conclusion that is does?
In our judgment the answer is that the law does not require so unjust a conclusion. An eligible investor is vested, by the rules on default of an
authorised person, both with the right (or power) to apply for compensation and with an expectation that his application will be determined. In our
judgment on an investor’s death his right (or power) and his expectation are a right and an expectation which are transmissible to his personal
representatives. The layman would have regarded his right and expectation as assets and we can so no reason why the law should not accord with his
view.
We think it appropriate, subject to argument, to grant a declaration that the rules enable, first, an application to be made by the personal
representatives of a deceased eligible investor when no application was made by the investor during his lifetime and, secondly, an application by a
deceased investor to be pursued by his personal representatives. Relief in regard to other matters is refused.
First application dismissed. Second application allowed in part; declaration accordingly.

[1994] 1 All ER 539
Deposit Protection Board v Dalia and another

BANKING AND FINANCE

RUSSELL, SIMON BROWN LJJ AND SIR MICHAEL FOX
23, 24, 25 MARCH, 6 MAY 1993
Bank – Deposit protection scheme – Deposit protection fund – Insolvent bank – Assignment of part of deposit after petition presented to wind up insolvent
bank but before winding-up order made – Whether equitable or legal assignee of part of deposit entitled to compensation from deposit protection fund –
Banking Act 1987, ss 58(1), 59, 60, 61.
On 5 July 1991 the Bank of England presented a petition for a winding-up order against BCCI, an authorised institution under the Banking Act 1987, on
the ground that it was insolvent. Under s 59(1)(a)a of the 1987 Act a body corporate wound up by the court became insolvent on the making of a
winding-up order. Before the petition was heard on 30 July, certain depositors took steps to 539 maximise the amount of payment they would be able
to claim from the Deposit Protection Board under the compensation scheme contained in ss 58b and 60c of the 1987 Act. The Deposit Protection Board
was required by ss 58 and 60 to pay out of the deposit protection fund to each depositor who had a protected deposit with a recognised bank or licensed
institution which became insolvent an amount equal to three-quarters of his protected deposit, limited to a maximum deposit of £20,000. The depositors
with BCCI accordingly assigned sums of £20,000 from their deposits to family members or close friends who could then each look to the fund for
payment of £15,000 in respect of the £20,000 share of the deposit assigned to him. On 30 July the Banking Act 1987 (Meaning of Deposit) Order 1991
Preamble
was made, providing that in future the definition of ‘deposit’ in the 1987 Act would exclude a sum to which a person became entitled, otherwise than by
operation of law, after a winding-up petition had been presented. BCCI was wound up on 14 January 1992. The question arose whether the assignees of
deposits made before 30 July 1991 were entitled to payment out of the deposit protection fund pursuant to s 58(1) of the 1987 Act. The judge held that it
was inconsistent with the purpose of s 58 to confine ‘depositor’ to the person who had made the original deposit and that an assignee under an assignment
made before 30 July 1991 of part of a deposit was entitled to the assigned part of the deposit and was to be treated as having made a deposit of an amount
equal to that part. A bank which contributed to the scheme, supported by the board, appealed.
________________________________________
a Section 59(1), so far as material, provides: ‘For the purposes of this Part of this Act a body corporate … becomes insolvent—(a) on the making of a winding-up order
against it …’
b Section 58, so far as material, is set out at p 542 j, post
c Section 60, so far as material, is set out at p 543 a, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – (1) Entitlement to compensation out of the deposit protection fund was not restricted to original deposit makers. Having regard to s 61d of the
1987 Act, which provided, inter alia, that where a deposit was held by a trustee the beneficiary was to be treated as entitled to compensation out of the
fund, the persons entitled to compensation from the fund were those who were treated as being entitled to a deposit at the moment when the question of
compensation arose and accordingly, once a person was treated as entitled to a deposit, that of itself qualified him for payment under the scheme. It
followed that a claimant did not need to be the original deposit maker in order to claim and that personal representatives of deceased account holders,
trustees in bankruptcy and legal assignees of original deposit makers were entitled to claim from the fund (see p 546 j to p 547 c, p 553 g j and p 554 j,
post).
________________________________________
d Section 61, so far as material, is set out at p 546 c to g, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
(2) (Simon Brown LJ dissenting) Furthermore, an equitable assignee of part of a bank customer’s deposit in an insolvent bank was entitled to claim
compensation from the fund if the assignment was unimpeachable and had taken place before the winding-up order was made against the bank. The
scheme of the 1987 Act was that the board, as compensating authority, should stand in the shoes of the defaulting bank, and, subject to the financial limit,
should not be in any better position vis-à-vis equitable assignees than the bank would have been but for the insolvency. An equitable assignee, like a legal
assignee, could recover the assigned debt from the debtor and the rights conferred by an equitable assignment were not sufficiently different from those of
a legal assignee to justify the conclusion that an equitable assignee was not entitled to the protection of the 1987 Act. The appeal would therefore be
dismissed (see p 554 a to j and p 555 f g, post).
540
Decision of Sir Donald Nicholls V-C [1993] 1 All ER 599 affirmed.
Notes
For compensation payments to depositors, see 3(1) Halsbury’s Laws (4th edn reissue) paras 115–117.
For the Banking Act 1987, ss 58, 59, 60, 61, see 4 Halsbury’s Statutes (1987 reissue) 589, 591, 592, 594.

Brandt’s (William) Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454, [1904–7] All ER Rep 345, HL.
Brice v Bannister (1878) 3 QBD 569, CA.
Britt v Buckinghamshire CC [1963] 2 All ER 175, [1964] 1 QB 77, [1963] 2 WLR 722, CA.
Forster v Baker [1910] 2 KB 636, [1908–10] All ER Rep 554, KBD and CA.
Hanlon v Law Society [1980] 2 All ER 199, [1981] AC 124, [1980] 2 WLR 756, HL.
Jones v Farrell (1857) 1 De G & J 208, 44 ER 703, LC and LJJ.
Performing Right Society Ltd v London Theatre of Varieties Ltd [1924] AC 1, HL.
Steel Wing Co Ltd, Re [1921] 1 Ch 349, [1920] All ER Rep 292.
Walter & Sullivan Ltd v J Murphy & Sons Ltd [1955] 1 All ER 843, [1955] 2 QB 584, [1955] 2 WLR 919, CA.
Warner Bros Records Inc v Rollgreen Ltd [1975] 2 All ER 105, [1976] QB 430, [1975] 2 WLR 816, CA.
Weddell v J A Pearce & Major (a firm) [1987] 3 All ER 624, [1988] Ch 26, [1987] 3 WLR 592.
Cases also cited

Becke v Smith (1836) 2 M & W 191, 150 ER 724.
Black-Clawson International Ltd v Papierwerke Waldhof-Aschaffenberg AG [1975] 1 All ER 810, [1975] AC 591, HL.
Commercial Bank of Australia Ltd, Re (1893) 19 VLR 333, Vict SC.
Copeland, Re, ex p Copeland (1852) 2 De GM & G 914, 42 ER 1129, LJJ.
Courtauld v Legh (1869) LR 4 Exch 126.
Durham Bros v Robertson [1898] 1 QB 765, CA.
Hammersmith and Fulham London Borough v Harrison [1981] 2 All ER 588, [1981] 1 WLR 650, CA.
Heydon’s Case (1584) 3 Co Rep 7a, 76 ER 637.
Jones v Wrotham Park Settled Estates [1979] 1 All ER 286, [1980] AC 74, HL.
Kirkness (Inspector of Taxes) v John Hudson & Co Ltd [1955] 2 All ER 345, [1955] AC 696, HL.
Lennon v Gibson & Howes Ltd [1919] AC 709, PC.
McGreavy, Re, ex p McGreavey v Benfleet UDC [1950] 1 All ER 442, [1950] Ch 269, CA.
MacManaway, Re [1951] AC 161, PC.
Pepper (Inspector of Taxes) v Hart [1993] 1 All ER 42, [1993] AC 593, HL.
Portsmouth Corp v Smith (1885) 10 App Cas 364, HL.
Remon v City of London Real Property Co Ltd [1921] 1 KB 49, CA.
Scarf v Jardine (1882) 7 App Cas 345, [1881–5] All ER Rep 651, HL.
Schroeder v Central Bank of London Ltd (1876) 34 LT 735.
Preamble
Stephens v Cuckfield RDC [1960] 2 All ER 716, [1960] 2 QB 373, CA.

Walker v Bradford Old Bank Ltd (1884) 12 QBD 511, DC.
Williams v Atlantic Assurance Co [1933] 1 KB 81, [1932] All ER Rep 32, CA.
541
Appeal and cross-appeals

The second defendant, Barclays Bank plc (Barclays), appealed and the plaintiff, the Deposit Protection Board (a body corporate established pursuant to
the Banking Acts 1979 and 1987), cross-appealed from the decision of Sir Donald Nicholls V-C ([1993] 1 All ER 599, [1993] Ch 243) on the board’s
application by originating summons dated 15 April 1992 seeking the court’s determination on the question whether a person entitled by reason of
assignment of part of a deposit as defined by s 5(1) of the 1987 Act was a depositor holding a protected deposit entitled to a compensation payment from
the board pursuant to s 58(1) of the 1987 Act. Sir Donald Nicholls V-C declared that for the purposes of Pt II of the 1987 Act an assignee of part of a
deposit as defined in s 5 was to be treated as entitled to the assigned part of the deposit and as having made a deposit of an amount equal to that part so as
to be a depositor in respect of that part. By a respondent’s notice dated 14 September 1992 the first defendant, Varsha Dalia (the claimant), an assignee of
a protected deposit joined in the proceedings to represent all such assignees, contended that the decision of Sir Donald Nicholls V-C should be affirmed
on specified additional grounds. The facts are set out in the judgment of Simon Brown LJ.
Michael Brindle QC and Bankim Thanki (instructed by Lovell White Durrant) for Barclays.
Lord Irvine of Lairg QC and Philip Sales (instructed by Ashurst Morris Crisp) for the claimant.
John Jarvis QC and Jonathan Nash (instructed by Clifford Chance) for the board.
Cur adv vult
SIMON BROWN LJ (giving the first judgment at the invitation of Russell LJ). This is an appeal by the second defendant, Barclays Bank plc (Barclays),
and a cross-appeal by the plaintiffs, the Deposit Protection Board (the board), from the judgment of Sir Donald Nicholls V-C given on 3 July 1992
([1993] 1 All ER 599, [1993] Ch 243) whereby he made a declaration in favour of the first defendant (the claimant) upon a point of law raised by all three
parties with regard to the proper construction and application of the deposit protection scheme, a scheme of compensation originally created by the
Banking Act 1979 and now contained in Pt II of the Banking Act 1987.
Put shortly, the scheme is designed to alleviate hardship when a bank becomes insolvent. It provides for a fund to be raised, held, managed and
applied by the board. The board raises the fund by levying contributions from relevant institutions, notably banks. There are at present 500 contributing
institutions, of which Barclays are one, sued here in a representative capacity. The obligation to make payment out of the fund is to be found in s 58 of
the 1987 Act, which, so far as material, in these terms:
‘(1) … if at any time an institution becomes insolvent … the Board shall as soon as practicable pay out of the Fund to each depositor who has a
protected deposit with that institution an amount equal to three-quarters of his protected deposit …’
Section 59(1)(a) provides that an institution becomes insolvent on the making of a winding-up order against it. By s 60(1) it is provided:
542
‘Subject to the provisions of this section, in relation to an institution in respect of which a payment falls to be made under section 58(1) above
any reference in this Act to a depositor’s protected deposit is a reference to the total liability of the institution to him immediately before the time
when it becomes insolvent, limited to a maximum of £20,000 …’
Thus the maximum sum payable to a depositor under the scheme is £15,000 (three-quarters of £20,000).
Whilst, however, ‘deposit’ is defined in s 5 of the 1987 Act, and ‘protected deposit’ is defined in s 60, the 1987 Act contains no definition of
‘depositor’ and it is this which has given rise to the present difficulty. More particularly the question raised here is whether the assignee of part of a bank
customer’s deposit is, within the meaning of s 58(1), a ‘depositor’ who, with respect to the assigned part of the account, has himself ‘a protected deposit
with that institution’. Sir Donald Nicholls V-C held that an equitable assignee is such a depositor. Barclays and the board both submit that he is not.
The particular circumstances in which the point presently arises for decision I gratefully take from the following passages in Sir Donald Nicholls
V-C’s judgment ([1993] 1 All ER 599 at 601–602, [1993] Ch 243 at 247–248):
‘The Bank of Credit and Commerce International SA, usually known simply as BCCI, was an authorised institution under the 1987 Act. On 5
July 1991 the Bank of England presented a petition to the court for an order that BCCI be wound up. One of the grounds relied on was that the
company was insolvent. Provisional liquidators were appointed and BCCI ceased trading in England. Depositors ceased to be able to withdraw
their money. Fearing the worst, some depositors took steps to maximise the amount of the payments from the deposit protection fund. An
enterprising firm of accountants, having taken expert legal advice, wrote around to BCCI depositors telling them of a scheme the accountants had
prepared. The scheme was that a depositor should formally transfer and assign part of his or her deposit to family members or close friends “who
can be trusted”. For instance, a depositor with a deposit of £100,000 would transfer £20,000 to each of five relations or friends [or, I would add, to
each of four relations or friends, retaining £20,000 for himself]. Instead of the compensation payable to him being limited to £15,000 as the
maximum amount of compensation payable to any one depositor, each of his five assignees could look to the fund for payment of £15,000 in
respect of the £20,000 share of the deposit assigned to him. By this means the total compensation payable by the fund would be increased to
£75,000. Depositors were urged to hurry, “for you only have until Monday evening 29th July”. This was because the winding-up petition was due
to come before the court again on 30 July … The assignments were on a printed form of deed. The document recited the “vendor’s” deposit in a
specified account with BCCI. The operative part provided that in consideration of £1 “the vendor by this deed sells, assigns and transfers the sum
of [£20,000] of the deposit to the purchaser”. The depositor also signed a letter addressed to BCCI, whereby BCCI was given note of the “absolute”
assignment in question. The bank was instructed that the sum of £20,000 from the deposit account was now held by the assignee, who was
described as “the purchaser”, and that he should now be identified by the bank “as a depositor”. The letter added: “If, for administrative reasons,
Preamble
you are unable to arrange for the completion of formalities to designate a separate deposit account in the 543 name of the purchaser, I/we
confirm that I/we hold the abovementioned sum on trust for the purchaser.” … it was common ground that the assignments were not statutory
assignments in conformity with s 136 of the Law of Property Act 1925, but that they were effective as equitable assignments … Some fifty or so
depositors, possibly more, signed transfers in July 1991 in respect of sums totalling several million pounds. There were over 200 assignees. One
depositor alone, whose deposits exceeded half a million pounds, executed 26 assignments of £20,000 each. The scheme was quickly stopped in its
tracks. Parliament never intended that the limit on the amount of compensation payable to individual depositors could be side-stepped by
dispositions made after formal steps had been taken to initiate the winding-up process. On 30 July 1991 the Banking Act 1987 (Meaning of
Deposit) Order 1991, SI 1991/1776 was made. It provided that in future the definition of “deposit” in the 1987 Act excluded a sum to which a
person became entitled, otherwise than by operation of law, after presentation of a winding-up petition. In the case of BCCI, where a winding-up
petition had already been presented, the changed definition took effect from 31 July. So the loophole, if such it was, was closed although
subsequently some months elapsed before a winding-up order was eventually made on 14 January 1992 … The first defendant is an assignee joined
in the proceedings to represent all assignees … The overall sum required to meet the payments due under the scheme to BCCI depositors is in the
region of £78m. The sum in issue [in these proceedings] is about £3·7m.’
Sir Donald Nicholls V-C emphasised, as do I in turn, that the question raised—whether these assignments had their intended effect for compensation
purposes—is one of law, to be answered on the assumption that the assignments were genuine and valid transactions and that there was no arrangement or
understanding that an assignee would hold for the assignor any compensation received by him from the fund. The board have expressly reserved the right
to pursue such matters should that become necessary.
Similarly Sir Donald Nicholls V-C emphasised that the answer given to the question before the court will be of general application. Its effect will
not be confined to assignments made in circumstances similar to those which existed regarding BCCI in July 1991. Even in regard to the future, the 1991
order leaves untouched any assignments made before the presentation of a winding-up petition.
The issue before the court is accordingly whether arrangements of this nature, assuming always that they are not a sham, are effective to bring the
equitable assignees thereby created within the protection scheme so that, upon a winding up, each will qualify in his own right for a payment out of the
fund up to the maximum sum of £15,000.
All three parties agree that to qualify for such payment a depositor must at least be someone to whom the bank is liable immediately before the
winding-up order is made: so much is clear from s 60(1)—although it is altogether less clear what precisely is meant in this context by ‘liability’, the
question upon which most of the argument before us centred and to which I shall shortly return. Whereas, however, the claimant contends that such
‘liability’ (whatever precisely that may be held to encompass) is of itself sufficient to constitute that person a depositor, Barclays argue that more is
required, in particular that the person to whom the bank is liable must also be the person who made the 544 deposit in the first place. This appears to
have been the main argument advanced against the claimant below, and much of the criticism directed against Sir Donald Nicholls V-C’s judgment has
focused upon his reasons for rejecting it, notably his reliance, first, upon s 61 of the 1987 Act and, second, upon the 1991 order. Before us, however, the
emphasis of the submissions shifted away from this argument and towards the ‘liability’ issue. Not least this was because Barclays came to recognise the
clearly unsatisfactory consequences flowing from the ‘deposit maker’ construction, above all: (a) the exclusion from the scheme in the case of statutory
assignments of anyone at all in a position to claim as depositor—the assignor because the bank no longer remains liable to him, the assignee because he
was not the original deposit maker; (b) the difficulty—indeed, despite Mr Brindle QC’s submissions to the contrary, what I conclude to be the
impossibility—of compensating under the scheme the trustee in bankruptcy of an insolvent account holder and the executors or personal representatives
of a deceased account holder.
In the event this was not a part of the case upon which we found it necessary to call upon Lord Irvine QC and I propose to deal with it comparatively
shortly.
The argument in support of the ‘deposit maker’ construction is based in part upon what is contended to be the natural meaning of the word
‘depositor’, and in part upon various provisions of the 1987 Act, two of which in particular appear to assume that a depositor is the person who will
himself have made the deposit in question. The following are the two provisions particularly relied upon (in each case with emphasis added).
(1) Section 60(2)
‘… in relation to an institution in respect of which a payment falls to be made under section 58(2) above [that is a provision comparable to s
58(1) but applicable when an administration order is made under the Insolvency Act 1986] any reference in this Act to a depositor’s protected
deposit is a reference to the liability of the institution to him in respect of—(a) the principle amount of each sterling deposit which was made by him
with a United Kingdom office of the institution before the making of the administration order …’
(2) Section 60(6)
‘In determining the liability of an institution to a depositor for the purposes of subsection (1) above, or the liability or total liability of an
institution to a depositor for the purposes of subsection (2) above, no account shall be taken of any liability in respect of a deposit if … (c) the
institution is a former authorised institution and the deposit was made after it ceased to be an authorised institution or a recognised bank or licensed
institution under the Banking Act 1979 unless, at the time the deposit was made, the depositor did not know and could not reasonably be expected
to have known that it had ceased to be an authorised institution, recognised bank or licensed institution.’
As to the natural meaning of ‘depositor’, Mr Brindle not surprisingly relies upon Sir Donald Nicholls V-C’s own stated view ([1993] 1 All ER 599 at
602, [1993] Ch 243 at 248): ‘In this context that word would, I believe, naturally be read as meaning the person who made the deposit in question.’
545
In the event, however, Sir Donald Nicholls V-C decided that that natural meaning had to give way to the extent necessary to enable the underlying
purpose of the 1987 Act to be achieved. This purpose, discerned in particular from s 61, was, he concluded, to compensate those beneficially entitled to a
deposit as at the date payment falls to be made under the scheme.
Sir Donald Nicholls V-C in addition expressed himself confirmed in that conclusion by the terms of the 1991 order, which he said ‘proceeded on the
basis that “depositor” does embrace a person who did not make the deposit but subsequently became entitled to it, by operation of law or otherwise’ (see
[1993] 1 All ER 599 at 607, [1993] Ch 243 at 254).
I take each of those reasons in turn.
Preamble
Section 61
Section 61(1) provides:
‘In the cases to which this section applies sections 58 and 60 above shall have effect with the following modifications.’
There then follow several subsections dealing with a number of disparate situations, some of which, it has to be said, contain their own acute difficulties
of construction. For present purposes it is sufficient to cite only the following:
‘(3) Where a deposit is held for any person or for two or more persons jointly by a bare trustee, that person or, as the case may be, those persons
jointly shall be treated as entitled to the deposit without the intervention of any trust. [‘Bare trustee’ is defined by s 106(1) of the 1987 Act to mean,
in relation to a deposit, ‘a person holding the deposit on trust for another person who has the exclusive right to direct how it shall be dealt with
subject only to satisfying any outstanding charge, lien or other right of the trustee to resort to it for the payment of duty, taxes, costs or other
outgoings …’]
(6) … where two or more persons are jointly entitled to a deposit … each of them shall be treated as having a separate deposit of an amount
produced by dividing the amount of the deposit to which they are jointly entitled by the number of persons who are so entitled. [By sub-s (10),
‘jointly entitled’ is defined to mean ‘beneficially entitled as joint tenants, tenants in common or coparceners’.]’
Mr Brindle makes two main submissions with regard to s 61. The first is that its effect is expressly by way of modification to ss 58 and 60. Given,
as all agree, that assignees are not included within its provisions, they therefore fall to be considered under ss 58 and 60 in their unmodified form. That
clearly is right; indeed it can hardly be supposed that Sir Donald Nicholls V-C thought otherwise. It does not follow, however, that s 61 can throw no
light upon the correct approach to the earlier provisions. On the contrary—and this is surely what Sir Donald Nicholls V-C had in mind—it is implicit in,
for instance, sub-ss (3) and (6) that the beneficiaries—those to be treated respectively as ‘entitled to the deposit without the intervention of any trust’ and
as ‘having a separate deposit’—shall on that basis be entitled to compensation under the scheme even though themselves not the original deposit makers
and, indeed, irrespective of whether their trust (in a sub-s (3) case) or their joint entitlement (in a sub-s (6) case) existed at the time the deposit was made.
In short, it appears plain from s 61 that, once a person is treated as entitled to a deposit, that of itself qualifies him for payment under the scheme. Thus
entitlement to a deposit under s 61 is 546 seen to be precisely correlative to the institution’s liability to the depositor under s 60(1).
Mr Brindle’s second main argument with regard to s 61 is that so far from there being, as Sir Donald Nicholls V-C concluded ([1993] 1 All ER 599
at 604, [1993] Ch 243 at 251), ‘one thread running through [it] is that where A is the person who made the deposit but B is the person beneficially entitled
to the deposit, B is the material person for the purposes of the protection scheme’, the section contains a heterogeneous group of provisions disclosing no
clear pattern of entitlement. In the case of an ordinary family trust, for instance, or a partnership (sub-s (5), compensation is to be paid only in respect of
one protected deposit and it is by no means all beneficiaries who themselves can advance a direct claim for payment. So be it. This does not in my
judgment undermine the central conclusion to be drawn from s 61, which is, as stated, that it looks to compensate those who are treated as being entitled
to a deposit at the moment when the question of compensation arises.
The 1991 order

Paragraph 2(1) of the order reads:
‘For the purposes of sections 60, 61 and 62 of the Banking Act 1987 the definition of deposit in section 5 of that Act shall be treated as
excluding any sum to which a person becomes entitled (otherwise than by operation of law), or comes to be treated as entitled for the purposes of
sections 58 and 60 of that Act, after a petition is presented for the winding up of the institution, or, in the case of an institution in respect of which
such a petition has been presented before the date on which this Order comes into force, 30th July 1991.’
It was made pursuant to s 7 of the 1987 Act, which permits the Treasury by order to amend the meaning of ‘deposit’. Mr Brindle submits that Sir
Donald Nicholls V-C erred in regarding the 1991 order as an aid to construction of the 1987 Act itself. This is not, he points out, a case like Britt v
Buckinghamshire CC [1963] 2 All ER 175, [1964] 1 QB 77 and Hanlon v Law Society [1980] 2 All ER 199, [1981] AC 124, where the regulations relied
upon were contemporary with the parent Act and, as Lord Lowry put it in Hanlon’s case [1980] 2 All ER 199 at 218–219, [1981] AC 124 at 193–194,
constituted a contemporanea expositio, providing a legitimate aid to construction on that basis. Here the 1987 Act was passed four years before the 1991
order.
In any event, Mr Brindle submits, all that the 1991 order does is amend the 1987 Act; it does not illuminate its meaning before such amendment.
True, it implicitly recognises that, unamended, the 1987 Act arguably fell to be construed as including within the word ‘depositor’ those who become
entitled to the deposit after the deposit was made. But that is not to say that the 1991 order accepts that to be its true construction.
I acknowledge the force of these submissions and recognise too that subordinate legislation may well be passed, as Mr Brindle submits this was, ex
abundanti cautela. But, all that said, it seems perhaps more likely that those responsible for the order were intent on preserving, rather than merely
leaving open to future argument, (a) the rights of those whose entitlement arises by operation of law (ex hypothesi not the deposit makers), and (b) the
rights of those who become entitled (otherwise than by operation of law) before a winding-up petition is presented—‘pre-petition assignees’ as Sir Donald
Nicholls V-C called them.
547
In rejecting the ‘deposit maker’ construction, however, I put aside the 1991 order and summarise my reasons as follows. First, it seems singularly
improbable that Parliament intended to exclude from protection under the scheme three particular categories of non-deposit makers: personal
representatives of deceased account holders, trustees in bankruptcy, and legal assignees (those entitled to money on deposit following a statutory
assignment under s 136 of the Law of Property Act 1925). Clearly the bank is liable to each of these for moneys in the relevant account and, unless they
are protected under the scheme, then (for these accounts) no one is. Whatever at first blush may be thought the most obvious meaning of the word
‘depositor’ under the 1987 Act, I certainly see nothing unnatural in using it to encompass these particular categories of claimant.
Second, as Sir Donald Nicholls V-C pointed out, whichever construction one adopts there is bound to be some untidiness in the 1987 Act. True,
sub-ss (2) and (6) of s 60 appear to assume that the claimant will have been the original deposit maker—Mr Jarvis QC’s submission to the contrary,
advanced in a quasi-amicus capacity, I found difficult to follow. But, as stated, s 61 appears clearly to recognise that in certain circumstances that will not
be so. Bearing in mind that s 60(2), the most problematic of these two provisions, did not appear at all in the 1979 Act—an Act which all agree is in pari
materia with the 1987 Act—it would be remarkable were it necessary on that account to give a narrower meaning to depositor now than would earlier
Preamble
have been appropriate. It would, I conclude, be wrong to allow these assumptions to carry the day.
I turn therefore to what appears to me the critical issue in these proceedings: given that the claimant need not be the original deposit maker, what
must be the nature of his entitlement against the bank to make him a ‘depositor’ qualifying for protection under the scheme?
Lord Irvine contends that a depositor is anyone directly entitled in law or equity as against the bank to moneys standing on deposit. That, of course,
would include equitable assignees—at any rate those for whom Lord Irvine is concerned, namely those entitled following an assignment of which notice
has been given and to which the bank has no equitable defence. The board and Barclays contend on the contrary that depositors are only those to whom
the bank owes a legal liability, a construction that would clearly exclude all equitable assignees.
In resolving this issue it is convenient to begin by considering what are the essential characteristics of equitable assignments and, not least, what
distinguishes them from legal assignments.
During the course of the hearing we were taken to a large number of authorities in this field. To none of them do I think it necessary to refer in
detail. They support, I believe, the following basic propositions.
(1) An assignment of part of a debt cannot be an ‘absolute assignment’ within the meaning of s 136 of the Law of Property Act 1925 and thus it takes
effect solely as an equitable assignment: see Forster v Baker [1910] 2 KB 636, [1908–10] All ER Rep 554 and Re Steel Wing Co Ltd [1921] 1 Ch 349,
[1920] All ER Rep 292.
(2) A statutory assignee acquires exclusive rights in the debt assigned and can give a good discharge for it or sue the debtor to judgment without
involving the assignee in any way.
(3) In the case of an equitable assignment, the assignor remains the legal owner of the relevant chose (here the part of the debt assigned) whilst the
assignee becomes entitled to the equitable interest in it—the ‘creditor in equity’ 548 as P O Lawrence J put it in Re Steel Wing Co Ltd [1921] 1 Ch
349 at 357, [1920] All ER Rep 292 at 295.
(4) Once notice of an equitable assignment is given to the debtor, he cannot thereafter deal inconsistently with the assigned interest, for instance by
making payment to the assignor: see Jones v Farrell (1857) 1 De G & J 208, 44 ER 703 and Brice v Bannister (1878) 3 QBD 569.
(5) In the case of an equitable assignment consisting of the assignment of part of a debt—we are not here concerned with assignments which are
equitable rather than statutory only because of a failure to give due notice to the debtor—the assignee cannot give a good discharge in respect of the
assigned part of the debt nor can he sue the debtor to judgment without first joining the assignor as a party to the proceedings—as co-plaintiff if he
co-operates, co-defendant if he does not: see Re Steel Wing Co Ltd, Warner Bros Records Inc v Rollgreen Ltd [1975] 2 All ER 105, [1976] QB 430 and
Performing Right Society Ltd v London Theatre of Varieties Ltd [1924] AC 1.
(6) Conversely, in such cases the assignor likewise cannot give a good discharge even in respect of the non-assigned part of the debt and he too must
join the assignee in any proceedings brought against the debtor: see Walter & Sullivan Ltd v J Murphy & Sons Ltd [1955] 1 All ER 843, [1955] 2 QB 584.
(7) The underlying rationale for all this is that there remains but one single debt: it would be oppressive for the debtor to have to defend more than
one action arising out of the same transaction. He might, for instance, dispute the existence of the debt or claim an equitable set-off in respect of it. Why
should he have to do this more than once? Equally, as Scott J points out in his valuable review of the authorities in Weddell v J A Pearce & Major (a
firm) [1987] 3 All ER 624 at 636, [1988] Ch 26 at 41:
‘… if the legal owner of the chose were not a party to the action, the defendant might, notwithstanding he had paid the successful plaintiff, the
equitable assignee, nevertheless remain liable to the legal owner. The legal owner, after all, might dispute the validity of the equitable assignment,
or might disclose a prior equitable interest in some third party.’
(8) Once that rationale is understood, cases like William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454, [1904–7] All ER Rep
345—where the House of Lords held it unnecessary to have sued the assignors too since the debtor, by paying them, had already obtained discharge of
any further liability to them—and, indeed, Weddell’s case itself—where Scott J held that an action commenced by an equitable assignee was not a nullity
even though it could not have proceeded to judgment without first either joining the assignor or, as was there possible and in the event done, giving notice
so as to turn the equitable assignment into an absolute statutory assignment—are readily explicable.
Against that background I turn to consider the rival arguments.
Lord Irvine’s argument at its most extreme is that once notice is given of an equitable assignment the debtor ceases to be liable to the assignor—his
only liability from that time on is to the assignee. This submission is based principally upon the following passage from Professor Treitel’s Law of
Contract (8th edn, 1991) p 585:
‘Where the assignment is statutory, the debtor ceases, as soon as notice has been given, to be liable to the assignor and becomes liable to the
assignee. It is submitted that the same is true where the assignment is equitable; for it has been held that if the debtor in such a case ignores the
549 notice and pays the assignor he is not discharged and will have to make a second payment to the assignee.’
This argument I reject. As Mr Brindle points out, the authorities footnoted to that passage support only the comment following the semicolon—they
do not make good Professor Treitel’s submission that the debtor ceases to be liable to the assignor. Rather there remains a legal liability to the assignor
albeit, true, one which the debtor meets only at his peril.
At the other end of the spectrum, Mr Jarvis for the board argues that, even after notice, the bank remains liable solely to the assignor; the assignee, he
submits, has merely an equitable interest in the assigned part of the debt in respect of which equity will give him relief. He has, Mr Jarvis accepts, a
remedy; but that, he submits, is by no means the same as saying that he has any entitlement against the bank or that the bank has any liability to him.
This argument too I reject. The word ‘liability’ in my judgment is plainly apt to embrace the nature of the bank’s obligations to an equitable
assignee after notice is given.
I conclude, therefore, that both the assignor and the assignee are persons to whom the bank may properly be said to be liable in respect of an
assigned part of a debt. Given, however, as must be plain, that in respect of that sum there can be only one ‘depositor’ for the purposes of the 1987 Act,
the vital question becomes: which is it, the assignor or the assignee? Which liability—or, conversely, whose entitlement—is the 1987 Act concerned
with?
Mr Brindle, whose second line of argument expressly recognises that an equitable assignee may indeed be someone to whom the bank is liable,
addressed this issue directly. He submits that, although liability is a necessary ingredient of a successful claim under the 1987 Act, it should not of itself
be regarded as sufficient basis for such a claim. To say that because X is someone to whom the bank is liable, therefore X is a depositor is a non
sequitur—after all, s 60(1) is concerned rather with identifying what is to be regarded as a protected deposit than with defining a depositor. Therefore one
must look at the scheme of the legislation as a whole to determine what characteristics apart from an entitlement against the bank a person must have to
qualify for protection as a depositor. As to this Barclays and the board make these further submissions.
First, it is one thing to recognise as a depositor a legal assignee of a whole deposit, able to sue and give a good discharge in his own name; quite
another to regard similarly an equitable assignee who, to perfect and enforce his rights, has to join the assignor in any proceedings he brings and who
Preamble
cannot alone give a good discharge. To describe him as a ‘depositor’ is to depart from any natural meaning of that word.
Second, the liability of the bank to the equitable assignee—although in a real sense a liability—is not a liability independent of that owed by the
bank to the assignor, nor such as to create the assignee a separate depositor in respect of a separate protected deposit. The very reason why there was not
a legal assignment in the first place was because this was a single debt; that equally is the reason why claims by equitable assignees are subject to various
procedural constraints. The inescapable consequence of this must be that there remains but a single deposit, the assignor and assignee having different
interests in that same debt.
Third, the right approach is therefore to regard only the assignor, the owner of the legal interest in the debt, as the depositor in respect of the single
550 continuing debt. He, of course, can (as a statutory assignor cannot) recover on behalf of the equitable assignee as well as himself up to the limit
of protection afforded by the scheme and can account to the assignee, as appropriate, in respect of moneys recovered.
Fourth, there is at the very least room for doubt as to the meaning of the word depositor in this context and as to whether it is apt to embrace an
equitable assignee. In these circumstances it is permissible to adopt a purposive construction to the statute. Such an approach would admit of only one
answer. Parliament’s intention is plain that even those holding very substantial deposits shall recover no more than a maximum of £15,000. It is equally
clear that no one would be likely to assign part of a bank account credit balance except, as here, for the specific purpose of escaping just such a limitation.
As the appellants point out, not merely have no claims been made upon the board by equitable assignees other than those who have sought to exploit this
particular accountant’s scheme, but in the real world it could never be a sensible arrangement. Quite apart from involving a liability both for stamp duty
and legal fees, it achieves nothing that could not better be achieved either by a cheque (which would meet almost every case), or just possibly by a charge
or trust (in circumstances which, although rare, one can just about envisage). Lord Irvine’s examples of situations where it might make sense to assign
part of an account prove on close examination to be unreal, fanciful and far-fetched. True, Paget’s Law of Banking (10th edn, 1989) expressly mentions
the possible assignment of a credit balance where the sum to be assigned is on ‘time’ or ‘notice’ deposit, but this is contemplated specifically by way of
statutory rather than equitable assignment; it does not appear to envisage part only of such a balance being assigned. And, indeed, all this was appreciated
by Sir Donald Nicholls V-C himself. He thought it quite possible and understandable that the draftsman had no thought whatever of assignments. As he
said ([1993] 1 All ER 599 at 606, [1993] Ch 243 at 252):
‘Assignments of money in a bank account, except by way of charge, are not everyday transactions. The absence of express provision in the
section means that the court, treading circumspectly, must look at the underlying purpose of the legislation and construe the draftsman’s language
with that purpose in mind.’
What the appellants quarrel with, however, is Sir Donald Nicholls V-C’s subsequent holding that the compensation of assignees (or at any rate
equitable assignees) comes within that underlying purpose. Sir Donald Nicholls V-C so held with regard to legal assignees for the reasons already
indicated, and with regard to equitable assignees because he took the view that they cannot sensibly be treated differently. But, the appellants submit, this
overlooks amongst other things the virtual certainty that no equitable assignment will ever be made otherwise than with the specific object of
circumventing the £15,000 ceiling upon the sum recoverable by each deposit holder, and thus ignores that evident purpose of the legislation.
These are formidable arguments. How does Lord Irvine meet them?
First and foremost he submits that under the 1987 Act there can be no logical distinction between statutory assignees on the one hand—a category
we have already indicated we regard as entitled to compensation—and equitable assignees on the other. True, as indicated, statutory assignments and
equitable assignments have different legal consequences. But, submits Lord Irvine, relying upon a passage in Sir Donald Nicholls V-C’s judgment central
to his 551 decision in the case ([1993] 1 All ER 599 at 606, [1993] Ch 243 at 253): ‘These differences are not material for present purposes.’ Only
the assignee is entitled to actual payment of the sum assigned to him. If he has to sue, he does so to vindicate his own, not the assignor’s, rights. The
assignor is joined only to guard against or resolve in a single action any dispute as to the validity or extent of the equitable assignment.
With regard to the court adopting a purposive construction of the statute, Lord Irvine submits first that the language of ss 58 and 60, properly
understood, unambiguously supports his contention. Difficult the point of construction may be, but that is not to say that the 1987 Act is ambiguous.
Even, however, if that be wrong—or if, as Mr Jarvis argues, the court is in any event entitled to adopt a purposive approach to construction—Lord Irvine
submits that to admit equitable assignees amongst the categories of those entitled to protection is not in any event contrary to the intention of the scheme.
In the first place, he submits, Sir Donald Nicholls V-C was correct in holding that the protection of assignees is within the underlying purpose of the
legislation. And, if that be right, then to suggest that such transactions thwart Parliament’s intention to limit claims to a maximum of £15,000 is to beg the
question. Second, he submits that there was here in any event an opportunity for those concerned in these assignments to have achieved the selfsame
consequence of multiple recovery by setting up a bare trust and invoking the provisions of sub-ss (3) and (6) of s 61. This too appears to have been part
of Sir Donald Nicholls V-C’s reasoning, as appears from the following passage in his judgment ([1993] 1 All ER 599 at 606, [1993] Ch 243 at 253):
‘The trust provisions in s 61 draw no distinction of consequence between a declaration of trust relating to the whole deposit and one relating to a
defined part of a deposit. That is not surprising. In the present case the assignors declared themselves to be trustees of the assigned parts of the
deposits if BCCI was unable to designate separate deposit accounts in the assignees’ names. I am unable to see why equitable assignments, with
this fall-back declaration of trust, ought to be treated in any way differently for compensation purposes than if in place of assignments there had
been simple declarations of trust. Had there been, there could have been no room for doubt.’
With regard to this last point I respectfully doubt whether in fact the assignors here could have achieved multiple recovery by way of simple
declarations of bare trust. Certainly the beneficiaries would have had to be ‘jointly entitled’ within the meaning of s 61(10) and to have had the exclusive
right to direct the trustee how to deal with the whole deposit (s 106(1)). But, be that as it may, it is not suggested here that the assignors’ fall-back
declarations of trust achieved any such entitlement, and I cannot accept that the possibility of having been able to achieve such a result by other means,
even had it existed, can logically avail the claimant in the present circumstances.
As to Lord Irvine’s other submissions, I acknowledge their force, in particular regarding the apparent narrowness of the differences between statutory
and equitable assignments and the difficulty of distinguishing between them, the foundation of Sir Donald Nicholls V-C’s decision in the matter.
I do not pretend to have found this by any means an easy case to decide. Having set out the competing arguments at some length, I propose to state
my conclusions quite shortly. They are these.
552
I have come to the view that the differences between legal assignments and equitable assignments, even though in one sense narrow, are in the
present context real and in the end decisive. These differences I would summarise as follows. First, that, whereas after a legal assignment only one
person, the assignee, can be said to have any entitlement against the bank, in the case of an equitable assignment, for the reasons given, the bank remains
in different ways liable to both assignor and assignee. And this is not merely a technical distinction—its consequence is that, whereas to exclude legal
assignees from the scheme would leave no one entitled to protection in respect of the assigned account, in the case of equitable assignments the assignor
Preamble
can still claim.
Second, even after the assignment of part of a credit balance, there remains, as stated, but one single debt owed by the bank. That is why the
transaction could not be by way of statutory assignment in the first place. In my judgment, it is altogether easier to describe as a ‘depositor’ under the
scheme the new owner of an entire credit balance (a legal assignee) than the new equitable creditor of part only of that balance. After all, so to describe
the equitable assignee means that in respect of one single debt there will be two or more quite distinct ‘depositors’ under the 1987 Act, two or more
people to whom the bank will in varying ways and in different sums be liable. To the extent that s 61 expressly provides for such a situation, so be it. It
does not follow that it can otherwise arise under the 1987 Act.
Third, whereas I envisage at least the possibility that the whole credit balance of a bank account may be legally assigned for good reason, it seems to
me well nigh inconceivable that anyone would assign part of such a balance for any reason other than that which so plainly prompted the assignments in
the present case, namely the hope of circumventing the limitation on recovery under the statutory scheme. To assume, as I must and do, that these
assignments were genuine, in the sense that they were legally effective as between the parties to them, does not require me to assume also that in the real
world they would ever be used otherwise than as a device. To the extent, therefore, that it is necessary to construe the 1987 Act purposively to achieve
the conclusion to which I come, I do so with this consideration in mind.
For these reasons I have reached the view that only those to whom the bank is legally liable are depositors within the scheme and that it is the sum of
a depositor’s legal (rather than equitable) claims against the bank which delimits the size of his protected deposit under s 60(1). Accordingly I for my part
would have proposed to allow these appeals, set aside the declaration made by Sir Donald Nicholls V-C and declare instead that an assignee of part of a
deposit is not to be treated as a depositor with a protected deposit for the purposes of Pt II of the Banking Act 1987. Since, however, I understand Russell
LJ and Sir Michael Fox to take a different view upon the determining question concerning equitable assignments, it follows that these appeals will be
dismissed.
RUSSELL LJ. I have had the advantage of reading in draft the judgment of Simon Brown LJ. I need not repeat the facts and I gratefully adopt all that
he says as to the background of the appeal and his rehearsal of the competing arguments.
In agreement with Simon Brown LJ, I am also satisfied that protection under the scheme extends beyond the original depositor, and for the reasons
which he gives I too would reject the ‘deposit maker’ construction advanced by Mr Brindle QC. I part company from Simon Brown LJ, however, when
he deals 553 with the liability of the board to equitable assignees, although like him I have not found the resolution of this appeal an easy task.
In my judgment, whilst I recognise that the differences between a legal assignee and an equitable assignee are real, they do not, in the context of this
case, justify a fundamental distinction being drawn so that the board is liable to the one and not liable to the other.
Had there been no insolvency, each and every equitable assignee could have sued the bank to judgment if the bank, on demand, had declined to pay
out whatever sum had been assigned to the individual assignee. The equitable assignment, having been made by the original depositor pursuant to a
transaction which we are expressly enjoined not to regard as a sham, there could have been no impediment to the assignee suing the bank to judgment.
The bank would have had no defence to the assignee’s claim. In reality the need to join the assignor in the proceedings would have been no more than a
procedural technicality, for no objection to the judgment could have been properly raised by the assignor. If the bank had paid the assignor any part of
the sum assigned without the authority of the assignee, the latter would still have had an unanswerable claim. This, of course, is on the basis that the bank
had had notice of the assignment as it did in all the cases now under review.
In my judgment the scheme of the Banking Act 1987 is that the board, as compensating authority, should stand in the shoes of the defaulting bank,
and I can see no reason why, subject to the financial limit, it should be in any better position vis-à-vis equitable assignees than the bank would have been
but for the insolvency. If the bank would have been liable to the equitable assignee by due process of law, and, absent any good cause demonstrated by
the assignor, no longer liable to the assignor for the moneys assigned, then in my judgment the board must acknowledge the claim of the equitable
assignee.
I am, of course, very conscious of the fact that what was done was plainly a device, but I emphasise that no argument was addressed to us that
because the assignments amounted to a device they did not, on that account, attract protection. The reservation of the board’s position as to the true
nature of the transactions may or may not lead to a different result from that which I have reached. I take the view that Sir Donald Nicholls V-C was right
to make the declaration that he did and I would dismiss these appeals.
SIR MICHAEL FOX. I agree with the judgment of Russell LJ and would dismiss this appeal accordingly.
Basically, two arguments were advanced against the claims of the assignees to be entitled to protection, namely: (1) that a claimant is not entitled to
protection under the Banking Act 1987 unless he was the original depositor; and (2) that, in any event, the rights of an equitable assignee are not sufficient
to make him a depositor qualifying for protection under the 1987 Act.
As to the first of those arguments, we did not call upon Lord Irvine QC. The reasons for that are set forth in the judgment of Simon Brown LJ.
The second argument is the central issue in the case. In order to deal with it, it is necessary to be clear as to the rights of an equitable assignee. I
should add that the assignments in the present case were equitable because, being assignments of part only of the debts, they were not absolute
assignments for the purposes of s 136 of the Law of Property Act 1925.
An equitable assignee of a debt or part of a debt who has given proper notice of the assignment to the debtor can recover the assigned amount from
the debtor by an ordinary action in the courts. He must however join the assignor 554 as a party; that is merely for the protection of the assignor in
case there are defences which he can raise to the validity of the assignment.
The position of a legal assignee is different in that he can sue the debtor without joining the assignor as a party.
It is accepted that a legal assignment of a bank deposit would be sufficient to enable the assignee to obtain whatever benefit the Act 1987 conferred
in relation to that debt. The rights conferred by the general law upon an equitable assignee are not in my judgment sufficiently different from those of a
legal assignee to justify the conclusion that an equitable assignee is not entitled to the protection of the 1987 Act.
In both cases the assignee is (subject to giving notice) entitled to recover the amount of the assigned debt from the debtor. The equitable assignee
must, of course, join the assignor as a party. If the assignment is a valid assignment the assignee will get judgment against the debtor for payment of the
assigned amount. If it is not a valid assignment, he will not get judgment but on that assumption he had no claim anyway.
In the present case it is assumed, for the purposes of this appeal, that the assignment was a genuine and valid assignment which takes effect
according to its tenor. We must assume, therefore, that there would be no defence to the assignees’ claims.
I appreciate, of course, that a legal assignment would not have served the purpose of the assignors in the present case.
But what is important is that a legal assignment would plainly be effective to secure the protection of the 1987 Act and that the rights conferred by an
equitable assignment are not significantly different to those of a legal assignee to justify any significant practical distinction between legal and equitable
assignees for the purposes of this case. The crucial matter to any assignee is whether he can recover the debt. The practical position is that, provided he
gives notice (which the legal assignee also has to do) the equitable assignee will get his money if it was an unimpeachable assignment. He has to join the
assignor in the action but that, in such cases (including the present), would be a formality.
Preamble
Looking at the matter from the point of view of liability therefore it seems to me that an equitable assignee under a valid assignment must
realistically be regarded as entitled to the debt or part of the debt which has been assigned to him. The courts will enforce payment.
Accordingly, I think that Sir Donald Nicholls V-C was right. I would dismiss the appeal.
Appeal dismissed.
23 November 1993. The Appeal Committee of the House of Lords gave leave to appeal.
555
[1994] 1 All ER 556
Attorney General v Associated Newspapers Ltd and others

ADMINISTRATION OF JUSTICE; Contempt of Court
HOUSE OF LORDS
LORD KEITH OF KINKEL, LORD BRIDGE OF HARWICH, LORD GOFF OF CHIEVELEY, LORD LOWRY AND LORD LLOYD OF BERWICK
6 DECEMBER 1993, 3 FEBRUARY 1994
Contempt of court – Publications concerning legal proceedings – Disclosure by newspaper of secrets of jury room – Jurors giving opinions regarding
trial to third party – Third party revealing information to journalist – Journalist writing article in newspaper using information – Whether journalist,
publisher and editor guilty of contempt – Whether prohibition against disclosure of jury’s deliberations confined to disclosure by members of jury –
Contempt of Court Act 1981, s 8(1).
The appellants, the publishers and editor of a national newspaper and a journalist employed on the paper, published an article in the paper referring to
statements, opinions and arguments made by some members of the jury as they discussed their verdicts in a well-publicised fraud trial. The appellants
had not obtained the information directly from the jurors concerned but from transcripts of interviews with the jurors conducted supposedly for the
purpose of bona fide research by persons who had placed an advertisement in another newspaper offering a reward to jurors who had taken part in the trial
if they contacted a box number. The Attorney General brought proceedings for contempt under s 8(1)a of the Contempt of Court Act 1981 against the
appellants for publishing the information. Under s 8(1) it was a contempt to ‘obtain, disclose or solicit’ statements, opinions, arguments or voting which
took place in the jury room. The appellants contended that the prohibition against disclosure of the deliberations of a jury was confined to disclosure by
jurors themselves and did not apply to publication of information about the jury’s deliberations which had been obtained indirectly from another source.
The Divisional Court held that the appellants were in contempt and imposed fines totalling £60,000. The appellants appealed to the House of Lords.
________________________________________
a Section 8(1) is set out at p 558 d e, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – It was a contempt of court under s 8(1) of the 1981 Act for a newspaper to publish the deliberations of jurors in the jury room obtained from a
source other than the jurors. The section was plain and unambiguous and was aimed at prohibiting not only the revelation by jurors of their deliberations
but also any further disclosure by publication of the same deliberations, provided that the publication amounted to disclosure and was not a mere
republication of already known facts. It followed that the appellants had been in contempt of court by their publication of the jurors’ deliberations. The
appeal would therefore be dismissed (see p 558 b c, p 561 b to d, p 564 e to g, p 565 a g h, p 567 h j and p 568 b c, post).
Decision of the Divisional Court of the Queen’s Bench Division [1993] 2 All ER 535 affirmed.
556
Notes
For disclosing particulars of a jury’s deliberations, see 37 Halsbury’s Laws (4th edn) para 1023, and for a case on the subject, see 37(3) Digest (Reissue)
372, 5155.
For the Contempt of Court Act 1981, s 8, see 11 Halsbury’s Statutes (4th edn) (1991 reissue) 192.

A-G v New Statesman and Nation Publishing Co Ltd [1980] 1 All ER 644, [1981] QB 1, [1980] 2 WLR 246, DC.
A-G’s Reference (No 1 of 1988) [1989] 2 All ER 1, [1989] AC 971, [1989] 2 WLR 729, HL.
DPP v Ottewell [1968] 3 All ER 153, [1970] AC 642, [1968] 3 WLR 621, HL.
Ellis v Deheer [1922] 2 KB 113, [1922] All ER Rep 451, CA.
R v Armstrong [1922] 2 KB 555, [1922] All ER Rep 153, CCA.
Sunday Times v UK (1979) 2 EHRR 245, E Ct HR.
Tuck & Sons v Priester (1887) 19 QBD 629, CA.
Preamble
Wimpey (George) & Co Ltd v British Overseas Airways Corp [1954] 3 All ER 661, [1955] AC 169, [1954] 3 WLR 932, HL.
Cases also cited

Garland v British Rail Engineering Ltd Case 12/81 [1982] 2 All ER 402, [1983] 2 AC 751, CJEC and HL.
Lingens v Austria (1986) 8 EHRR 407, E Ct HR.
Lonrho plc, Re [1989] 2 All ER 1100, [1990] 2 AC 154, HL.
Open Door Counselling Ltd v Ireland (1992) 15 EHRR 244, E Ct HR.
Rantzen v Mirror Group Newspapers (1986) Ltd [1993] 4 All ER 925, [1993] 3 WLR 953, CA.
Thorgeirson v Iceland (1992) 14 EHRR 843, E Ct HR.
Appeal
Associated Newspapers Ltd, publishers of the Mail on Sunday, Stewart Steven, editor of the Mail on Sunday, and Clive Wolman, a journalist on the Mail
on Sunday, appealed, with the leave of the Appeal Committee of the House of Lords given on 22 April 1993, from the decision of the Divisional Court of
the Queen’s Bench Division (Beldam LJ and Tudor Evans J) ([1993] 2 All ER 535, [1993] 3 WLR 74) on 12 November 1992 whereby the appellants
were held to have been in contempt in publishing an article in the issue of the Mail on Sunday for 5 July 1992 entitled ‘Common people … common sense
… COMMON JUSTICE’ in that the conduct of the first and second appellants in publishing and of the third appellant in writing the article was in breach
of s 8 of the Contempt of Court Act 1981 because the article disclosed particulars of statements made, opinions expressed, arguments advanced or votes
cast by members of a jury in the course of their deliberations in legal proceedings. The Divisional Court fined the first respondent £30,000, the second
respondent £20,000 and the third respondent £10,000. The facts are set out in the opinion of Lord Lowry.
David Pannick QC and Dinah Rose (instructed by Mishcon de Reya) for the appellants.
Alan Moses QC and Philip Havers (instructed by the Crown Prosecution Service) for the Attorney General.
557
3 February 1994. The following opinions were delivered.
LORD KEITH OF KINKEL. My Lords, for the reasons given in the speech to be delivered by my noble and learned friend Lord Lowry, which I have
read in draft and with which I agree, I would dismiss the appeal.
LORD BRIDGE OF HARWICH. I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Lowry. For
the reasons he gives, I would dismiss the appeal.
LORD GOFF OF CHIEVELEY. I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Lowry. For the
reasons he gives, I would dismiss the appeal.
LORD LOWRY. My Lords, this appeal is concerned with the meaning of s 8(1) of the Contempt of Court Act 1981, which reads:
‘Subject to subsection (2) below, it is a contempt of court to obtain, disclose or solicit any particulars of statements made, opinions expressed,
arguments advanced or votes cast by members of a jury in the course of their deliberations in any legal proceedings.’
The question is whether the word ‘disclose’, as used in the subsection, refers exclusively to disclosure of information by a juror or signifies disclosure
generally, including both disclosure by a juror and (where the facts published were not already well known) publication by a newspaper.
As your Lordships have seen, this subsection is expressed to be subject to s 8(2):
‘This section does not apply to any disclosure of any particulars—(a) in the proceedings in question for the purpose of enabling the jury to
arrive at their verdict, or in connection with the delivery of that verdict, or (b) in evidence in any subsequent proceedings for an offence alleged to
have been committed in relation to the jury in the first mentioned proceedings, or to the publication of any particulars so disclosed.’
The only relevance, however, of sub-s (2) for present purposes is that the words in the last line are consistent with the argument that the publication (in a
newspaper, for example) of particulars already disclosed by a juror would itself be regarded as a disclosure if it had not been expressly excluded by the
words referred to.
Of the three appellants, the first is the publisher of a newspaper, the Mail on Sunday, the second was on 5 July 1992 the editor and the third, a
journalist, is the city editor.
On 11 February 1991 a serious fraud trial, which became known as ‘the Blue Arrow trial’, commenced at the Central Criminal Court. A year later,
to the day, the jury retired. On 14 February 1992 one individual defendant was acquitted and four were convicted of conspiracy to defraud. They
received suspended sentences of imprisonment on 17 February. (Two other individuals and the corporate defendant had been found not guilty by
direction). On 16 July 1992 the appeals of the convicted defendants were allowed by the Court of Appeal, 558 Criminal Division on the ground that
the trial judge’s decision to sum up to the jury on only one issue was a material irregularity.
On Sunday, 5 July 1992 an article about the Blue Arrow trial written by the third appellant and headed ‘Common People … common sense …
COMMON JUSTICE’ appeared in the Mail on Sunday. On 10 July 1992 the Attorney General instituted proceedings against the appellants under the
1981 Act, alleging contempt contrary to s 8(1) in that the article ‘disclosed particulars of statements made, opinions expressed, arguments advanced and
votes cast by members of a jury in the course of their deliberations’ in the Blue Arrow trial. It was conceded at the hearing in the Divisional Court
(Beldam LJ and Tudor Evans J) ([1993] 2 All ER 535, [1993] 3 WLR 74), on 5 and 6 November 1992, that the article contained the particulars alleged
but the appellants contended that, on the true construction of s 8(1), the publication of the article did not amount to a disclosure of those particulars,
saying that such disclosure could be made only by a juror. On 12 November the court gave judgment, held against the appellants and fined them £30,000,
£20,000 and £10,000 respectively for their contempt. From this decision, with the leave of this House, the appellants have appealed both on the question
Preamble
of the interpretation of s 8(1) and as to the amount of the fines.
Beldam LJ, giving the judgment of the court, has described both the article and the way in which the material for it came to hand ([1993] 2 All ER
535 at 537–538, [1993] 3 WLR 74 at 75–76):
‘Early in July 1992 the third respondent, a journalist and editor of a City section, wrote a newspaper article in which he attributed to jurors in R
v NatWest Investment Bank, known as the “Blue Arrow” trial, “accounts by three jurors about how they actually reached their decision”. The
article was shown to the second respondent, the editor of the Mail on Sunday, who decided to publish it in the “Money Analysis” section of the
issue on 5 July. The article revealed the statements, opinions and arguments of some members of the jury as they discussed their verdicts. It gave
the thoughts of some jurors on the evidence and the opinion of one member of the jury that another showed a complete lack of understanding, only
wanted to drag the case out and had agreed with the verdict only because he wanted to get home; it related comments made by another juror about
the defendants and how his reluctance to believe in their guilt had been overcome and it recounted how certain other jurors had been persuaded to
change their minds in the course of the deliberations. How the respondents were able to reveal to the readers of the Mail on Sunday these
confidential details of the jury’s deliberations has not been disclosed to the court. It is, however, known that about two weeks after the conclusion
of the trial an advertisement appeared in the London Evening Standard offering a reward to jurors who had taken part in the trial if they contacted a
box number. A woman posing as an American researcher in Massachusetts was said to be seeking data for a comparative study. Two members of
the jury answered the advertisement. Other members were contacted by telephone by a woman who avowed that she was preparing a paper for
university studies. After preliminary meetings, the initial scruples of two of the jurors were overcome and they were persuaded to answer questions
about the confidential proceedings in the jury room. One was paid £200 and the other £100. The third respondent denies any knowledge of the
advertisement in the Evening Standard. He asserts that he later learnt from the “researchers” of the interviews which had taken place and that he
received from those researchers “transcripts of their interviews”. He then telephoned and spoke 559 directly to one of the jurors of whose
interview he had a transcript. Although the third respondent does not accept the sworn evidence of the juror that he refused his agreement to
publish the information which he had supplied under the clearest assurance that it was for research only and not for publication, the third respondent
must have realised that the information had been supplied in confidence. One would have expected in these circumstances, as the juror asserted had
happened, that a responsible journalist would have sought the consent of the juror to disclose information he had given to the professed researcher,
and without that consent would have respected his confidence. It seems a rather plastic ethic which protects the deceiving source yet asserts a
licence to betray the confidence of the deceived. However that may be, the third respondent was aware that he was including in the article
statements made, opinions expressed and arguments advanced by members of the jury in the course of their deliberations in the Blue Arrow trial. In
the same edition of the Mail on Sunday, in a column drawing attention to the main feature in the “Money Section”, the third respondent wrote:
“THREE jurors in one of the biggest City fraud trials this century have given the full inside story of how they reached their decision. No one has
ever previously investigated, let alone published, in any detail how jurors make their decisions because of the restrictions imposed by law. The
jurors served for a year in the Blue Arrow trial which ended in February. Of the ten defendants, four were ultimately found guilty of conspiracy to
defraud.” In the main article he said: “But in Britain the Contempt of Court Act 1981 makes it illegal for jurors to ‘disclose’ what goes on in a
jury’s deliberations. However, having received transcripts of the Blue Arrow interviews, we believe these edited extracts should be published …”’
To this summary I must add an extract from the agreed statement of facts and issues:
‘12. Before the Divisional Court, the Appellants’ evidence stated (and it was no part of the Respondent’s case to contend to the contrary) that
(1) Those particulars had been provided to the Appellants by American researchers who had earlier (and without the prior knowledge or
involvement of the Appellants) interviewed members of the Blue Arrow jury. (2) The American researchers were not acting on behalf of the
Appellants in obtaining or soliciting the particulars from the members of the jury. (3) The Appellants did not obtain any of the particulars included
in the article directly from a member of the jury. (4) The Appellants published the particulars included in the article because they sincerely
believed that those particulars made an important contribution to the public debate about whether serious fraud trials ought to be conducted before a
jury, and because the Appellants believed that any interference with such publication would be a breach of Article 10 of the European Convention
on Human Rights (the right to freedom of expression).’
Mr Pannick QC, who appeared with Miss Rose for the appellants, accepted, as he had done before the Divisional Court, that, if the word ‘disclose’ in
s 8 was to be given the unrestricted meaning contended for by the Attorney General, a contempt was proved. But he submitted that the scope of s 8(1)
could be either widely or narrowly interpreted and that in context the word ‘disclose’ applied only to a revelation by a juror to another person and not to a
further revelation 560 by that person or by another person in his turn. While conceding, frankly but also unavoidably, that what the appellants did
amounted to disclosure in the ordinary sense of that word, he contrasted publication with disclosure and contended that the word ‘disclose’ must here be
given a restricted meaning.
The cardinal rule, as stated in the textbooks on interpretation, for example in Maxwell on the Interpretation of Statutes (12th edn, 1969) pp 28–29, is
that words in a statute prima facie bear their plain and ordinary meaning. If that rule is applied without modification, then the appellants disclosed the
relevant particulars. There is no conflict or contrast between publication and disclosure. The latter activity has many manifestations and publication is
one of them. To disclose is to expose to view, make known or reveal and in its ordinary meaning the word aptly describes both the revelation by jurors of
their deliberations and further disclosure by publication in a newspaper of the same deliberations, provided always—and this will raise a question of
fact—that the publication amounts to disclosure and is not a mere republication of already known facts.
I have looked in vain, first in s 8 and then in the other provisions of the 1981 Act, for a clue which might justify the imposing of a restriction on the
natural meaning and effect of the word ‘disclose’. Indeed, as I have observed, the concluding words of s 8(2) seem to me to point away from the
restriction contended for. Still following ordinary English usage, I can find no principle which lays down that something which has been disclosed by A
to B cannot be further disclosed by B to C and by C, in his turn, to the public at large.
I might be content to reject the appellants’ case at this point but, having regard to the tenacious arguments presented to your Lordships, I will
continue. It is said that a court should give such a construction to a statute as shall suppress the mischief and advance the remedy and, in obedience to this
maxim, words have often been given an extended meaning where the usual meaning does not achieve the obviously intended object of the legislation. In
this case, however, the Attorney General does not need to go as far as this: he submits that all he needs to do, in order to achieve Parliament’s objective, is
to prevent the ordinary meaning of the key word ‘disclose’ from being restricted. It is, of course, also true that general words may have to bear a
restricted meaning if it is obvious that this must have been Parliament’s intention. Let me, therefore, in the light of these propositions, consider the state
of the law before the 1981 Act was passed and the mischief which then appeared to call for a remedy.
As Beldam LJ said the background to the enactment of s 8 is ‘significant and illuminating’ (see [1993] 2 All ER 535 at 540, [1993] 3 WLR 74 at 79).
I shall merely emphasise, with the aid of quotations, some salient points in his most helpful summary. It is indeed likely that the Hamlyn Lectures of
both 1955 and 1956 (referred to in the judgment: 7th Hamlyn Lecture, The Proof of Guilt (1955), Professor Glanville Williams; 8th Hamlyn Lecture, Trial
Preamble
by Jury (1956), Sir Patrick Devlin) stimulated research into the workings of the jury system and I draw attention to a sentence in para 355 of the Report of
the Departmental Committee on Jury Service (1965) (Cmnd 2627):
‘We recognise that it is impossible to make a proper assessment of the merits of trial by jury in the absence of the adequate knowledge of what
does happen when the jury retires, but we agree with those of our witnesses who argued that if such disclosure were to be made, particularly to the
Press, jurors would no longer feel free to express their opinions frankly when the verdict was under discussion, for fear that what they said later
might be made public.’ (My emphasis.)
561
The words which I have emphasised highlight the kind of mischief which the committee feared if disclosure were made to the press, with the attendant
publicity which that disclosure would be likely to involve. This view echoed the sentiment of Lord Hewart CJ, who, when dismissing the appeal of the
poisoner, Armstrong, said in R v Armstrong [1922] 2 KB 555 at 568, [1922] All ER Rep 153 at 157:
‘If one juryman might communicate with the public upon the evidence and the verdict so might his colleagues also, and if they all took this
dangerous course differences of individual opinion might be made manifest which, at the least, could not fail to diminish the confidence that the
public rightly has in the general propriety of criminal verdicts.’ (My emphasis.)
And also of Bankes LJ in Ellis v Deheer [1922] 2 KB 113 at 118, [1922] All ER Rep 451 at 452:
‘I may say that I saw the other day with astonishment and disgust the publication in a newspaper of a statement by the foreman of the jury in an
important criminal trial as to what took place in the jury room after the jury had retired. I do not think it necessary to express any opinion as to
whether such a publication amounts to a contempt of Court, but I feel confident that any one who read that statement will realize the importance of
maintaining the rule.’ (My emphasis.)
Mr Pannick has placed some emphasis (in support of his contention) on the terms of reference given to the Criminal Law Revision Committee, which
made its Tenth Report, Secrecy of Jury Room (Cmnd 3750) in 1968, having been asked to consider:
‘whether statutory provision should be such [as] to protect the secrecy [of] the jury room: and in particular whether, and, if so, subject to what
exemptions and qualifications, it should be an offence to seek information from a juror about a jury’s deliberations or for a juror to disclose such
information.’
The committee did not then think that a statutory sanction was needed and said (para 4):
‘We think it is as true today ... that it has been generally accepted by the public as a rule of conduct that what passes in the jury room during the
discussion by the jury of what their verdict should be ought to be treated as private and confidential. We would affirm that rule of conduct and
would in no way wish to undermine it. We are of opinion that secrecy has been well maintained and that such breaches or attempts to break it as
have become known so far have not established a mischief so extensive or serious that it calls for legislation and punishment.’
Paragraph 9 of the report, quoted in full by Beldam LJ, contains a statement of the committee’s view ‘that it is contrary to the public interest that the issue
before the jury should be “retried” in public with the use of information supplied by one or more of the jurors’ (see [1993] 2 All ER 535 at 541, [1993] 3
WLR 74 at 80).
The proximate feature, however, of the background to the new legislation (by which I mean s 8 of the 1981 Act, which by its other provisions dealt
with other aspects of contempt) is the reported case of A-G v New Statesman and Nation Publishing Co Ltd [1980] 1 All ER 644, [1981] QB 1, in which
the Divisional Court 562 had to consider whether publication in a magazine of an interview with a juror who came forward without reward to divulge
what had happened in the jury room constituted a contempt of court. Beldam LJ summarised as follows ([1993] 2 All ER 535 at 541–542, [1993] 3 WLR
74 at 80–81):
‘In the circumstances of that case there was no contempt but in the course of his judgment Lord Widgery CJ said ([1980] 1 All ER 644 at
646–647, [1981] QB 1 at 7): “We were reminded that, until a few years ago, it was accepted that the secrets of the jury room had to be treated as
secret. The solemn obligation by jurors to observe secrecy was well maintained and breaches of the obligation were kept at an acceptable level. It
had never been necessary to invoke the law of contempt in respect of such breaches, but that law had always been available for use in any case in
which the administration of justice would have been imperilled. Recently, however, the solemn obligation of secrecy has been shown to be
breaking down; a considerable number of publications involving jury room revelations, some more objectionable than others, have occurred.
Accordingly, in view of the apparently diminishing respect for the convention of observance of jury secrecy and the risk of escalation in the
frequency and degree of disclosures, it has become right for the Attorney-General to invoke the law of contempt in relation to this article in the
New Statesman since it represents a departure from the norm and is a serious and dangerous encroachment into the convention of jury secrecy.”
After considering the report of the Criminal Law Revision Committee to which I have referred, he said ([1980] 1 All ER 644 at 650, [1981] QB 1 at
11): “The evidence before us shows that for a number of years the publication of jury room secrets has occurred on numerous occasions. To many
of those disclosures no exception could be taken because, from a study of them, it would not be possible to identify the persons concerned in the
trials. In these cases, jury room secrets were revealed in the main for the laudable purpose of informing would-be jurors what to expect when
summoned for jury service. Thus, it is not possible to contend that every case of post-trial activity of the kind with which we are concerned must
necessarily amount to a contempt.’’’
I might add two further extracts from the judgment in the New Statesman case [1980] 1 All ER 644 at 649–650, [1981] QB 1 at 9–11:
‘As the observations of these learned judges [Lord Hewart CJ, Bankes and Atkin LJJ] demonstrate, there are powerful arguments against
breaching the secrets of the jury room. Serious consequences may flow from an approach to a juror, particularly after a trial which has attracted
great publicity, followed by the publication of an account of what the juror had said about the discussion in the jury room. If not checked, this type
of activity might become the general custom. If so, it would soon be made to appear that the secrecy of the jury room had been abandoned, and if
that happened, it is not beyond the bounds of possibility that trial by jury would go the same way … Looking at this case as a whole, we have come
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to the conclusion that the article in the New Statesman does not justify the title of contempt of court. That does not mean that we would not wish to
see restrictions on the publication of such an article, because we would. But our duty is to say what the law is today and to see whether today the
activity in question is a contempt of court. We are unable to say that it is and we would therefore refuse the application.’
563
The first of these passages maintains the emphasis already seen on the publication of what the juror has said, while the second shows that publication,
although undesirable, was not in itself a contempt at common law.
I must add that Mr Pannick, justifiably in the interests of correct interpretation, has drawn attention to another passage in the judgment below ([1993]
2 All ER 535 at 542, [1993] 3 WLR 74 at 81):
‘Parliament, mindful of the decision in Sunday Times v UK (1979) 2 EHRR 245, also needed to ensure that the restrictions or penalties it
enacted were no greater than was necessary in a democratic society to prevent disclosure of information received in confidence and to maintain the
authority and impartiality of the jury as part of the administration of justice.’
This statement, of course, is always subject to the proviso that, if the enactment is clear, compliance with the Convention for the Protection of Human
Rights and Fundamental Freedoms (Rome, 4 November 1950; TS 71 (1953); Cmd 8969) is not immediately in issue.
Clause 8 of the Contempt of Court Bill 1980 is of interest at this stage of the argument, not for the purpose of construing the word ‘disclose,’ but in
order to see what mischief the Bill was intended to address. The first contempt specified was publication of any of the particulars which were
subsequently listed in s 8(1) of the 1981 Act. The second contempt was disclosing any such particulars with a view to their being published or with
knowledge that they might be published, and the third was soliciting disclosure with a view to publishing. Thus the primary emphasis of cl 8 as
introduced was on preventing publication of what had been said and done in the jury room. This emphasis was in harmony with the background already
depicted. Accordingly, the mischief which was thought to need a remedy is seen to have included publication of the forbidden particulars as well as their
disclosure by individual jurors, which confirms the plain and ordinary meaning of ‘disclosure’ as the correct meaning in s 8.
Each party to the appeal advanced arguments based on the supposed absurdity of the other party’s interpretation. The appellants contended that the
Attorney General’s construction would render in contempt the reader of a newspaper who communicated a part of its contents to a neighbour who was
then unaware of what the paper had said. In my view, my Lords, this argument confuses disclosure with republication and I do not find it at all
persuasive. If an item has been published in the paper, it has become a matter of public knowledge, and to describe the communication of that item of
news as disclosure is, to my mind, a misuse of language.
Mr Moses QC, on the other hand, who appeared with Mr Havers for the Attorney General, submitted that it would be absurd, when the long deplored
activity was the publication of the jury’s deliberations, if only the offending juror and his confidant were amenable, while the publisher went scot free.
The act of a juror might be innocent and innocuous, whereas the release of the prohibited information to the public was bound to be much more harmful,
actually or potentially, to the administration of justice. He further argued that it would be strange if Parliament hoped and intended to control the
unwanted and harmful activities of powerful individuals and groups with an interest in the acquisition and dissemination of the prohibited information and
the means to pay for it, if necessary, by merely enacting a prohibition and imposing sanctions on individual jurors.
One could instance the case of a jury-keeper who is told about or overhears the jury’s deliberations. Can he not be guilty of disclosure if he reveals
what he has 564 heard to a newspaper? And are the newspaper’s reporter and publisher immune if the deliberations are published? I scarcely think
so. So far as the test of absurdity helps to decide the issue, my verdict is overwhelmingly on the side of the Attorney General.
At this point I cannot improve on what was said by Beldam LJ ([1993] 2 All ER 535 at 544, [1993] 3 WLR 74 at 83):
‘We now come to the words of the section itself, and can find no warrant for qualifying the meaning of the word “disclose” by confining it
solely to disclosure by the members of the jury. On the contrary, the course of argument convinced us that Parliament intended no such restriction.
The word “disclose”, in origin to open up or uncover, has come to mean: “To open up to the knowledge of others” (see Shorter Oxford English
Dictionary). It is a word wide enough to encompass the revealing of the secrets of the jury room by a juryman to his friend or neighbour as well as
the opening up of such knowledge to the public as a whole by someone to whom it has been revealed. And in the light of the background to which
we have referred, we see every reason why Parliament should have intended the word “disclose” to cover both situations. Nor do we regard it as
significant that the secrets came into the hands of the newspaper indirectly. The existence of a market for the transcript of interviews with jurors
containing prohibited details of their deliberations is as inimical to the interests of justice as the direct solicitation for money which occurred in this
case. The section is aimed at keeping the secrets of the jury room inviolate in the interests of justice. We believe that it would only be by giving it
an interpretation which would emasculate Parliament’s purpose that it could be held that the widespread disclosure in this case did not infringe the
section. By declaring such conduct to be a contempt, Parliament recognised the exceptional discretion vested in a court to protect the process of
justice and its ability to reflect the varying shades of infringement. In our judgment the Attorney General has proved a breach of s 8(1) of the 1981
Act by all three respondents.’
In order to get home, the appellants rely, as they must, on the submission that the word ‘disclose’ in its context is ambiguous, but I do not consider
that this case poses for your Lordships an example of ambiguity. The appellants say that the word is ambiguous because it can refer either to disclosure
by a juror or to disclosure through newspaper publication or by some other means. The true view is that the word ‘disclose’ describes and includes both
(or all) kinds of disclosure. It is a comprehensive word. The question being whether it describes merely A or A and B together, the answer, having regard
to all the points I have discussed is A and B, using the plain and natural meaning.
This case is, I submit, even stronger against ambiguity than DPP v Ottewell [1968] 3 All ER 153, [1970] AC 642, in which a choice was made
between two meanings, and also stronger than A-G’s Reference (No 1 of 1988) [1989] 2 All ER 1, [1989] AC 971, where the secondary or general
meaning of a word was preferred to the primary meaning. I venture to repeat what I said in the latter case ([1989] 2 All ER 1 at 5, [1989] AC 971 at 991):
‘The appellant relies on the principle that any ambiguity in a penal statute should be resolved in favour of the defence (see Tuck & Sons v
Priester (1887) 19 QBD 629 at 638 per Lord Esher MR) and says that the statute is, at best from the Crown’s point of view, ambiguous. This
submission must be qualified by Lord Reid’s observation, on which the Court of Appeal relied … in DPP v Ottewell [1968] 3 All ER 153 at 157,
[1970] AC 642 at 649: “I would 565 never seek to diminish in any way the importance of that principle within its proper sphere; but it only
applies where after full enquiry and consideration one is left in real doubt. It is not enough that the provision is ambiguous in the sense that it is
capable of having two meanings. The [imprecision] of the English language (and, so far as I am aware, of any other language) is such that it is
extremely difficult to draft any provision which is not ambiguous in that sense. The section is clearly ambiguous in that sense: the Court of Appeal
(Criminal Division) attach one meaning to it, and your lordships are attaching a different meaning to it. But if, after full consideration, your
Preamble
lordships are satisfied, as I am, that the latter is the meaning which Parliament must have intended the words to convey, then this principle does not
prevent us from giving effect to our conclusions.” The next step, therefore, is to decide whether Parliament must have intended the word
“obtained” to convey and include its secondary or general meaning. If so, the offence is made out; if, however, one cannot be satisfied of that, then
the ambiguity remains and the Tuck & Sons v Priester principle compels your Lordships to adopt the primary or narrow meaning.’
The arguments founded on ambiguity accordingly lose their significance and I need not take account of the principle in Tuck & Sons v Priester
(1887) 19 QBD 629 or of the observation of Lord Reid in George Wimpey & Co Ltd v British Overseas Airways Corp [1954] 3 All ER 661 at 672–673,
[1955] AC 169 at 191 that, where the meaning of a statutory provision is doubtful that interpretation should be preferred which makes the least alteration
in the law. The appellants, however, advanced two further arguments which depended on the presence of an ambiguity and about which I think it is right
for me to say something despite having reached a conclusion which renders those arguments irrelevant.
The first argument took the form of recourse to the Parliamentary history of the 1981 Act, in reliance on Pepper (Inspector of Taxes) v Hart [1993] 1
All ER 42, [1993] AC 593. In fact the appellants’ submissions seemed to me to be designed to blunt the effect of the Attorney General’s similarly based
argument which was foreshadowed in his printed case.
As I have noted, the emphasis in cl 8 of the Bill was on publication. There was an exemption in cl 8(2) for publications of a general character which
did not identify particular proceedings or particular jurors. As a result of an amendment, originally proposed but withdrawn, in this House where the Bill
had been introduced, and of a new amendment adopted by this House and then accepted by the House of Commons (which had already considered and
amended the Bill), the exemption in favour of publications of a general character disappeared and s 8 assumed its present form. When the amended
clause was considered by the House of Commons the Attorney General, in moving that the House agree with the amendment, said (9 HC Official Report
(6th series) col 410):
‘Instead, we have in Lords amendments Nos. 1, 2 and 3 a new and complete prohibition on the publishing of any details of a jury’s
deliberations. Thus, not only would it be prohibited to publish anonymous reminiscences but all forms of publication of the results of research
would also be prohibited.’ (My emphasis.)
Therefore the Attorney General contends that, instead of transferring the prohibition against disclosure from the publishers of information to individual
jurors, Parliament has extended the ban so as to include all forms of disclosure. I consider that this is a difficult inference for anyone to resist but, having
regard to 566 the complicated and controversial Parliamentary history of s 8, I deliberately refrain from discussing the question whether it would have
been appropriate for your Lordships to apply Pepper (Inspector of Taxes) v Hart to the facts of this case.
The appellants, as their next point, made a positive and emphatic case, as they appear to have done in the court below, on the basis that freedom of
expression is protected by art 10 of the European Convention on Human Rights and that an ambiguous statutory provision must therefore be construed so
as to conform with the convention. The cases show, and the appellants do not deny, that the existence of an ambiguity is requisite for this doctrine to
apply in our courts. At the same time it may be helpful if, without going into great detail, I take note of the appellants’ submissions. Article 10 provides:
‘(1) Everyone has the right to freedom of expression. This right shall include freedom to hold opinions and to receive and impart information
and ideas without interference by public authority and regardless of frontiers. This Article shall not prevent States from requiring the licensing of
broadcasting, television or cinema enterprises.
(2) The exercise of these freedoms, since it carries with it duties and responsibilities, may be subject to such formalities, conditions, restrictions
or penalties as are prescribed by law and are necessary in a democratic society, in the interests of national security, territorial integrity or public
safety, for the prevention of disorder or crime, for the protection of health or morals, for the protection of the reputation or rights of others, for
preventing the disclosure of information received in confidence, or for maintaining the authority and impartiality of the judiciary.’
Mr Pannick contended that the appellants’ construction should be adopted because, if it were, the restriction on freedom of expression would be less than
if the wider construction prevailed. He rightly submitted that art 10(2) listed exceptions which had to be strictly construed; it was common ground, as the
Divisional Court had recognised, that the term ‘judiciary’, as there used, comprised the machinery of justice as well as the judges (see [1993] 2 All ER
535 at 539, [1993] 3 WLR 74 at 78).
Article 10(2) formed part of the background to the Divisional Court’s discussion of the all-important role of the jury and the consequent importance
of ensuring that the jury’s deliberations do not become public. I would make only two observations. I cannot think that the argument is sound which says
that it can be in the interests of freedom of expression, and not harmful to the authority and impartiality of the court system, to allow the publication and
discussion of matters that a law which is for the sake of argument assumed to be acceptable has forbidden jurors to reveal to anyone. Secondly, if it is
legitimate, on the ground that disclosure by a juror will be harmful to the authority and impartiality of the court system, to enact, ‘in response to a
pressing social need’, an absolute prohibition against such disclosure, I do not see how it can be wrong also to prohibit a potentially more harmful further
disclosure by way of publication. It seems to me that either both prohibitions are justified or neither is. On this basis the appellants’ convention-based
argument in favour of the narrow construction rather than the wide one would disappear.
On the footing that the appellants were guilty of contempt, the fines remain a live issue and I do not doubt that this House, to which the appeal lies
directly from the Divisional Court’s decision, has, and ought where appropriate to exercise, jurisdiction to revoke or amend any punishments which have
been decreed if they appear to the House to be wrong in principle or manifestly 567 disproportionate either to the offence or one to another. That
jurisdiction, however, should in my opinion be sparingly exercised.
I need not refer again to the facts noted by Beldam LJ or set out afresh the reasoning which led the court to fine the appellants as it did (see [1993] 2
All ER 535 at 544–545, [1993] 3 WLR 74 at 83). I am content to say that I do not consider that interference with the fines by your Lordships in this case
would be justified on any ground.
Accordingly, for the reasons I have given, I would dismiss these appeals.
LORD LLOYD. I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Lowry. For the reasons he gives,
I, too, would dismiss this appeal.
Appeal dismissed.

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[1994] 1 All ER 568
Roebuck v Mungovin
CIVIL PROCEDURE
HOUSE OF LORDS
LORD GOFF OF CHIEVELEY, LORD JAUNCEY OF TULLICHETTLE, LORD LOWRY, LORD BROWNE-WILKINSON AND LORD SLYNN OF HADLEY
2, 3 NOVEMBER 1993, 3 FEBRUARY 1994
Practice – Dismissal of action for want of prosecution – Inordinate delay without excuse – Prejudice to defendant – Defendant’s conduct inducing
plaintiff to believe action would proceed to trial – Correspondence between parties’ solicitors after inordinate and inexcusable delay by plaintiff –
Whether defendant estopped from relying on delay to have action struck out – Whether defendant’s subsequent conduct causing plaintiff to incur further
expense in pursuing action constituting absolute bar to striking out.
On 3 August 1984 the plaintiff was injured in a road accident. On 2 April 1986 he issued a writ against the defendant and on 23 April served a statement
of claim. On 24 July the defendant served a defence admitting liability but putting damages in issue. On the same day the defendant asked for further
and better particulars of the statement of claim. The plaintiff did not reply and failed to take any further action for a period of nearly four years. In April
1990 the defendant’s solicitors received an affidavit giving specific discovery but lacking any proper quantification of the plaintiff’s claim. On 3 May the
defendant’s solicitors wrote to the plaintiff’s solicitors seeking further information and documents. On 12 May the defendant’s solicitors were told that
the plaintiff had changed his solicitors and on 24 July they asked the plaintiff’s new solicitors for a reply to their letter of 3 May. On 18 October 1990 the
new solicitors wrote, informing the defendant’s solicitors that a schedule of special damages was being prepared but it might be some time before they
could serve it. They also requested an interim payment of damages but the defendant’s solicitors replied that they wished to receive the information
requested together with the schedule of special damage before considering making any interim payment. On 12 November the plaintiff’s solicitors
replied to the 568 defendant’s solicitors’ letter of 3 May but made no further reference to the schedule of special damages. On 14 May 1991 the
plaintiff’s solicitors wrote, stating that the schedule of special damages would be finalised at the end of that month and sending a witness statement
relating to the quantum of damage. However, no schedule of special damages was received. On 29 July the defendant’s solicitors applied to strike out the
action for want of prosecution. The judge struck out the claim on the grounds that the totality of the delay was inordinate and inexcusable, that the
defendant had been prejudiced and that the correspondence after 3 May 1990 did not amount to a waiver or acquiescence in such delay. On appeal by the
plaintiff, the Court of Appeal reversed the judge’s decision, holding on the basis of previous authority that, although the totality of the delay was
inordinate and inexcusable and had prejudiced the defendant, the letters sent by the defendant’s solicitors between 3 May and 12 November 1990
amounted to a representation that the defendant intended to proceed to trial, that as a result the plaintiff had incurred expense and that the defendant was
thereby barred from obtaining a striking-out order by his acquiescence in the earlier delay. The defendant appealed to the House of Lords.
Held – Where a plaintiff was guilty of inordinate and inexcusable delay which prejudiced the defendant, subsequent conduct by the defendant which
induced the plaintiff to incur further expense in pursuing the action did not constitute an absolute bar preventing the defendant from obtaining an order
striking out the claim. Such conduct on the part of the defendant was a relevant factor to be taken into account by the judge in exercising his discretion
whether to strike out the claim but the weight to be attached to it depended on all the circumstances of the particular case. Applying that principle, the
plaintiff’s inordinate and inexcusable delay coupled with the prejudice caused to the defendant had been such that the plaintiff’s action should be struck
out notwithstanding the correspondence between the parties after the delay had occurred. The appeal would therefore be allowed (see p 570 e to g, p 574
g h, p 575 f to g and p 576 d to g j, post).
Allen v Sir Alfred McAlpine & Sons Ltd [1968] 1 All ER 543 and Birkett v James [1977] 2 All ER 801 applied.
County and District Properties Ltd v Lyell (1977) [1991] 1 WLR 683 and Reynolds v British Leyland Ltd [1991] 2 All ER 243 overruled.
Notes
For dismissal of an action for want of prosecution, see 37 Halsbury’s Laws (4th edn) paras 447–451, and for cases on the subject, see 37(3) Digest
(Reissue) 67–80, 3293–3344.

Allen v Sir Alfred McAlpine & Sons Ltd, Bostic v Bermondsey and Southwark Group Hospital Management Committee, Sternberg v Hammond [1968] 1
All ER 543, [1968] 2 QB 229, [1968] 2 WLR 366, CA.
Armstrong v Glofield Properties Ltd [1992] PIQR 358, CA.
Birkett v James [1977] 2 All ER 801, [1978] AC 297, [1977] 3 WLR 38, HL.
County and District Properties Ltd v Lyell (1977) [1991] 1 WLR 683, CA.
Crabb v Arun DC [1975] 3 All ER 865, [1976] Ch 179, [1975] 3 WLR 847, CA.
Culvert v Stephen G Westwell & Co Ltd [1993] PIQR 54, CA.
Dept of Transport v Chris Smaller (Transport) Ltd [1989] 1 All ER 897, [1989] AC 1197, [1989] 2 WLR 578, HL.
Harwood v Courtaulds Ltd [1993] CA Transcript 84.
569
Hornagold v Fairclough Building Ltd [1993] CA Transcript 634.
Reynolds v British Leyland Ltd [1991] 2 All ER 243, [1991] 1 WLR 675, CA.
Roche v Church [1992] CA Transcript 1165.
Preamble
Appeal
The defendant, Michael J Mungovin, appealed, with the leave of the Appeal Committee of the House of Lords given on 9 June 1993, from the decision of
the Court of Appeal (Ralph Gibson and Mann LJJ) on 31 March 1993 allowing the appeal of the plaintiff, Robert Clifford Roebuck, from the decision of
Judge Robert Taylor sitting as a judge of the High Court in the Queen’s Bench Division on 20 July 1992 whereby he ordered that the plaintiff’s claim for
damages for personal injuries be struck out for want of prosecution. The facts are set out in the opinion of Lord Browne-Wilkinson.
Piers Ashworth QC and Howard Elgot (instructed by Wansbroughs Willey Hargrave, Leeds) for the defendant.
John Toulmin QC and Anne Wakefield (instructed by Simpson Curtis, Leeds (from 16 September 1992)) for the plaintiff.
LORD GOFF OF CHIEVELEY. My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord
Browne-Wilkinson, and for the reasons he gives I, too, would allow the appeal.
Lord Browne-Wilkinson. I agree with it and for the reasons given I, too, would allow the appeal and make the order which he proposes.
LORD LOWRY. My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Browne-Wilkinson.
I agree with it and, for the reasons given by my noble and learned friend, I, too, would allow the appeal and make the order which he proposes.
LORD BROWNE-WILKINSON. My Lords, in Birkett v James [1977] 2 All ER 801, [1978] AC 297 this House held that a judge has a discretionary
power to strike out an action for want of prosecution if two preconditions are satisfied, viz (1) that the plaintiff has been guilty of inordinate and
inexcusable delay and (2) that such delay gives rise to a substantial risk that it is not possible to have a fair trial or is likely to cause or to have caused
serious prejudice to the defendant. This House approved the decision of the Court of Appeal in Allen v Sir Alfred McAlpine & Sons Ltd [1968] 1 All ER
543, [1968] 2 QB 229. The McAlpine case has recently been reaffirmed by this House in Dept of Transport v Chris Smaller (Transport) Ltd [1989] 1 All
ER 897, [1989] AC 1197.
Yet, in the present case the Court of Appeal held that, even though the two necessary preconditions were satisfied, as a matter of law the judge had
no discretion to strike out the claim. Although there had been very great delay by the plaintiff which has prejudiced the defendant, the defendant
subsequently urged the plaintiff to take steps required to bring the case to trial. The plaintiff incurred 570 minor expenditure in so doing. The Court
of Appeal in the present case was bound by earlier authority to hold that a defendant who takes such steps is estopped from obtaining an order striking out
the action. The law is so established by the decision of the Court of Appeal in County and District Properties Ltd v Lyell (1977) [1991] 1 WLR 683,
which interpreted certain dicta in the McAlpine case as giving rise to that conclusion. The question raised in this appeal is whether that interpretation was
correct.
In the present case, the plaintiff was injured in a road accident on 3 August 1984. He issued a writ against the defendant on 2 April 1986 and served
a statement of claim on 23 April 1986. On 24 July 1986 the defendant served a defence admitting liability but putting damages in issue. On the same day
the defendant asked for further and better particulars of the statement of claim. There followed a long period, ending on 3 May 1990, during which the
defendant was seeking to obtain proper particulars, discovery and information as to the quantum of the plaintiff’s claim. Although the matter was in issue
before the judge and the Court of Appeal, it is now accepted that during this period of nearly four years the plaintiff was guilty of inordinate and
inexcusable delay which had prejudiced the defendant. It is therefore unnecessary to set out the history of such delay save to note that on four occasions
the defendant applied to strike out the claim for failure to comply with the plaintiff’s procedural obligations. There is no doubt that if in April 1990 the
defendant had applied to strike out for want of prosecution the application would have succeeded.
There then followed a period during which the defendant’s solicitors took certain steps which, it is alleged, debarred the defendant from applying to
strike out the claim. In April 1990 the defendant’s solicitors (who were not the solicitors presently acting for the defendant) at last received an affidavit
giving specific discovery but still lacking any proper quantification of the plaintiff’s claim. On 3 May 1990 the defendant’s solicitors wrote to the
plaintiff’s solicitors a long letter seeking further information and documents. On 12 May 1990 the defendant’s solicitors were told that the plaintiff had
changed his solicitors, who were now Messrs Godlove Saffman. On 24 July the defendant’s solicitors asked Godlove Saffman for a reply to their letter of
3 May. On 18 October 1990 Godlove Saffman wrote informing the defendant’s solicitors that a forensic accountant had been instructed to prepare a
schedule of special damages but that it might be some time before they could serve such schedule. The plaintiff’s solicitors further inquired whether the
defendant would make an additional interim payment of damages (a payment of £2,500 having been made in 1987). On 31 October the defendant’s
solicitors replied that they preferred to receive the information requested together with the schedule of special damages before considering the request for
a further interim payment. On 12 November 1990 Godlove Saffman in a long and detailed letter replied to the defendant’s solicitors’ letter of 3 May but
made no further reference to the schedule of special damages. The defendant’s solicitors heard nothing further until 14 May 1991 when Godlove
Pearlman (as they now were) wrote saying that the schedule of special damages was to be finalised at the end of May 1991 and sending a witness
statement relating to the quantum of damage. The defendant’s solicitors merely acknowledged this letter. No schedule of special damages was received.
The defendant’s solicitors took no further positive step until they issued an application to strike out on 29 July 1991 which application was served on 2
October 1991.
Judge Robert Taylor, sitting as a judge of the High Court, struck out the plaintiff’s claim, holding that the totality of the delay was inordinate and
inexcusable, that the defendant had been prejudiced and that the correspondence 571 after 3 May 1990 did not amount to a waiver or acquiescence in
such delay. The Court of Appeal (Ralph Gibson and Mann LJJ) reversed his decision. It agreed with the judge that the totality of the delay was
inordinate and inexcusable and prejudiced the defendant. However, it held that the letters sent by the defendant’s solicitors between 3 May and 12
November 1990 amounted to a representation that the defendant intended to proceed to trial, that as a result the plaintiff had incurred some expense and
that the defendant was thereby barred from obtaining a striking out order by his acquiescence in the earlier delay. It held that the plaintiff had been guilty
of further inordinate and inexcusable delay after January 1991 but that, since the defendant could not show that such further delay after January 1991 had
caused him any prejudice additional to that which he had previously suffered, the claim could not be struck out. The Court of Appeal reached its
conclusion with manifest reluctance but felt compelled to do so by the Court of Appeal decision in Lyell’s case and later Court of Appeal authority.
Preamble
The headnote to the McAlpine case states the proposition that if the two preconditions (inordinate delay and prejudice to the defendant) are satisfied
the court can ‘in its discretion’ dismiss the action. The other statements made by the Court of Appeal in their judgments in that case are described as
being ‘observations on the general principles governing the exercise’ of that discretion. In my judgment this fairly represents the content of the judgments
in the McAlpine case. Thus Lord Denning MR refers to the judge ‘in [his] discretion’ dismissing the action; Diplock LJ refers to ‘the principles which the
court should apply in exercising its discretion’; Salmon LJ, after referring to the preconditions which have to be satisfied, refers to the court exercising its
discretion (see [1968] 1 All ER 543 at 552, 555, 561, [1968] 2 QB 229 at 254, 259, 268–269). This is an unpromising background against which to spell
out from those judgments an absolute rule of law that, even if the preconditions are satisfied, an action cannot be struck out if the defendant’s conduct is
such as to amount an estoppel or waiver of rights.
There are two passages in the judgments in the McAlpine case which are the foundation of the alleged estoppel. Diplock LJ said ([1968] 1 All ER
543 at 565, [1968] 2 QB 229 at 260):
‘Since the power to dismiss an action for want of prosecution is only exercisable upon the application of the defendant, his previous conduct in
the action is always relevant. So far as he himself has been responsible for any unnecessary delay, he obviously cannot rely upon it. But also, if
after the plaintiff has been guilty of unreasonable delay the defendant so conducts himself as to induce the plaintiff to incur further costs in the
reasonable belief that the defendant intends to exercise his right to proceed to trial notwithstanding the plaintiff’s delay, he cannot obtain dismissal
of the action unless the plaintiff has thereafter been guilty of further unreasonable delay. For the reasons already mentioned, however, mere
non-activity on the part of the defendant where no procedural step on his part is called for by the rules of court is not to be regarded as conduct
capable of inducing the plaintiff reasonably to believe that the defendant intends to exercise his right to proceed to trial. But it must be remembered
that the evils of delay are cumulative, and even when there is active conduct by the defendant which would debar him from obtaining dismissal of
the action for excessive delay by the plaintiff anterior to that conduct, the anterior delay will not be irrelevant if the plaintiff is subsequently guilty
of further unreasonable delay. The question will then be whether as a result of the whole of the unnecessary delay on the part of the plaintiff since
the issue of the writ 572 there is a substantial risk that a fair trial of the issues in the litigation will not be possible.’ (My emphasis.)
Salmon LJ said ([1968] 1 All ER 543 at 563–564, [1968] 2 QB 229 at 272):
‘The only point that has caused me any hesitation upon this appeal arises out of the argument that the defendants have waived or acquiesced in
the delay upon which they found their application. Clearly no defendant can successfully apply for an action to be dismissed for want of
prosecution if he has waived or acquiesced in the delay. Mere inaction on the part of the defendant cannot in my view amount to waiver or
acquiescence. Positive action, however, by which he intimates that he agrees that the action may proceed, is a different matter. If, for example, he
intimates that he is willing for the action to proceed and thereby induces the plaintiff’s solicitors to do further work and incur further expense in the
prosecution of the action, he will be precluded from relying on the previous delay by itself as a ground for dismissing the action. Should there,
however, be further serious delays on the part of the plaintiff after the defendant’s acquiescence in or waiver of the earlier delay, the whole history
of the case may be taken into account in deciding whether or not the action ought to be dismissed.’ (My emphasis.)
In Lyell’s case the Court of Appeal cited those passages (other than those parts which I have emphasised). It treated those remarks as laying down a
fixed rule: whenever the defendant has induced the plaintiff to believe that the case is to go to trial (for example by the defendant taking steps to move the
case on) he must be taken to have made a representation that the action is to be allowed to proceed to trial and if the plaintiff has incurred more than
minimal costs in reliance on that representation the defendant will be estopped from striking out the claim on the grounds of the plaintiff’s delay. In
Lyell’s case the plaintiff had been guilty of inordinate and inexcusable delay which had prejudiced the defendant; even so, the Court of Appeal reversed
the judge’s decision to strike out, holding that comparatively minor acts of co-operation by the defendant in preparing for trial barred any striking out of
the claim.
Lyell’s case was decided in 1977 but lay dormant and unobserved for some 14 years until it resurfaced in Reynolds v British Leyland Ltd [1991] 2 All
ER 243, [1991] 1 WLR 675. In the latter case Russell LJ expressed surprise at the decision in Lyell’s case saying that he had—
‘always laboured under the misapprehension that there is here an overall discretion vested in the court ... it being demonstrated that in some way
the defendants have contributed to the situation that prevails when the matter comes before the court.’ (See [1991] 2 All ER 243 at 248, [1991] 1
WLR 675 at 680.)
Even so, the Court of Appeal loyally followed the decision in Lyell’s case whilst distinguishing it on the facts. Since then the same point has arisen no
less than five times in the Court of Appeal. In Armstrong v Glofield Properties Ltd [1992] PIQR 358 Lyell’s case was again distinguished on the facts. In
Culvert v Stephen G Westwell & Co Ltd [1993] PIQR 54 Lyell’s case was again distinguished on the facts but treated as requiring a further refinement to
be satisfied, viz that when the defendant had been estopped but thereafter the plaintiff was guilty of yet further inordinate and inexcusable delay the
defendant had to show prejudice caused by that last period of delay and could not rely on the totality of the delay. Failure to show such additional
prejudice caused by the later delay was the ground on which the Court 573 of Appeal decided it had no power to strike out the claim in Harwood v
Courtaulds Ltd [1993] CA Transcript 84 and in the present case. In none of those cases were the passages which I have emphasised in the citations from
the McAlpine case referred to by the court despite the fact that they appear to make it clear that once the plaintiff is guilty of further delay the prejudice
caused by the totality of the periods of his delay can be looked at. In Roche v Church [1992] CA Transcript 1165 the Court of Appeal applied Lyell’s case
and reversed the judge’s decision solely on the ground that the defendant’s conduct had raised an absolute bar to striking out.
The many members of the Court of Appeal who have had to consider the point since Lyell’s case have uniformly deplored the fetter on the court’s
discretion to strike out which the ‘estoppel’ doctrine imposes. For example, in Roche v Church Leggatt LJ said:
‘That a doctrine of equity should be allowed to operate so as to ensure that an unfair trial takes place constitutes, in my judgment, a travesty of
justice.’
The numerous appeals to which the ‘estoppel’ has given rise suggests that the law is not soundly based. The refinement that the defendant has to show
further, post-estoppel, prejudice caused by further post-estoppel delay by the plaintiff introduces into another sector of the law of striking out one of the
least satisfactory elements of the decision in Birkett v James [1977] 2 All ER 801, [1978] AC 297. In the ordinary case the prejudice suffered by a
defendant caused by the plaintiff’s delay is the dimming of witnesses’ memories. Where there are two periods of delay, how can it be shown that a
witness has forgotten during the later, rather than the earlier, period? We were referred to an unreported decision of the Court of Appeal, Hornagold v
Fairclough Building Ltd [1993] CA Transcript 634, where there was a difference of opinion as to whether in such a case it was necessary to adduce
Preamble
specific evidence that the prejudice flowed from the loss of memory in the later period. I have no doubt that such evidence is not necessary and that a
judge can infer that any substantial delay at whatever period leads to a further loss of recollection. But even so the attempt to allocate prejudice to one
rather than another period of delay is artificial and unsatisfactory.
Given that the practical effects of the decision in Lyell’s case have been unsatisfactory the question remains whether it was wrongly decided. I have
no doubt that it was.
First, it is not clear to me what legal principle leads to the result that the defendant’s actions debar him from obtaining an order striking out the claim.
In the McAlpine case Diplock LJ did not characterise the legal nature of the bar. Salmon LJ referred to it as waiver or acquiescence. Apart from waiver
of contractual rights (which have nothing to do with the present case) concepts of waiver and acquiescence are equitable: they do not operate as an
automatic bar but give rise to equitable, discretionary remedies. It is therefore not surprising that in Lyell’s case the Court of Appeal considered that the
bar preventing the defendant from obtaining a striking out order was more soundly based on the doctrine of estoppel.
But what is the nature of that estoppel? Is it a legal or an equitable estoppel? In Lyell’s case the nearest one gets to an analysis of the estoppel is that
it is ‘the principle of estoppel understood in its broadest sense’ and that the first requirement is ‘that the defendant’s own conduct has reasonably induced
in the plaintiff a belief that the action is to be allowed to proceed’, ie a representation by the defendant as to his future conduct (see [1991] 1 WLR 683 at
690 per Bridge LJ). It is therefore clear that in Lyell’s case the Court of Appeal was not considering a legal estoppel, the first requirement of which is a
representation of existing fact.
574
Mr Toulmin QC, in the course of argument in the present case, suggested that the defendant’s conduct could amount to a representation of existing
fact, viz that the defendant has not suffered serious prejudice from the delay up to that time. Quite apart from the difficulty of extracting an unequivocal
representation to that effect from the defendant’s simple request to get on with the case, it is in my judgment inconsistent with those parts of the dicta in
the McAlpine case which I have emphasised above. Those words make it clear that if, after the date of the defendant’s actions relied on to raise the
estoppel, the plaintiff is guilty of further delay the totality of the delay (ie including the earlier delay) can be relied upon. Therefore the defendant would
be entitled to allege, once again, the fact which he had been estopped from alleging. I know of no principle under which a party once legally estopped
from alleging a particular fact can be freed from that estoppel otherwise than by the agreement of the party to whom he made the representation: therefore
the suggested estoppel of fact is inconsistent with the approach of the Court of Appeal in the McAlpine case.
If, therefore, the defendant’s conduct does not raise a legal estoppel, the only possible representation made by the defendant is that he will proceed to
trial. That is a representation as to future conduct which can raise only an equitable estoppel. Assuming, for present purposes, that the defendant’s
conduct does raise such an equitable estoppel (which I think doubtful), such equitable estoppel would not impose an automatic legal bar to obtaining a
striking-out order. The effect of such an estoppel is to give the court power to do what is equitable in all the circumstances. In Crabb v Arun DC [1975]
3 All ER 865, [1976] Ch 179 the Court of Appeal emphasised that the nature of the relief to be given when an equitable estoppel is raised is extremely
flexible. If an equitable estoppel is raised the court’s function is to determine what, if anything, is necessary to satisfy that equity in all the circumstances
of the case. That is a far cry from saying that, where a defendant has led the plaintiff to incur some additional expense, he is therefore in all
circumstances prevented from relying on inexcusable delay by the plaintiff which has seriously prejudiced him. If on the assumption made the defendant
is equitably estopped, then the effect of that estoppel would be to give the court a discretion whether or not to strike out the action (possibly upon terms)
depending upon the balance between the harm done to the defendant by the plaintiff’s delay and the expense or other detriment incurred by the plaintiff
by reason of the defendant’s representation. Such a discretion is not materially different from that which the court would be exercising if it had an
unfettered discretion whether or not to strike out a claim. Therefore the introduction into the law of striking out of concepts of waiver, acquiescence or
estoppel is merely confusing.
Nor am I satisfied that the Court of Appeal in the McAlpine case had in mind any such mechanistic process. It is true that it used mandatory rather
than discretionary words: ‘[the defendant] cannot obtain dismissal of the action’; ‘he will be precluded from relying on the previous delay’ (see [1968] 1
All ER 543 at 556, 564, [1968] 2 QB 229 at 260, 272 per Diplock and Salmon LJJ). But words in a judgment should not be taken out of context and
construed as though they were a statutory provision. Both Diplock and Salmon LJJ were expressly directing themselves to what they recognised was a
discretionary power and were setting out general guidelines for the exercise of such discretion. In my judgment the fact that the Court of Appeal was not
seeking to lay down an absolute rule of law is demonstrated by the way in which Diplock LJ dealt with one of the three cases before the court, Bostic v
Bermondsey and Southwark Group Hospital Management Committee. He said that the defendants’ conduct was such as to ‘debar’ them (see [1968] 1 All
ER 543 at 558, [1968] 2 QB 229 at 263). But he did not decide the case 575 on that simple ground alone: he went on to balance the other relevant
factors and decided the case as a classic exercise of a discretion simply taking the defendants’ conduct into account—
‘having regard to the defendants’ own conduct in the action and the absence of any effective remedy for the plaintiff against her former
solicitor, I think that the interests of justice are better served by allowing this action to proceed.’ (See [1968] 1 All ER 543 at 558, [1968] 2 QB 229
at 264.)
Lord Denning MR in dealing with the same case plainly treated the defendants’ actions as being simply one of the elements to be taken into account in
exercising a general discretion.
I therefore reach the conclusion that Lyell’s case should be overruled. Where a plaintiff has been guilty of inordinate and inexcusable delay which
has prejudiced the defendant, subsequent conduct by the defendant which induces the plaintiff to incur further expense in pursuing the action does not, in
law, constitute an absolute bar preventing the defendant from obtaining a striking out order. Such conduct of the defendant is, of course, a relevant factor
to be taken into account by the judge in exercising his discretion whether or not to strike out the claim, the weight to be attached to such conduct
depending upon all the circumstances of the particular case. At one extreme, there will be cases like the present where the defendant’s actions are minor
(as compared with the inordinate delay by the plaintiff) and cannot have lulled the plaintiff into any major additional expenditure; in such a case a judge
exercising his discretion will be likely to attach only slight weight to the defendant’s actions. At the other extreme one can conceive of a case where, the
plaintiff having been guilty of inordinate delay, the defendant has for years thereafter continued with the action thereby leading the plaintiff to incur
substantial legal costs; in such a case the judge may attach considerable weight to the defendant’s activities. But it is for the judge in each case in
exercising his discretion to decide what weight to attach in all the circumstances of the case to the defendant’s actions and I trust that in the future there
will be few occasions on which the Court of Appeal will be invited to review his decision on the point.
It is rightly accepted by the plaintiff that, apart from Lyell’s case, both the judge and the Court of Appeal would have struck out the plaintiff’s claim.
It was not submitted that your Lordships should reach any other conclusion. I would therefore allow the appeal and restore the order of the trial judge.
There must be an order that the plaintiff pay the defendant’s costs here and below but, since he is legally aided, such order is not to be enforced without
the leave of the court. The legal aid board, unless they show cause to the contrary, must pay the defendant’s costs here and in the Court of Appeal.
LORD SLYNN OF HADLEY. My Lords, for the reasons given by my noble and learned friend Lord Browne-Wilkinson I agree that this appeal should
Preamble
be allowed.
Appeal allowed.

576
[1994] 1 All ER 577
R v Secretary of State for Transport, ex parte Richmond upon Thames London Borough
Council and others
AVIATION: TORTS; Nuisance: ADMINISTRATIVE
QUEEN’S BENCH DIVISION (CROWN OFFICE LIST)

LAWS J
21–24, 29 SEPTEMBER 1993
Air traffic – Noise nuisance – Landing and take-off – Restrictions on landing and taking off to avoid, limit or mitigate noise – Secretary of State
empowered to specify maximum number of aircraft movements – Secretary of State proposing to impose noise quota restrictions on aircraft operators –
Operators free to choose what aircraft movements would make up alloted quota by using greater number of quieter aircraft or lesser number of noisier
aircraft – Whether Secretary of State’s proposals invalid – Civil Aviation Act 1982, s 78(3).
Administrative law – Legitimate expectation – Right to be heard – Consultation – Whether doctrine of legitimate expectation giving rise to enforceable
expectation that existing policy will not be changed even though those affected were consulted.
Under s 78(3)a of the Civil Aviation Act 1982 the Secretary of State was empowered, for the purpose of avoiding, limiting or mitigating the effect of
noise and vibration connected with the taking off or landing of aircraft at designated airports, to prohibit aircraft of specified descriptions from taking off
or landing or to specify the maximum number of occasions on which such aircraft could take off or land during certain periods. In 1988 measures were
introduced restricting night movements by aircraft at London’s major airports by reference to the number of take-off and landing movements permitted at
night. Those restrictions were due to expire in October 1993 and it was the Secretary of State’s intention, having regard to the desirability of encouraging
airlines to use modern quieter aircraft, to replace the restrictions based on the number of individual aircraft movements permitted by new restrictions
based on a quota system whereby aircraft were assigned a quota count according to their noise levels and operators would be free to choose what aircraft
movements would make up their alloted quota, ie by using a greater number of quieter aircraft or a lesser number of noisier aircraft. The applicant
councils, which were the local authorities for the areas around the three main London airports, sought judicial review of the Secretary of State’s decision
to introduce the new restrictions, claiming that the inhabitants of their areas would be adversely affected by the new restrictions because they would not
lessen the numbers or noise of aircraft taking off and landing at night but would merely spread the noise between a greater or lesser number of aircraft
movements and could potentially increase noise levels at the airports.
________________________________________
a Section 78(3), so far as material, is set out at p 580 d to g, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – The Secretary of State’s decision to introduce new restrictions for night flying over the three main London airports based on a quota system
according to the noise of the aircraft used was contrary to the terms of s 78(3)(b) of the 1982 Act because the new restrictions did not ‘specify the
maximum number of 577 occasions on which aircraft of descriptions so specified may be permitted to take off or land’ as required by s 78(3)(b) but
only sought to impose control by reference to levels of exposure to noise. Accordingly, although the Secretary of State had intended to act within the
purpose of s 78(3), he had done so by an impermissible method. His decision was therefore invalid and a declaration would be made to that effect (see p
591 j to p 592 h and p 593 j to p 594 a f g, post).
Per curiam. (1) Although the doctrine of legitimate expectation may require a public authority not to change its existing policy without giving those
affected a right to be heard, the dotrine does not extend to give rise to an enforceable substantive expectation that a policy will not be changed even
though those affected have been consulted (see p 595 c to g j to p 596 b, post); R v Secretary of State for the Home Dept, ex p Khan [1985] 1 All ER 40
and R v Secretary of State for the Home Dept, ex p Ruddock [1987] 2 All ER 518 considered.
(2) There is a pressing need for RSC Ord 53 to be amended to allow the court to refuse leave to apply for judicial review on some grounds, while
granting it on others, as the court’s view of the application’s merits dictates, so that the court hearing the substantive application is not required to
consider points which were unarguable and ought not to have attracted leave (see p 600 h j, post).
Notes
For noise and vibration caused by aircraft, see 2 Halsbury’s Laws (4th edn reissue) para 1185.
For the Civil Aviation Act 1982, s 78, see 4 Halsbury’s Statutes (4th edn) (1987 reissue) 201.

Council of Civil Service Unions v Minister for the Civil Service [1984] 3 All ER 935, [1985] AC 374, [1984] 3 WLR 1174, HL.
CREEDNZ Inc v Governor General [1981] 1 NZLR 172, NZ SC.
Preamble
Findlay v Secretary of State for the Home Dept [1984] 3 All ER 801, [1985] AC 318, [1984] 3 WLR 1159, HL.
Liverpool Taxi Owners’ Association, Re [1972] 2 All ER 589, sub nom R v Liverpool Corp, ex p Liverpool Taxi Fleet Operators’ Association [1972] 2
QB 299, [1972] 2 WLR 1262, CA.
R v Board of Inland Revenue, ex p MFK Underwriting Agencies Ltd [1990] 1 All ER 91, [1990] 1 WLR 1545, DC.
R v Jockey Club, ex p RAM Racecourses Ltd [1993] 2 All ER 225, DC.
R v Secretary of State for the Home Dept, ex p Khan [1985] 1 All ER 40, [1984] 1 WLR 1337, CA.
R v Secretary of State for the Home Dept, ex p Ruddock [1987] 2 All ER 518, [1987] 1 WLR 1482.

Richmond upon Thames London Borough Council, Windsor and Maidenhead Royal Borough Council, Tandridge District Council, Hillingdon London
Borough Council and Slough Borough Council applied, with the leave of Sedley J given on 30 July 1993, for judicial review of the decision of the
Secretary 578 of State for Transport, announced by a press release on 6 July 1993, to introduce new night flying restrictions based on a noise quota
system to restrict noise at Heathrow, Gatwick and Stansted Airports. The relief sought was (i) an order of certiorari to quash the decision, (ii) further or
alternatively, an order of mandamus requiring the Secretary of State to reconsider his decision and to exercise his powers under s 78 of the Civil Aviation
Act 1982 according to law, (iii) further or alternatively, an order of mandamus requiring the Secretary of State to extend the existing restrictions in
relation to the three airports for such period as he considered necessary to enable him to reconsider the exercise his powers under s 78 of the Civil
Aviation Act 1982 according to law, (iv) further or alternatively, an order of prohibition restraining the introduction of the new restrictions, and (v) further
or alternatively, a declaration that the new restrictions were unlawful. The facts are set out in the judgment.
Richard Gordon (instructed by Richard Buxton, Cambridge) for the applicants.

Ian Burnett and Mark Shaw (instructed by the Treasury Solicitor) for the Secretary of State.
Cur adv vult
29 September 1993. The following judgment was delivered.
LAWS J. On 6 July 1993 the Secretary of State for Transport announced his intention to introduce in October 1993 what is described in his press notice
as ‘A tough new quota system of night flying restrictions to reduce noise at Heathrow, Gatwick and Stansted’. The decision to introduce these measures
is the subject of the judicial review now before me. Sedley J gave leave on 30 July 1993. The applicants are a number of local authorities for the areas
around each airport. They say that their constituents, or inhabitants, will be adversely affected by the new regime if it comes into force. The respondent
is of course the Secretary of State.
Restrictions against night movements by aircraft at Heathrow have been in effect since 1962. Most recently a set of measures was introduced in
1988 which covered both Heathrow and Gatwick. Although, as I understand it, it has been updated from time to time, the regime of 1988 at present
remains in force, but it is due to expire in October 1993, and it is the Secretary of State’s intention to substitute his new measures (which will for the first
time impose restrictions at Stansted) with effect from 24 October. Put simply, the existing means of control involves a direct limitation upon the number
of take-off and landing movements permitted at night. Shorn of certain detailed qualifications which do not matter for present purposes, the number of
such movements presently allowed at Heathrow is 5,750 per year.
The Secretary of State’s new proposals, however, take a different form. At this stage I shall give only a crude description; it will be necessary to
refine it later. A quota count (QC) is to be assigned to each aircraft type. Each QC consists of a number of units from 0·5 to 16. In simple terms, the
higher the QC, the noisier the aircraft. A given number of quota points will be assigned to each airport (12,000 in the case of Heathrow: 7,000 for the
summer season, 5,000 for the winter). Aircraft movements which would produce any excess over the quota limit will be prohibited. The difference
between the old system and the new system is therefore this: whereas at present, night flying restrictions are achieved by reference to an express
specification of the number of the individual 579 aircraft movements permitted, hereafter it will be done by reference to the permitted maximum
number of quota points, and this means that within the ceiling defined by the maximum quotas, the aircraft operators will be free to choose how the quota
is to be distributed between noisier and less noisy aircraft; they may operate a greater number of quieter aeroplanes, or a lesser number of the noisier
types.
The decision of July 1993 followed widespread consultation which had been initiated by a consultation paper of January 1993 issued by the
department. And in December 1992 the department had published a research paper with the title ‘Report of a Field Study of Aircraft Noise and Sleep
Disturbance’. There had been a final draft report the previous month, which is also among the papers before the court. These documents are of some
importance for certain aspects of Mr Gordon’s argument, as are the terms of a consultation paper of November 1987 and a press notice of 10 February
1988, which preceded the institution of the 1988 restrictions.
I must canvass the facts more closely, but will first set out the statutory provision under which the Secretary of State proposes to act and which,
indeed, authorises the 1988 measures now in force. This is of obvious importance because Mr Gordon has submitted that the Secretary of State’s scheme
would be illegal because the statute on its true construction confers no power to give effect to it. The relevant provision is s 78(3) of the Civil Aviation
Act 1982:
‘If the Secretary of State considers it appropriate, for the purpose of avoiding, limiting or mitigating the effect of noise and vibration connected
with the taking off or landing of aircraft at a designated aerodrome, to prohibit aircraft from taking off or landing, or limit the number of occasions
on which they may take off or land, at the aerodrome during certain periods, he may by a notice published in the prescribed manner do all or any of
the following, that is to say—(a) prohibit aircraft of descriptions specified in the notice from taking off or landing at the aerodrome (otherwise than
in an emergency of a description so specified) during periods so specified; (b) specify the maximum number of occasions on which aircraft of
descriptions so specified may be permitted to take off or land at the aerodrome (otherwise than as aforesaid) during periods so specified; (c)
determine the persons who shall be entitled to arrange for aircraft of which they are the operators to take off or land at the aerodrome during the
periods specified under paragraph (b) and, as respects each of those persons, the number of occasions on which aircraft of a particular description of
which he is the operator may take off or land at the aerodrome during those periods …’
Given the course of the argument before me it is convenient also to read sub-s (5)(c):
‘if it appears to the Secretary of State that an aircraft is about to take off in contravention of any prohibition or restriction imposed in pursuance
Preamble
of that subsection, then … any person authorised by the Secretary of State for the purpose may detain the aircraft for such period as that person
considers appropriate for preventing the contravention …’
I return to the facts. There is first some material whose primary relevance is to Mr Gordon’s submission that there was a change of policy in 1988
which ought to attract legal consequences. The consultation paper issued on 6 580 November 1987 contained a number of statements concerning the
policy of the government as regards the improvement of what was called the ‘night noise climate’ at Heathrow (the paper before me related only to
Heathrow Airport). I need not read all of the citations relied on by Mr Gordon. It is enough to quote from para 4:
‘The restrictions as revised in 1981 phased out night flights by the older, noisier aircraft. This, and the airlines’ investment in newer and quieter
aircraft, has over the years brought about an improvement in the night noise climate around Heathrow. That is a significant achievement which we
must not throw away. We are therefore determined to ensure that this improvement continues ... the objectives which underlie the proposals in this
Paper are therefore:—to continue to improve the night noise climate so that disturbance of people’s sleep is further reduced [and] to encourage
airlines to continue to invest in quieter, modern aircraft.’
And para 5:
‘We believe that people living around the airports should continue to benefit from the advances in aircraft design and technology which are
producing quieter aircraft. At the same time we want to avoid unnecessary regulation.’
The consultation paper indicated (para 34) that the new restrictions then envisaged would be fixed for at least five years. There followed a press
notice of 10 February 1988 announcing the new restrictions which the Secretary of State after consultation had decided to impose. Statements in this
documet are also relied upon by Mr Gordon. It related to night flying both at Heathrow and Gatwick. It quoted a parliamentary answer given by the
Secretary of State, in which he said (127 HC Official Report (6th series) written answers cols 247–248):
‘On 6th November last year I published proposals for future night restrictions at the two airports. I set out then my objective—to improve the
night noise climate around the airports without imposing unnecessary restrictions on the airline industry... The challenge is to ensure that the
benefits of modern aviation technology are enjoyed not only by those who fly, but also by those on the ground. I believe we can do that by giving
airlines an incentive to replace their older, noisier aircraft by modern, quieter ones …’
That, then was the government’s position in 1987–88, and the 1988 restrictions were duly introduced. Mr Gordon says that the documentation
discloses a clear assurance or undertaking by the department that from 1988 onwards it would promote a continuing reduction in aircraft noise effects. It
is common ground—and this is important for Mr Gordon’s argument—that by 1993, owing to the increased use of quieter aircraft, the night noise climate
at the airports had indeed improved since 1988.
Although chronologically other significant events, relevant to other parts of the case, intervene—the publication of the final draft and the report of
the field study in November and December 1992—it is convenient to turn to the consultation paper of 1993 to see the terms in which the department, in
proposing the new regime, recorded and reflected its policy of 1988, and set out its aspirations in 1993. Paragraph 34 of the paper is in these terms:
581
‘Since 1988, more of the quieter types of aircraft have been acquired by airlines, improving the night noise climate. In keeping with the
undertaking given in 1988 not to allow a worsening of noise at night, and ideally to improve it, it is proposed that the quota for the next five years
based on the new quota system should be set at a level so as to keep overall noise levels below those in 1988. For Heathrow the proposed summer
noise quota is 7,000 and for Gatwick 9,000. The 1988 summer quota for Heathrow would have been about 8,000 if calculated on the new basis, and
the summer quota for Gatwick about 11,450.’
Mr Gordon says that this paragraph misdescribes the government’s policy assurances of 1988. He says there is a difference of no little importance
between an assurance ‘to improve the night noise climate’ and an undertaking ‘not to allow a worsening of noise at night, and ideally to improve it’. He
says that the position is the more stark since it has been government policy at least since 1981 to encourage airlines to use quieter aircraft and to confer
the benefit of the consequent lower noise levels upon the public. Yet, so the submission goes, para 34 of the 1993 consultation paper indicates no more
than an intention to keep overall noise levels below those of 1988; that, he says, is a departure from the announced policy, not a continuation of it. And
when, after consultation, the new quota system was formally announced by the press notice of 6 July 1993, it was made clear that this was indeed the
thrust of the policy. The notice said:
‘The main points are ... the quota levels at Heathrow and Gatwick are designed to keep overall noise levels below those in summer 1988 when
the current restrictions were introduced.’
He developed this part of the case alternatively by reference to the doctrines of legitimate expectation and Wednesbury principles (see Associated
Provincial Picture Houses Ltd v Wednesbury Corp [1947] 2 All ER 680, [1948] 1 KB 223). I shall deal with these and his other submissions when I have
set out the other principal facts necessary for my decision.
It is appropriate next to go back to November 1992, when the final draft of the department’s field study report came into existence, and to December,
when the report was itself published. These documents are important for what Mr Gordon called ‘the sleep prevention issue’. One starts with the perhaps
obvious proposition that while being awoken from sleep is one problem, being prevented from getting back to sleep, or from falling asleep in the first
place, is another. ‘Sleep arousal’ is to be distinguished from ‘sleep prevention’. Mr Gordon says that ‘sleep prevention’ was not addressed in the final
draft or report although there are passages in the report suggesting that there may be an important relationship between aircraft noise and sleep prevention,
as to which further research was required. Notwithstanding that, the argument continues, the department treated the report as justifying a belief that no
further research work on sleep prevention would undermine the report’s conclusion that aircraft noise was not a significant problem. It is submitted that
that is a view which could not rationally be arrived at on the material before the Secretary of State. At this stage, therefore, I should examine some of the
detail and explain the way in which the Secretary of State has made use of the report.
I need not take much time with the final draft as opposed to the report itself. But I should notice para 33 of the introductory summary in the draft:
582
Preamble
‘These conclusions are based on measurements of arousals from sleep. Until further analysis is complete, few supportable observations can be
made about the possible effects of noise in preventing sleep onset at the beginning of the night, or delaying return to sleep after awakening, during
the night, or in the early morning.’
In the report itself, this paragraph has in effect been substituted by the following (para 34):
‘Work is continuing on a number of detailed points to supplement findings in this report including further analysis of the possible effects of
noise in preventing sleep onset at the beginning of the night, or delaying return to sleep after awakening during the night or in the early morning.
This will not change the conclusions about aircraft noise presented here but additional results will be published subsequently.’ (My emphasis.)
The full title of the report is ‘Report of a Field Study of Aircraft Noise and Sleep Disturbance’. It includes a glossary and definition of terms. One
of the terms defined is ‘Disturbance’:
‘“Sleep Disturbance” can be defined in a variety of ways. In this report the expression is used generally to cover both awakenings and
actimetrically determined arousals; however, it is also used in a more specific sense to describe events of particular significance such as
EEG-awakenings which, if experienced often enough, could have longer term consequences.’
Paragraph 2 of the summary in the report sets out the objectives of the study. They—
‘were to determine: (a) the relationships between outdoor aircraft noise levels and the probability of sleep disturbance, (b) the variation of these
relationships with time of night.’
Paragraph 5.2 of the report is in these terms:
‘The main question to be addressed is, “does aircraft noise cause sleep disturbance within sleep itself?” This is distinct from the questions of:
(a) whether such noise at bedtime interferes with the process of getting to sleep, or (b) whether such noise causes premature awakening at the end of
sleep. Data gathered during this study may well throw light on these latter questions, which are the subject of continuing analysis. The results
presented here are mainly concerned with the primary line of inquiry.’
These references (and others also were relied on by Mr Gordon) appear to demonstrate that the report was indeed primarily concerned with the
effects of aircraft noise upon persons already asleep and not with its effects upon people trying to get to sleep. However, incorporated into the report
were the results of an extensive social survey in which questionnaires were administered, one of which sought to ascertain the percentage of respondents
giving aircraft noise as the main reason for having difficulty in getting to sleep, and another to identify the percentage giving aircraft noise as the main
reason for having difficulty getting back to sleep, once awakened. Those percentages are plotted in figures 35 and 37 which are appended to the report.
These figures also contain, for comparison purposes, the effect of the answers to very similar questionnaires 583 administered in the course of sleep
surveys carried out by the Civil Aviation Authority in 1980 and 1984. Paragraph 4.2 of the report says:
‘The wording of the questions in the 3 questionnaires [the third—figure 36—concerns being awakened from sleep] was very similar and the
responses clearly exhibit similar trends, albeit with the large scatter typical of social survey data ... there are similar degrees of agreement in all
three cases suggesting that, in relation to night noise exposure in Leq, general perceptions of night time aircraft noise effects have changed little
since 1980.’
No doubt this entitled the Secretary of State to conclude that the ratio of people complaining about aircraft noise waking them up to those
complaining that aircraft noise stopped them getting to sleep had remained roughly constant since 1980. And the figures, into whose detail I need not
travel, show that the reported incidence of aircraft noise causing difficulty in getting to sleep was no greater than that of aircraft noise induced
awakenings.
Given this material, I turn to the evidence of the Secretary of State’s decision-making process, so far as relevant to Mr Gordon’s ‘sleep prevention
issue’. It is essentially contained in the affidavits of Miss McWatt and Dr Ollerhead. At para 20 of her affidavit Miss McWatt says:
‘Paragraph 34 of the report is intended to say that the results of additional work will supplement the report’s conclusions, not replace them. [A
citation from the preface to the summary of the report is then set out, and is said to reinforce the proposition just stated.] The reasons why, as a
matter of scientific technical analysis, the report was able to be confident that any further work on “sleep prevention” (as distinct from arousal from
sleep) would not undermine its conclusion that aircraft noise was not a significant problem are set out by Dr Ollerhead in his affidavit ...’
In para 21 she says:
‘Sleep disturbance including “sleep prevention” was considered in the report. The Secretary of State accepted the conclusions in the report
including paragraph 34 and was aware that the social survey data in figures 35 to 37 effectively showed no change in respect of difficulties of
getting to sleep (“sleep prevention”) from previous studies.’
I shall come to Dr Ollerhead’s evidence in a moment. But I can identify at once the proposition advanced by Mr Gordon in reliance on the affidavit
of Miss McWatt. She asserts on behalf of the Secretary of State that the report ‘was able to be confident that any further work on “sleep prevention”...
would not undermine its conclusion that aircraft noise was not a significant problem’. This is not what the report says. Paragraph 34 of the summary,
which I have quoted, asserts in effect that further work, which would include analysis of sleep prevention, will not change the conclusions about aircraft
noise arrived at in the report. But on the face of it, so it is submitted, this is not a proposition of substance, but a truism which could carry the
decision-making process nowhere: not least, given the clear definition of ‘disturbance’ in the report, the conclusions reached only related to sleep arousal.
Logically, they would of course be untouched by the results of any further work upon the different problem of ‘sleep prevention’.
Dr Ollerhead in his first affidavit says at para 19(c):
Preamble
584
‘The report does not specifically address the question of “sleep prevention”, as it makes clear. However, since, as figures 35-37 show, the
reported incidence of aircraft noise causing difficulty in getting to sleep (in the first place or after awakening) is no greater than that of aircraft noise
induced awakenings, it may reasonably be inferred from the subjective data that “sleep prevention” is no more of a problem than “sleep
disturbance”.’
It is not asserted on behalf of the Secretary of State, either here or anywhere, that there may not be a significant relationship at all between aircraft
noise and sleep prevention. I need not, I think, therefore travel through the references in the report upon which Mr Gordon relies as establishing such a
possibility. Nor, as I understand it, is it suggested for the Secretary of State that further scientific work upon the possible impact of aircraft noise on
persons trying to get to sleep is unnecessary or undesirable. The questions which I will have to determine when I come to deal with the arguments upon
this part of the case are in my judgment two. (1) Does para 20 of Miss McWatt’s affidavit show that the Secretary of State misunderstood the report, so
that his decision to introduce the new policy was based on demonstrably faulty reasoning, and so can be categorised as irrational? (2) Is the inference
described by Dr Ollerhead at para 19(c), so far as it represents the Secretary of State’s view (as to which I think there is no contest), one which is
reasonably sustainable?
I should next notice a passage in para 7.6 of the report, because it is relevant to what Mr Gordon has described as ‘the flight number issue’. The
complaint is that the new quota system does nothing to regulate the frequency of flights at night (save that the overall permitted number of quota points at
each airport implies in theory a maximum number of movements for each aircraft type or a set of maxima for any combination of aircraft types: this
qualification is of great importance for the illegality issue upon s 78(3), but of no significance for immediate purposes): and that there is no material
available to the Secretary of State to enable him to form a judgment as to the effects of a second aircraft movement, or successive movements, upon a
person trying to get back to sleep; he should have equipped himself to form such a judgment, and given effect to it in his decision; so that the policy is
irrational.
Paragraph 7.6 starts with the sentence:
‘An important practical question, which is the subject of continuing analysis, concerns the possible effects of the time interval between
successive ANEs [ANE is defined in the glossary as an ‘Aircraft Noise Event; the noise experienced when a single aircraft passes by’]; ie that
shorter intervals might increase the probability of the second event causing arousal.’
Reference is then made to certain scientific work relevant to the question, and the paragraph continues:
‘Thus it may be inferred that, if one ANE causes disturbance, this will increase to some extent the probability of disturbance by an immediately
following ANE. However, as the independent probabilities of either noise causing disturbance are low, any additional disturbance attributable to
repeated events is likely to be very small ... again, it has to be stressed that these observations relate to arousal from sleep. No conclusion can yet
be stated about the possibility that a second ANE might impede return to sleep 585 after an awakening. Whether or not this has an important
bearing upon end-of-night sleep disturbance is a question still being examined.’
Mr Gordon relies upon the policy’s theoretical potential for very large increases in flight movements, as, for example, would occur if all the aircraft
using the airport at night were in the QC 0·5 category. There is evidence from Miss McWatt (para 16) that such a state of affairs is extremely improbable;
she says that the major requirement for night movements at Heathrow is for Boeing 747s; they are QC 2 or 4 (some are QC 8 or 16, and aircraft of those
latter quota counts cannot under the policy be scheduled to land or take off during night hours at all). There is no expectation of substantial changes or
sudden increases in night movements at Heathrow. It is also the case that under the new policy fewer types of aircraft will be exempt altogether than
under the existing system.
There is next a sentence in para 1.2 of the report relevant to Mr Gordon’s ‘health effects issue’. His complaint is that there is nothing to show that
the government has given any consideration whatever to the question whether aircraft noise might affect the health of a person trying to get to sleep, or
indeed while he remains asleep. The last subparagraph of para 1.2 states:
‘In a small number of studies, the effects of a noise-disturbed night on the individual’s performance the following day has been determined
using, for example, reaction time tests. Little research appears to have been carried into the relationships between marked sleep disturbance and
any chronic health effects.’
So, says Mr Gordon, it may be inferred that there is no work upon the relationship (if any) between sleep prevention and health effects: to say
nothing of health effects caused by noise while the person still sleeps.
An affidavit was put in at a late stage (without objection from the Secretary of State) from the applicant’s solicitor, Mr Buxton, exhibiting two
articles by experts which include some material to suggest that health may be affected by noise during sleep: certainly that there may be physiological
effects, such as an increased heart rate, and that there may be secondary effects, felt in the morning or day after the noise exposure. These, it is said,
include increased fatigue.
I must next explain a concept not so far mentioned in this judgment, that of ‘Leq’. As I will show, Leq is a defining factor in the new quota system,
and Mr Gordon has submitted it was unlawful for the Secretary of State to lock his new proposals into this concept.
I may start with the definition of ‘Leq’ given in the glossary to the December 1992 report:
‘A measure of long-term average noise exposure; for aircraft noise it is the level of a steady sound which, if heard continuously over the same
period of time, would contain the same total sound energy as all the ANEs.’
I should next explain another concept, ‘dB’, also integral to the Secretary of State’s proposed system. The glossary defines it in this way:
‘Decibels, units of sound level, or relative sound level, calculated as 10 times the log (base 10) of a sound energy ratio. Used here to define
differences between levels measured on the dBA scale.’
‘dBA’ is defined thus:

Preamble
586
‘Levels on a decibel scale of noise measured using a frequency dependent weighting which approximates the characteristics of human hearing.
These are referred to as A-weighted sound levels; these are very widely used for noise assessment purposes.’
As the definition shows, Leq is a measure of average exposure to noise energy (as opposed to individual instances of subjective loudness); and that is
the concept which the Secretary of State has deployed in the new scheme as the means of defining the limits of noise exposure which he wishes to
enforce. Here I must refine the simple explanation of the scheme which I gave at the outset. What the Secretary of State has done is to arrive at a Leq
value for the night period at each airport, summer and winter. That sets an average exposure to aircraft noise energy which is not to be exceeded. The
quota points for individual aircraft types are then fixed by reference to international noise certification data. Each progression, from 0·5 to 1, 1 to 2, 2 to 4
etc, represents an increase of 3dB, which itself measures or implies a doubling of sound energy. The maximum quota points specified by the Secretary of
State give effect to the Leq value determined by the Secretary of State for night periods during summer and winter at each airport.
Mr Gordon has submitted that Leq is an inherently unreliable measure of night-time noise. Its merits as such a measure are much in contention
among the experts. I need not rehearse the various passages in the evidence in which conflicting views are canvassed, because it must be beyond
argument that it is no part of my function to decide the merits of such a question. In my view the Secretary of State was plainly entitled in Wednesbury
terms (and Mr Gordon’s submission can only be based on Wednesbury) to take a measure of exposure to noise energy levels as his criterion for regulating
aircraft noise at night. Whether in the end s 78(3) permits him to do so is of course another question. On this part of the case, there are really only two
issues which require further consideration.
(1) Mr Gordon’s submission that the government has itself accepted that Leq is an inherently unreliable measure, so that (as with the thirteenth
chime of the clock) all their other protestations of its reliability are cast into doubt and one is left with nothing but a self-contradiction. Such a state of
affairs might properly call for the court’s intervention on Wednesbury grounds.
(2) His further submission that the 3dB progression does not at all represent the rate at which annoyance caused by noise, as opposed to noise energy
level, is doubled; on the Secretary of State’s own evidence, noisiness as such doubles in 10dB steps. Mr Gordon has also argued that at all events Leq as
a measure of night noise cannot encompass the impact of successive individual aircraft movements on sleep prevention; but this is only a reiteration of the
‘flight numbers issue’ which he has separately advanced.
Mr Gordon’s submission that the government has itself accepted that Leq is not an acceptable means of measuring night time noise is founded on an
exhibit to Miss McWatt’s affidavit. It is important to notice that this exhibit was produced in response to a complaint by the applicants that the
department had not released any information about night time noise climate. The exhibit is titled: ‘Summary of the Background and Reasons surrounding
the issue of the publication of Night Time Noise Data by the department.’ It is not a pre-existing document, but a text written by Miss McWatt herself in
the course of the proceedings to meet a complaint made by the applicant, and, to all intents 587 and purposes, is to be regarded as part of her affidavit.
She starts by saying that ‘night noise data’ are known as ‘noise contours’. Then these passages follow:
‘The department publishes noise contours for Heathrow, Gatwick and Stansted for the daytime period only ... the department has never
published night noise contours to complement the daytime series. The reason is as follows: [there then is some technical discussion (whose merits
are not themselves attacked by the applicants)]. The result, in short, is that there is no means of interpreting any night-time contours that might be
produced. A particular difficulty would arise in relation to Heathrow where night flights are largely concentrated in two periods up to midnight and
after 05.30 ... the use of averaging techniques ... to assess disturbance from aircraft noise is a subject on which there is much academic debate. For
that reason [the department] ... has cautioned, for technical reasons, against reliance on Leq contours when there are less than about 30 movements a
day. Similar considerations would apply at night.’
In his second affidavit Dr Ollerhead comments on this evidence from Miss McWatt. He says at para 27:
‘Miss McWatt referred to the need for caution when interpreting daytime Leq values when the number of events is less than about 30 per day
(equivalent to a rate of about 15 per night). She noted that similar considerations might apply at night. Such factors need to be considered very
carefully when deciding how best to develop sensible night noise contours, especially when contours could be required for airports with rather
different patterns of night operations ... this is not to say that Leq is an inappropriate basis for night noise contours; on the contrary a better
alternative seems most unlikely to emerge ...’
I shall assess the impact of this evidence when I come to deal with Mr Gordon’s submissions.
I must next recite certain material relevant to what Mr Gordon calls ‘the 9 EPNdB issue’. EPNdB is a measure upon which the noise certification
data for individual types of aircraft are based, and thus a determinant of any given aircraft type’s QC rating. In the consultation paper of January 1993 the
department said:
‘The noise certification data for each aircraft type has been used as follows: Arrivals: Approach Certification Point Data minus 9 EPNdB (to put
on an equivalent basis to departure noise certification points)’
This deduction for landing movements is not further explained in the consultation paper, and is attacked in the applicant’s evidence. Dr Ollerhead for the
Secretary of State says in his first affidavit at para 20:
‘The 9 EPNdB adjustment to the certificated approach noise level in the determination of the QC value for arrivals is made to allow for the fact
that, under International Aircraft Noise Certification Procedures, approach noise is measured much nearer to the aircraft than the departure values.
Thus, for given certificated noise levels, approach noise footprints are around 10 times larger than departure footprints. The chosen decrement of 9
dB, being the most suitable multiple of the QC class interval (3 dB), 588 simplifies the tabulation of the aircraft data. Such a decrement is,
therefore, unremarkable and entirely proper.’
He returns to the theme in his second affidavit, responding to evidence put in by the applicants. He says:
‘This differential reflects the fact [that] for a given certificated noise level, take-off noise footprints are typically 10 times bigger than landing
footprints. This differential ensures that the footprint area for a given QC value is about the same, regardless of whether the aircraft is landing or
taking off. It therefore ensures that like is compared with like.’
Preamble
Mr Gordon submits that these explanations do not in fact offer any rational basis for the 9 EPNdB deduction. He says, and this is the burden of the
assault mounted in his evidence, that it leaves entirely out of account the fact that whereas the main noise impact of take-off is over the airfield, the noise
effects of landing are felt at a distance from the airfield; nor does it take on board the fact that at Heathrow some 70% of landings are from the east, an
area five times more densely populated than the usual take-off route. So his case is that this deduction has been arrived at leaving wholly out of account
the fact that there is a significant number of people who will be more affected by landings than take-offs. He points to the fact, as the evidence shows,
that without this deduction the permitted noise levels for landings would be unacceptable on the Secretary of State’s own policy (see for example para 30
of the January 1993 consultation paper).
The last issue identified by Mr Gordon is ‘the natural justice issue’. In fact there are two points taken here. The first concerns the treatment in the
1993 consultation paper of the provisions in the scheme which are intended to give some flexibility in the event that, in any given season at any given
airport, (a) the quota might not be used up, or (b) it might be exceeded. I must set out para 37 of the consultation paper:
‘Under the present system at Heathrow, an airport operator is allowed to carry over any unused quota into the following season up to a
maximum of 50. It can also bring forward up to 50 from the next season if there is a slight overrun in the current season. (If the overrun exceeds
50, the following season’s quota is reduced by double the excess.) This allows a degree of flexibility which has proved useful and which recognises
that the summer/winter seasons vary in length from year to year. We propose to allow the three airports to carry over into the next season up to 5
per cent of the quota if there is a surplus or to anticipate up to 5 per cent of the quota of the following season if there is an overrun. If the overrun
exceeded 5 per cent, the next season’s quota would be reduced by double the excess over 5 per cent. This will continue the flexibility of the
existing system without any overall increase in the quota.’
The applicant’s complaint is that this passage gave its readers the impression that, for any one season at any one airport, there could be a carry over
of up to 5% if there were a surplus, or a carry forward of 5% if there was an overrun, but not both; but it now appears that it was always intended to
permit both. The July 1993 press notice says:
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‘The consultation proposed to allow the airports the facility to carry over 5 per cent of quota if there was a surplus and anticipate up to 5 per
cent of the next season’s quota in the event of overrun.’ (My emphasis.)
Mr Gordon says that in these circumstances his clients have effectively been denied the opportunity of making representations to the effect that this
dual flexibility should not be allowed. As a footnote I should state that in fact the press notice proposed 10%, not 5%, flexibility in either direction. That
is the result of the consultation process, and is not itself the subject of any complaint before me.
The second natural justice point also depends upon a passage from the consultation paper. It relates to the monitoring of aircraft movements, and
hence to the effectiveness of any enforcement of the scheme. It is clear from a letter of 19 August 1993 from the department to a resident living in the
locality of Heathrow that: ‘Landing aircraft are not monitored against fixed noise limits, but departing aircraft are.’ In the consultation paper paras 40 to
43 are in these terms:
‘40. The new noise and track monitoring system installed at the three airports … will monitor the noise made by aircraft to ensure compliance
with the maximum noise levels that currently apply for individual departures …
41. These noise limits have remained unchanged for over 25 years, during which time aircraft have become considerably quieter. As promised
earlier, now that the new noise and track monitoring system is operational, it would be appropriate to review the noise limits. We propose to
initiate this review and to conduct it through the Aircraft Noise Monitoring Advisory Committee (ANMAC). This committee is chaired by the
Department of Transport and comprises representatives of the airlines, airports and local airport consultative committees.
42. We also propose that data from the new Noise and Track Monitoring System should be used to verify the relative noise classification of
aircraft types set out in Appendix 2. If over a period of time an aircraft or aircraft type produces noise levels significantly higher or lower than the
average for its category, its classification (whether for landing or taking off) would be reconsidered. We propose this should also be overseen by
ANMAC.’
Then under the heading ‘Penalties’:
‘43. Instead of the present system of penalties … BAA [the British Airports Authority] have proposed that if the night-time noise limit is
breached at any of the three airports the aircraft owner will incur a financial penalty. It is consulting airlines about this.’
Mr Gordon’s complaint is that his clients were reasonably led to believe, by the passage in the consultation paper which I have set out, that landing
as well as take-off movements would be monitored, and thus be subject to the facility for enforcement to which monitoring would give rise; and, again,
since the true intention was at variance with this (because it contemplated monitoring at take-off only), there has been no proper opportunity to make
representations.
I have now described the principal factual material in the case, and turn to the arguments themselves.
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The true construction of s 78(3)

Upon this Mr Gordon advanced two submissions. The first was that in exercising the power conferred by the subsection the Secretary of State is
obliged to have regard to the existing level of noise and, given the express purpose for which the power is conferred (‘avoiding, limiting or mitigating the
effect of noise and vibration’) he cannot lawfully so exercise it as to produce a result in which noise levels are actually permitted to rise above the levels
prevailing at the time at which he acts. Since (a) the use of quieter aircraft has meant that levels have fallen since 1988 but (b) the scheme in
contemplation would merely cap levels below those prevailing in 1988, the Secretary of State’s proposal travels beyond this limitation of his statutory
discretion and would accordingly, if carried into effect, be unlawful.
I reject this argument. It writes into the statute a restrictive provision which has, quite simply, not been enacted. It is of course elementary that the
Secretary of State can only use the power for the purpose specified. Mr Gordon’s submission, however, depends upon the false logic that this means that
the power can never be exercised so as to produce a net increase in noise levels over those prevailing immediately beforehand. In argument I put to him
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this example: suppose that close to a given airport there exists a large community, many thousands strong, the great majority of whose members work in a
particular industry. Desiring to shield them from the effects of aircraft noise, the Secretary of State acts under s 78(3) to impose severe restrictions upon
night movements. But with the passage of time the community disperses, because the industry upon which it is dependent falls upon hard times—perhaps
closes down altogether. There remain only a village or two, at a greater distance from the airport than the previous conurbation, and with very few
inhabitants. The Secretary of State reviews this situation and concludes that the restrictions previously imposed, and still in force, are far more severe
than what is now required. He considers that some degree of control under s 78(3) remains necessary for the protection of the villagers. But since they
are far fewer in number, and live farther from the airport than was previously the case, their interests do not require anything like so draconian a regime;
accordingly, he issues a new notice under s 78(3) whose effect is to permit an increase in the number of night movements, while still maintaining some
degree of restriction, and there is a corresponding increase in permitted noise levels.
The example, though of course far distant from the facts of the present case, is useful as illustrating what for my part I take to be obvious, namely
that the Secretary of State must look at all the circumstances which he reasonably perceives as relevant at the time he contemplates exercising the power.
Given that there is in place an existing regime created under a previous decision, he may conclude that tighter, or looser, restrictions are required; indeed,
he may conclude (though it is no doubt improbable in practice, at least in present conditions) that no restrictions are required at all, and in that case he will
discharge the previous order. The point is that a decision imposing lighter restrictions than those previously in force may be made to give effect to the
statutory purpose just as surely as one which imposes more stringent measures: the content of any decision will depend upon the Secretary of State’s
perception of what is appropriate in the circumstances.
There is nothing in Mr Gordon’s first submission, but his second argument on the construction of s 78(3) has in my judgment much greater force. It
may be described in this way. It is clear that the proposed scheme will rely for its 591 legality on s 78(3)(b) (as regards certain aircraft types s
78(3)(a) will also be deployed, but that is irrelevant for present purposes). However, says Mr Gordon, if the Secretary of State implements it, he will be
doing something quite outside the words of sub-s (3)(b). He will not ‘specify the maximum number of occasions on which aircraft of descriptions so
specified may be permitted to take off or land ...’ He will specify something entirely different, namely the maximum number of quota points, which, in
deciding what movements to schedule, the aircraft operators are not to exceed. He is quite unconcerned with the maximum number of movements. The
whole thrust of the scheme, its defining characteristic, is the use of the quota points; they are a mathematical construct which would permit the Secretary
of State to impose control by reference to levels of exposure to noise energy, and not by reference to numbers of aircraft movements. But the means of
control allowed by s 78(3)(b) is, precisely, numbers of movements; the statute requires that they, and no other concept, are to be the defining
characteristic of any order under the sub-paragraph.
Mr Burnett for the Secretary of State sought to lay some emphasis on the express statutory purpose for which the power is conferred, and submitted
(correctly) that the scheme is indeed intended to fulfill it. But this cannot help him, since the question on this part of the case is not whether the Secretary
of State proposes to act for an alien purpose (which he does not), but whether the means he has chosen to give effect to the subsection’s purpose is within
the permitted modes of doing so. He submitted that sub-s (3)(b) must be construed in the overall context of the subsection; but this cannot help him
either, since he accepts that paras (a), (b) and (c) are exclusive, that is they stipulate the only categories of action allowed to be taken. No appeal to the
statutory purpose, or the overall context, can serve to widen any of these categories beyond the limits imposed by their plain words; far less can it
vindicate the creation of a fourth category, where indisputably no such category exists.
Mr Burnett’s primary argument, however, seeks to come to grips with the language of sub-s (3)(b) in this way: he says that the scheme inexorably
dictates a maximum number of movements for each aircraft type, and therefore involves a specification of maximum numbers within the paragraph. In
this submission I understood him to be asserting that the form of order when drafted need not set out on its face any actual specification of maxima, so
long as the scheme’s terms implied a maximum or set of maxima. I greatly doubt whether any scheme would be lawful under sub-s (3)(b) if the maxima
in contemplation were not expressed on the face of the document giving effect to it, but Mr Burnett also submits that it would in any event be possible to
frame a notice giving effect to the scheme which would set out the maxima explicitly. If that were not possible, I have no doubt then the scheme would
certainly be unlawful, because it would not involve the existence of specific maxima capable of being specified expressly, and this, at least, must be a
necessary condition for the legality of any scheme under sub-s (3)(b). So I must examine the force of the argument that specific maxima, capable of being
expressly specified, are inherent or implied in what the Secretary of State proposes.
Mr Burnett says that the maxima may be expressed in the following table (taking Heathrow as an example):
Description of aircraft Maximum movements

QC 0·5 14,000
QC 1 7,000
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QC 2 3,500
QC 4 1,750
I have already said that aircraft with QC 8 and 16 are excluded from night flying at Heathrow. But that is an adventitious fact; if the scheme is
lawful, it must also be lawful if such aircraft were included (subject to any separate argument, irrelevant for present purposes and itself extremely
doubtful, that any movements by such aircraft could not be permitted at night without contravening Wednesbury principles). But if they were included,
Mr Burnett’s table would continue as follows:
QC 8 875
QC 16 437·5
Thus logically the scheme involves the possibility that the number of maximum movements could include half a movement. A notice which
specified maxima in such terms, whether expressly or by implication, would surely be struck down by the court as specifying something which could only
exist in the pages of Lewis Carroll. More concretely, one can see that the maxima on which Mr Burnett is driven to rely are purely notional; they have
nothing whatever to do with the real basis on which the Secretary of State proposes to regulate noise at the airports.
Mr Burnett’s difficulties, however, do not stop there. The table which I have set out does not, on Mr Burnett’s own argument, in fact specify all the
maxima which, as he would submit, are implied in the scheme. This is because (for example) the maximum of 14,000 movements at Heathrow for QC
0·5 aircraft applies only if there are no movements by any other aircraft type, and the same is true for each of the other maxima; and any number of
movements at QC 0·5 or 1 or 2 or 4 becomes a potential maximum if taken with the number of movements at each of the three other quota levels it
produces a result in which all the quota points are exhausted. Thus in order to specify all the maxima implied (or, in Mr Burnett’s words, ‘inexorably
dictated’) by the scheme, it would be necessary to set out every possible combination of movements by different aircraft types that might take place so as
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to use up all the quota points. Yet surely this would be required (I think expressly, but at least by implication) in a notice authorised by s 78(3)(b): Mr
Burnett’s table as it stands would give the impression that all the maxima specified were jointly permissible; and even if it stated that the four maxima set
out were, to use a legalism, not joint but several, it would have failed to specify what the applicable maximum would be for any QC class in the event that
the number of movements for any of the other three did not exhaust all the quota points available. The mathematics involved in such an exercise hardly
bear contemplation, even I suspect to someone much more numerate than myself. I cannot begin to imagine the length and detail of a notice which
expressly specified all the potential maxima implied by the scheme. As sometimes happens with legal arguments, the proof of the pudding is I think in
the eating: it is not without interest that the Secretary of State, who is likely to have been contemplating for some time the form of the notice he intends to
issue bringing the scheme into effect, has not sought to put a draft before me, at least for illustrative purposes.
I conclude that so far as the scheme may be said to imply the existence of maximum numbers of movements, they are theoretical only; they might
(though as it happens they do not) include a maximum not expressed in whole numbers; and they involve such an enormous number of possible
combinations 593 of movements among the QC classes that the exercise of expressing them is wholly unreal. And I consider that s 78(5)(c) (which I
have set out) could not have any sensible application if the Secretary of State’s scheme were brought into effect. The truth is, as Mr Gordon’s submission
at the outset asserted, that the concept of a maximum number of movements has in practical fact no part to play in the Secretary of State’s proposal. Yet
under s 78(3)(b) it must be the lynchpin of any order made. It follows, in my judgment, that what is intended is not authorised by the subsection.
I should notice two subsidiary submissions made by Mr Burnett. The first was that if I found (as I have) that the scheme could not fall within sub-s
(3)(b) taken on its own, it could be saved by s 78(12). That allows any notice published in pursuance of sub-s (3) to ‘contain such incidental or
supplementary provisions as the Secretary of State considers appropriate for the purposes of that subsection ...’ But if the very basis of the scheme is
outwith the primary enabling subsection, it cannot possibly be introduced in the guise of an incidental or supplementary provision.
The second was that if the scheme now proposed is unlawful on the grounds I have described, then so are the existing measures dating from 1988, at
least as regards Gatwick. This is because the current arrangements themselves allow a degree of flexibility to aircraft operators which, says Mr Burnett,
would fall foul of the same objection as that raised to the present proposals. Logically, of course, this is neither here nor there: if on a particular analysis
the present scheme as well as the intended scheme were unlawful, that would of itself be no reason for holding that the analysis is wrong. In fact I do not
believe that my conclusions do call into question the validity of the existing regime: I will not go into the detail, since I am not adjudicating upon a
challenge to the present arrangements. It is enough to say that they involve the imposition of real, practical, maxima, and such flexibility as exists does
not take the regime outside the four corners of the statutory power. There may be a question whether s 78(12) is a necessary ingredient in the present
scheme’s legality; but I need not go into that.
Given my conclusions on this issue, the application must succeed. Since the scheme has not yet been translated into a notice which would give it
effect, I shall hear argument as to the appropriate relief. Although the Secretary of State has undoubtedly made a concrete decision, I doubt whether an
order of certiorari going to the press notice of July 1993 is necessary or appropriate; it may be that a declaration will suffice.
My decision on this aspect determines the case, but in case I am wrong, and to pay respect to the arguments I have heard, I should set out my
conclusions on Mr Gordon’s other points, having already described the principal factual material which bears on them. I will do so as shortly as I can,
although the submission which I will deal with next requires some little analysis.
Legitimate expectation and the 1988 policy

The shift of policy (if it was such) of which Mr Gordon complains was on his own case set out in the January 1993 consultation paper. I have set out
the relevant extract. The department thus gave fair notice at that time of the aims and limits of the new scheme which it proposed. It follows that Mr
Gordon’s complaint cannot be of a want of consultation, or a failure to accord a right to be heard. His case is that, notwithstanding the department’s
announcement of what it proposed, in the very context of a consultation exercise, his clients had 594 a legitimate expectation that the policy would
not be shifted so as to procure only a cap of noise levels below those of 1988 (and thus permit, potentially at any rate, an actual increase of noise levels
above those prevailing in 1993), irrespective of any opportunity which his clients enjoyed to complain about the proposal between January 1993 and the
end of the consultation period.
In large measure Mr Gordon’s submissions were designed to persuade me that the law as it has developed will encompass and enforce not only
procedural but also substantive legitimate expectations. This is an antithesis which is liable to cause confusion, and it needs to be unravelled in order to
expose the barrenness of Mr Gordon’s argument.
A public authority may, by an express undertaking or past practice or a combination of the two, have represented to those concerned that it will give
them a right to be heard before it makes any change in its policy upon a particular issue which affects them. If so, it will have created a legitimate
expectation that it will consult before making changes, and the court will enforce this expectation save where other factors, such as considerations of
national security, prevail. This was the position in Council of Civil Service Unions v Minister for the Civil Service [1984] 3 All ER 935, [1985] AC 374.
This species of legitimate expectation may be termed ‘procedural’, because the content of the promise or past practice consists only in the holding out of a
right to be heard: a procedural right.
In another case, the public body in question may have adopted a particular policy, and, by promise or past practice, represented that this would be its
continuing policy. In this case, there is no promise or past practice to the effect that those affected will be allowed a voice before the policy is changed.
But, if (and it will depend on the particular facts) the court concludes that there exists what amounts to an assurance that the policy will continue, it may
deem it unfair for the authority to make a change in the policy unless it announces its intention in advance so as to allow an affected person to make
representations before any change is carried out. An example of this is R v Secretary of State for the Home Dept, ex p Ruddock [1987] 2 All ER 518,
[1987] 1 WLR 1482, where Taylor J, while rejecting the application on its factual merits, accepted in principle that circumstances of this kind might give
rise to an enforceable legitimate expectation. He held, what is now commonplace, that the doctrine is rooted in the ideal of fairness. It is important to
notice that in holding as he did he was rejecting an argument that the law only recognised the first species of legitimate expectation which I have
described, namely that arising where there is a promise or practice of consultation as such (see [1987] 2 All ER 518 at 531, [1987] 1 WLR 1482 at 1494).
It is, I think, misleading to describe the type of case exemplified by Ex p Ruddock as one of substantive, in contrast to procedural, expectations, since the
case demonstrates no more than that there may be circumstances in which it will be unfair to change a policy adhered to over a period of time without
giving those affected a right to be heard: as such the protection afforded is as surely ‘procedural’ as in the CCSU case. I consider that the putative
distinction between procedural and substantive rights in this context has little (if any) utility: the question is always whether the discipline of fairness,
imposed by the common law, ought to prevent the public authority respondent from acting as it proposes.
There are other instances in which the courts have upheld legitimate expectations of the type exemplified in Ex p Ruddock. One, much pressed by
Mr Gordon, is R v Secretary of State for the Home Dept, ex p Khan [1985] 1 All ER 40, 595 [1984] 1 WLR 1337. But there is no case so far as I am
aware (certainly none was cited to me) in which it has been held that there exists an enforceable expectation that a policy will not be changed even though
those affected have been consulted about any proposed change. And this is no surprise: such a doctrine would impose an obvious and unacceptable fetter
upon the power (and duty) of a responsible public authority to change its policy when it considered that that was required in fulfilment of its public
responsibilities. In my judgment the law of legitimate expectation, where it is invoked in situations other than one where the expectation relied on is
distinctly one of consultation, only goes so far as to say that there may arise conditions in which, if policy is to be changed, a specific person or class of
Preamble
persons affected must first be notified and given the right to be heard. The extent to which, case by case, this principle applies may be affected by the
important distinction between situations where the class of persons in question have specific expectations for the determination of their individual cases
(as in Ex p Khan) and others where the policy is of a more general nature which does not involve the resolution of any individual claims of right or status.
But it is unnecessary for present purposes to go deeper into such an antithesis.
Mr Gordon relies upon particular words used by Parker LJ in Ex p Khan. He said ([1985] 1 All ER 40 at 46, [1984] 1 WLR 1337 at 1334):
‘There can, however, be no doubt that the Secretary of State has a duty to exercise his common law discretion fairly. Furthermore, just as, in
the Liverpool Taxi Owners case, the corporation was held not to be entitled to resile from an undertaking and change its policy without giving a fair
hearing so, in principle, the Secretary of State, if he undertakes to allow in persons if certain conditions are satisfied, should not in my view be
entitled to resile from that undertaking without affording interested persons a hearing and then only if the overriding public interest demands it.’
It is these last words that are stressed by Mr Gordon. He would set them alongside a passage from the judgment of Lord Denning MR in Re
Liverpool Taxi Owners’ Association [1972] 2 All ER 589 at 594, [1972] 2 QB 299 at 308 where he said:
‘At any rate they ought not to depart from it [ie an undertaking] except after the most serious consideration and hearing what the other party has
to say; and then only if they are satisfied that the overriding public interest requires it. The public interest may be better served by honouring their
undertaking than by breaking it.’
Mr Gordon’s submission is that these references to ‘the overriding public interest’ imply that where a public authority has effectively given an
assurance that it would continue to apply a policy which it has adopted, there are two conditions which must be fulfilled before it may lawfully change
tack: not only that a right to be heard must be accorded to those affected, but also that the change must be justified by reference to ‘the overriding public
interest’. But this latter condition would imply that the court is to be the judge of the public interest in such cases, and thus the judge of the merits of the
proposed policy change. Thus understood, Mr Gordon’s submission must be rejected. The court is not the judge of the merits of the decision-maker’s
policy. In fact, Mr Gordon disavowed any such proposition; but if (as must be the case) the public authority in question is the judge of the issue whether
‘the overriding public 596 interest’ justifies a change in policy, then the submission means no more than that a reasonable public authority, having
regard only to relevant considerations, will not alter its policy unless it concludes that the public will be better served by the change. But this is no more
than to assert that a change in policy, like any discretionary decision by a public authority, must not transgress Wednesbury principles. That, however, is
elementary and carries Mr Gordon nowhere.
I was shown an interesting and illuminating article by Dr Christopher Forsyth, ‘Provenance and protection of legitimate expectations’ [1988] CLJ
238, in which he argues that the doctrine of legitimate expectation may, or should, in some circumstances be deployed so as to protect a substantive
expectation of a favourable result in the particular case; and he discusses both Ex p Ruddock and Ex p Khan as well as other material. Dr Forsyth is a
distinguished public lawyer to whom I mean no disrespect in saying, without travelling into the detail of his reasoning, that no consideration which he
puts forward can, in my judgment, extend the ambit of legitimate expectation to a point which would assist Mr Gordon. I was also shown the recent
decisions in R v Board of Inland Revenue, ex p MFK Underwriting Agencies Ltd [1990] 1 All ER 91, [1990] 1 WLR 1545 and R v Jockey Club, ex p RAM
Racecourses Ltd [1993] 2 All ER 225; I do not consider that there is anything in either authority inconsistent with the reasoning which I have set out.
It follows that there is nothing in this argument based on legitimate expectation.
Wednesbury and the 1988 policy

Mr Gordon’s alternative argument based on para 34 of the 1993 consultation paper is that, if it does not indicate an intended change of policy, then it
shows at least that the department misunderstood its own undertaking given in 1988, by confusing the notion of a continuing improvement in noise levels
(which was, says Mr Gordon, the substance of the undertaking) with the different notion merely that noise levels should be capped below those prevailing
in 1988. For my part I cannot see that there is so concrete a difference between what the department was saying at the two different periods as to give rise
to an inevitable inference of inconsistency between them. The 1987 consultation paper which is before me related only to Heathrow; the 1988 press
notice was concerned with a five year period, and by its language drew some distinction between Heathrow and Gatwick. In short, the materials on which
Mr Gordon relies are not capable of giving rise to a finding of fact (which his submission requires) that in 1993 the Secretary of State had actually
misunderstood either his past practice or what had been said on his behalf five years before. So there is nothing in this argument.
The sleep prevention issue

From the passages which I have earlier set out, it is quite clear that the field study report was primarily concerned with problems of aircraft noise and
sleep arousal. Had the Secretary of State arrived at his decision in 1993 having literally not considered the possibility that there might be problems
relating to sleep prevention, there might be a Wednesbury argument available to Mr Gordon on the basis that an obvious relevant consideration had been
ignored. Even this might not be entirely plain sailing, given the passage from Lord Scarman’s speech in Findlay v Secretary of State for the Home Dept
[1984] 3 All ER 597 801 at 826–827, [1985] AC 318 at 333–334, where he indorses as correct in English law some observations of Cooke J in
CREEDNZ Inc v Governor General [1981] 1 NZLR 172, whose effect as I understand it is that in a case where the statute itself does not specify the
considerations to be taken into account in arriving at a discretionary decision, it will be for the decision-making body to decide what is and what is not a
relevant consideration, and this decision will itself only be subject to review on Wednesbury grounds. However, it is quite clear on the evidence here that
the Secretary of State did have regard to the sleep prevention issue. So much is plain from the Secretary of State’s evidence, whose good faith is not in
question. There remain the two questions on this part of the case which I set out earlier.
As for the first, it is quite clear that the passage in para 20 of Miss McWatt’s affidavit was included to meet a point not now in issue, namely that
some legal consequences adverse to the Secretary of State ought to flow from the difference between para 33 of the summary in the final draft, and its
substitute, para 34 in the report itself. Had Miss McWatt had in mind, in the passage in question, the wholly different issue for whose purpose her words
are now deployed against the Secretary of State, I think it extremely likely that she would have expressed herself differently. However that may be, when
one considers Dr Ollerhead’s evidence as to the use made of the social survey work and the correlations between the subjective and objective material
before the Secretary of State and between the respective rates of complaint of sleep arousal and sleep prevention, I am unable to conclude (by reference to
para 20 of Miss McWatt’s affidavit) that inherent in the Secretary of State’s decision-making process is any critical misunderstanding of the material
before him.
As regards the second question on this part of the case which I have identified, I am quite unable to hold that the inference set out by Dr Ollerhead at
para 19(c) of his first affidavit gives rise to any Wednesbury complaint. Mr Gordon’s argument here (in common, I am bound to say, with much else in
his case) is a disguised, though elegant, plea upon the merits. If I were a judge of the merits, I might suppose that Dr Ollerhead’s inference as to the
extent of any problem relating to sleep prevention is somewhat fragile; but it is manifestly not for me to express any such view, far less treat it as the basis
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for the grant of relief in judicial review proceedings. It cannot be said that the reasoning under criticism is perverse in the established legal sense. In my
judgment this is an area in which any assault on the Secretary of State’s decision can only be mounted in an arena outside the court room. I am not
suggesting that I would applaud such an assault or deplore it. I say only that the applicant’s complaints on this part of the case are not legal complaints,
and thus I am in no way concerned with their strengths or weaknesses.
The flight number issue

This is another complaint about the merits dressed in the clothes of a legal issue, and the clothes do not fit. If the Secretary of State chooses, as he
has done, to formulate his regulation of aircraft noise control by reference to average noise exposure and without reference (save notionally) to the
frequency of flights, that is a matter for him: subject of course, to the point as to the construction of s 78(3)(b), upon which I have separately held in Mr
Gordon’s favour. In fact the evidence is (in para 16 of Miss McWatt’s affidavit) that ‘the department does not expect that under the new system there will
be any substantial changes or sudden increases in movements at Heathrow at night’.
598
And she exhibits an extract from Hansard recording the minister’s answer to a parliamentary question relating to this aspect. Thus there is no reason
to suppose that the Secretary of State was literally blind to any impact which his new policy might in practice have upon flight frequency. The
importance he attached to it was wholly a matter for him.
The health effects issue

This argument is misconceived for like reasons. The Secretary of State was not bound by law to obtain specific expert material upon the possibility
that aircraft noise might adversely affect the health of a sleeping person, or that of one trying to get to sleep. And Mr Gordon’s argument cannot possibly
be advanced by the solicitor’s affidavit exhibiting the experts’ articles to show that health may indeed be affected by noise during sleep. They were not
before the Secretary of State.
The Leq issue

Mr Gordon’s first submission here, that the government has itself accepted that Leq is an inherently unreliable measure of night time noise, depends
in my judgment on a misreading of the exhibit to Miss McWatt’s affidavit upon which he relies. The short point is that the conclusion that night time
contours, if produced, could not be sensibly interpreted is not the same as, nor does it entail, the proposition that Leq is an unreliable measure of night
time noise. As with para 20 of her affidavit, Miss McWatt’s exhibit was produced to meet a different complaint from the one upon which Mr Gordon
now seeks to rely; the complaint she was meeting, as para 29 of her affidavit demonstrates, was made by Mr Stanbury in paras 30 and 31 of his first
affidavit for the applicants and was to the effect that the department had not released any information about the night time noise climate. It is therefore no
surprise that the exhibit contains no distinct assertion of the value of Leq as a measure of night time noise. Dr Ollerhead is one of those who are of the
view that it is a useful measure, and he refers in para 27 of his second affidavit (I have quoted the passage) to Miss McWatt’s exhibit in terms which make
it impossible to suppose that he perceived the least inconsistency between what Miss McWatt was saying and his own view of the utility of Leq. I
consider that there is no such inconsistency, and there is nothing in this point.
Mr Gordon’s further submission under this head, as I have indicated, is that the 3 dB progression used in the quota scheme is not a measure of the
increase of noisiness as such but, rather, only of noise energy level. But if in Wednesbury terms the Secretary of State was entitled to take exposure to
noise energy levels (and thus Leq) as the touchstone for his proposed regulation (which he was), he cannot be faulted for determining the progression
between the energy levels created by different aircraft types by reference to a concept undoubtedly appropriate for the purpose. So this part of Mr
Gordon’s argument could only succeed if he were able to persuade me that it was an error of law for the Secretary of State to rely on Leq at all, and I have
indicated that that is an untenable proposition.
I have already said that Mr Gordon’s further submission under this head that Leq should not have been adopted because it cannot measure the impact
of successive individual movements is only a reiteration of his argument under the ‘flight numbers issue’, which I have already rejected.
599
The 9 EPNdB issue

Mr Gordon complains of the merits of the decision to deduct 9 EPNdB from the approach certification point data on the grounds that it leaves out of
account the factual considerations advanced in his clients’ evidence and which I have already briefly described. I have also set out Dr Ollerhead’s
evidence as to why the deduction has been made. I should also notice, as Mr Burnett submitted, that the point having appeared in the consultation paper,
there was ample opportunity for representations to be made to the Secretary of State by those who objected to the proposal. In my view this is another
area where the complaints advanced raise no point of law. If their effect is that in the result the quota points system is, to say the least, rough and ready
because there is no symmetry between the numbers of people affected by the noise of landings and take-offs respectively, or because some people are or
may be more affected by landings than by take-offs, those are arguments as to the merits; if I gave effect to them as arguments of law, I would pro tanto
be substituting my view as to what a sensible and effective measure under s 78(3) ought to contain for that of the Secretary of State. So I reject Mr
Gordon’s submission.
The natural justice issues

On the first of these, I propose to say no more than that (despite the use of the disjunctive ‘or’) I do not consider that para 37 of the January 1993
consultation paper can fairly be read as Mr Gordon suggests. On the second, para 40 in effect indicates that the new system will monitor arrivals; and it
sets the context for paras 41 to 43. The paragraphs in question might perhaps have been more clearly expressed. But if (which I do not hold to be the
case) there were any doubt of substance as to what the Secretary of State was saying, one would expect respondents to the consultation paper, certainly
institutions like the applicants who would rightly wish to scrutinise with great care and vigilance what was being asserted by the department as respects its
intended policy, to seek clarification during the consultation period (which ran to 30 April 1993). I do not believe that the applicants are the victims of
any want of natural justice.
In the result these applicants must succeed on the single ground as to the construction of s 78(3)(b) upon which I have found in Mr Gordon’s favour.
That ground could have been determined by reference only to the statute and a description of the intended policy: a few pages of documentation. In fact
the material before me on the whole case runs to hundreds of pages. I do not say that all of Mr Gordon’s other points were unarguable and ought not to
have attracted leave, though I think some of them fall into that category. I do not know whether in giving leave Sedley J, before whom there were oral
submissions in court, expressed any view as to the relative merits of any of the grounds. But I think the case illustrates the need, which I regard as
pressing, for the provisions of RSC Ord 53 to allow the court to refuse leave on some grounds, while granting it on others, as its view of the application’s
merits dictates.
Preamble
Order accordingly.
600
[1994] 1 All ER 601
R v Investors Compensation Scheme Ltd, ex parte Weyell and another

R v Investors Compensation Scheme Ltd, ex parte Last and another
BANKING AND FINANCE

GLIDEWELL LJ AND CRESSWELL J
21, 22, 23 JUNE, 21 JULY 1993
Investment business – Investors Compensation Scheme – Compensation – Scheme business claims – Compensation arising out of investment business
conducted by defaulting broker on or after date scheme set up – Investors negligently advised by insurance brokers to enter into home income plans
before compensation scheme set up – Brokers under duty to manage investor’s portfolio in accordance with FIMBRA rules and with reasonable skill and
care – Brokers in breach of rules and obligations after scheme set up – Whether investors entitled to compensation – Financial Services (Compensation
of Investors) Rules 1990, r 2.03.1.
Investment business – Investors Compensation Scheme – Compensation – Home income plans – Elderly couples raising money by mortgaging
jointly-owned homes to provide income – Homes liable to repossession because of falling house values, rising interest rates and declining investment
performance – Brokers worthless and in default – One spouse dying before brokers declared in default – Whether surviving spouse entitled to claim
compensation.
Investment business – Investors Compensation Scheme – Legal proceedings concerning operation of scheme – Procedure – Whether questions should be
determined by originating summons or by application for judicial review – Financial Services Act 1986, s 54.
The applicants were elderly or retired people whose homes had a high equity value because all or the greater part of their mortgages had been paid off.
They had been persuaded by insurance brokers, who were members of the Financial Intermediaries Managers and Brokers Regulatory Association
(FIMBRA), to enter into home income plans prior to 28 August 1988. Under such a plan a loan was obtained from a lending institution and secured by a
mortgage on the property. The loan, which was made without reference to the investor’s income, was not repayable until the death of the investor or the
sale of the house. In some cases the interest due was rolled up until the total due reached a stated percentage of the then current value of the property. A
large proportion of the capital raised by the loan was invested in an equity linked single premium investment bond and the balance, after deduction of fees
and costs of the mortgage, was made available to the investor. The success of the plan depended on the investment bond performing sufficiently well to
meet the interest payments on the mortgage loan when they fell due, without depreciating the capital invested. However, when mortgage interest rates
increased and the return from the investment and/or the value of the property fell, the income from the bond became insufficient to service the mortgage
loan and the capital invested diminished at an increasing rate to the extent that 601 investors were forced to sell their homes. The brokers who had
advised the applicants to enter into home income plans became ‘participant firms’ for the purposes of the Investors Compensation Scheme (the ICS) set
up under the Financial Services (Compensation of Investors) Rules 1990 when the ICS came into being on 28 August 1988. The applicants applied to the
board of the ICS for compensation in respect of their losses, claiming that the brokers had been in breach of contract and negligent in that they failed to
give proper advice as to the risks involved in the plan. The board accepted that the brokers had acted in breach of the FIMBRA rules and that the
applicants were ‘eligible investors’ within the 1990 rules but rejected the applicants’ claims on the grounds that the wrongful investment business was the
initial bad advice to enter into home income plans given when the brokers were not ‘participant firms’ because that advice had been given prior to the ICS
coming into being, and therefore their claims against the brokers were not ‘scheme business claims’ within r 2.03.1a of the 1990 rules which were
compensatable under the scheme. The applicants applied for judicial review of the board’s decision. In a separate case the applicants were surviving
spouses who had owned their homes jointly and entered into home income plans jointly with a spouse who had died before the brokers had been declared
in default. The board decided that the applicants’ spouses had no claim for compensation transmissible on death before the relevant firm was declared in
default and that it would only pay half the compensation to the surviving spouses. The applicants applied for judicial review of the board’s decision,
contending that their spouses had a transmissible claim for compensation and that, even if they had not, their own claims were for the full amount of the
loss and should not be halved.
________________________________________
a Rule 2.03, so far as material, is set out at p 609 g, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – (1) In order to be eligible for compensation from the ICS an investor was required to have a claim against a defaulting broker which the broker
was unable or likely to be unable to meet within a reasonable time and which arose out of investment business conducted by the broker on or after 28
August 1988, ie the date when the scheme was set up. However, investors who lost their homes in consequence of being negligently advised by insurance
Preamble
brokers to enter into home income plans before the scheme came into effect were entitled to compensation under the 1990 rules if, after the scheme came
into effect, the brokers had remained liable to manage each investor’s portfolio in accordance with the FIMBRA rules and with reasonable skill and care
and were in breach of those rules and their obligations. The investment business conducted by the brokers on behalf of the investors comprised not only
the giving of the initial unsound advice to enter into home income plans but also the purchase on behalf of the investors of the bonds and other assets to
be held in the discretionary fund and the management of that fund thereafter and the brokers’ liability did not arise until the investors first suffered
damage, which, at the earliest, happened when the investor’s house was mortgaged and/or the loan proceeds passed to the broker for investment.
Thereafter the brokers, as discretionary portfolio managers, remained liable to manage each investor’s portfolio in accordance with the FIMBRA rules and
with reasonable skill and care and in doing so carried out investment business within the terms of the Financial Services Act 1986 and were liable to the
investor for the investor’s loss arising out of their purchase and management of the portfolio. It followed that 602 the applicant investors were
entitled to be compensated by the ICS for the loss which their participation in home income plans had caused them and a declaration would be made to
that effect (see p 615 e to j, p 616 b d to g and p 617 a b d to f, post).
(2) Although a personal representative of a deceased investor could not himself be an ‘eligible investor’, an investor had a right to compensation
which was transmissible to his personal representative notwithstanding that the investor died before the firm in respect of which the claim was made was
declared in default. Moreover, the 1990 rules did not preclude an application by personal representatives of deceased eligible investors where the ICS had
not determined the participant broker to be in default at the date of death. It followed that there could be no question of a joint claim being halved (see p
621 j and p 622 j to p 623 c, post); R v Investors Compensation Scheme Ltd, ex p Bowden [1994] 1 All ER 525 considered.
Quaere. Whether questions concerning the compensation scheme established under s 54 of the 1986 Act should be determined by way of an
originating summons or an application for judicial review (see p 605 j to p 606 a, post); Securities and Investments Board v Financial Intermediaries
Managers and Brokers Regulatory Association Ltd [1991] 4 All ER 398 considered.
Notes
For compensation schemes for the purpose of compensating investors, see Supplement to 32 Halsbury’s Laws (4th edn) para 343.
For the Financial Services Act 1986, s 54, see 30 Halsbury’s Statutes (4th edn) (1991 reissue) 223.

Bell v Peter Browne & Co (a firm) [1990] 3 All ER 124, [1990] 2 QB 495, [1990] 3 WLR 510, CA.
Deposit Protection Board v Dalia [1994] 1 All ER 539, CA
O’Reilly v Mackman [1982] 3 All ER 1124, [1983] 2 AC 237, [1982] 3 WLR 1096, HL.
R v Greater Manchester Coroner, ex p Tal [1984] 3 All ER 240, [1985] QB 67, [1984] 3 WLR 643, DC.
R v Investors Compensation Scheme Ltd, ex p Bowden [1994] 1 All ER 525, [1994] 1 WLR 17, DC
Securities and Investments Board v Financial Intermediaries Managers and Brokers Regulatory Association Ltd [1991] 4 All ER 398, [1992] Ch 268,
[1991] 3 WLR 889.

Australia and New Zealand Bank Ltd v Colonial and Eagle Wharves Ltd (Boag, third party) [1960] 2 Lloyd’s Rep 241.
Banque Financière de la Cité v Westgate Insurance Co Ltd [1989] 2 All ER 952, sub nom Banque Keyser Ullmann SA v Skandia (UK) Insurance Co
[1990] 1 QB 665, CA; affd on other grounds [1990] 2 All ER 947, [1991] 2 AC 249, HL.
Cresswell, Re, Parkin v Cresswell (1883) 24 Ch D 102.
Gibson v Jeyes (1801) 6 Ves 266, [1775–1802] All ER Rep 325, 31 ER 1044, LC.
Gladstone v Catena [1948] 2 DLR 483, Ont CA.
Hickling v Fair [1899] AC 15, HL.
James v Smith (1921) [1931] 2 KB 317, [1921] All ER Rep 255, CA.
603
Meacock (John) & Co (a firm) v Abrahams (Loescher, third party) [1956] 3 All ER 660, [1956] 1 WLR 1463, CA.
Moody v Cox [1917] 2 Ch 71, [1916–17] All ER Rep 548, CA.
Trollope & Colls Ltd v Haydon [1977] 1 Lloyd’s Rep 244, CA.
West Wake Price & Co v Ching [1956] 3 All ER 821, [1957] 1 WLR 45.
R v Investors Compensation Scheme Ltd, ex p Weyell and anor

Margaret Jeanne Weyell and John Edward Louis Veniard applied, with the leave of Hutchison J given on 11 March 1993, for judicial review of the
decision of the Investors Compensation Scheme Ltd (the ICS) communicated to the applicants’ solicitors by a letter dated 25 November 1992 refusing to
pay the applicants compensation pursuant to the Financial Services (Compensation of Investors) Rules 1990 on the ground that investors were eligible for
compensation under the rules only if they had received negligent or otherwise wrongful advice from investment brokers after 28 August 1988. The relief
sought was (i) an order of certiorari to quash the decision, (ii) an order of prohibition prohibiting the ICS from deciding the applications of the applicants
for compensation on the basis of the decision and (iii) declarations that, on the basis of the facts alleged by the applicants, their claims against Aylesbury
Associates for breach of s 62 of the Financial Services Act 1986, negligence and breach of fiduciary duty were ‘scheme business claims’ within r 2.03.1
of the 1990 rules, and that the applicants were accordingly entitled to claim compensation under those rules. The facts are set out in the judgment of the
court.
R v Investors Compensation Scheme Ltd, ex p Last and anor

Ivor Thomas Last and Joyce Eileen Rowden applied, with the leave of Judge J given on 24 May 1993, for judicial review of the decision of the Investors
Compensation Scheme Ltd communicated to the applicants’ solicitors by a letter dated 3 March 1993 refusing to admit the claims of personal
representatives of investors who died before the firm in respect of which compensation was claimed was declared in default and the decision
communicated to the second applicant’s solicitors orally on 7 May 1993 purporting to revoke the offer made to her by letter dated 11 February 1993 in
order to make her a new offer halving the amount of compensation. The relief sought was orders of certiorari to quash the decisions and declarations that
(a) the Financial Services (Compensation of Investors) Rules 1990 enabled an application for compensation to be made by the personal representative of a
deceased eligible investor notwithstanding that the investor died before the firm in respect of which the claim was made was declared in default, (b) the
Preamble
ICS was not entitled under the 1990 rules to halve the compensation payable to an applicant on the sole ground that a person with whom the applicant had
a joint claim against the firm in respect of which the application for compensation was made died before that firm was declared in default and (c) the ICS
was not entitled to revoke or reduce the offer of compensation once that offer had been communicated to the applicant. The facts are set out in the
judgment of the court.
The applications were heard consecutively.

604
Nicholas Strauss QC and Neil Kitchener (instructed by Barnett Sampson) for the applicants.
Michael Beloff QC and Richard McManus (instructed by Wilde Sapte) for the ICS.
Cur adv vult
CRESSWELL J.
Introduction
These two applications raise questions as to the proper interpretation and application of the Financial Services (Compensation of Investors) Rules
1990, made under s 54 of the Financial Services Act 1986. The issues raised in the two applications are separate and distinct. Nevertheless the statutory
background and parts of the rules are relevant to both applications. For that reason we heard the two applications consecutively, and it is convenient to
deal with both in this one judgment.
In an earlier judgment of this court given on 16 February 1993 in R v Investors Compensation Scheme Ltd, ex p Bowden [1994] 1 All ER 525, [1994]
1 WLR 17 Mann LJ and Tuckey J gave guidance about some parts of the rules. Their judgment is particularly relevant in relation to the second
application before us, that of Mr Last and Mrs Rowden.
At an early stage in the argument we queried whether the issues before us were appropriate to be dealt with by way of judicial review. Mr Strauss
QC for the applicants submits that they are properly to be considered issues of public law. Mr Beloff QC for the respondents, Investors Compensation
Scheme Ltd (the ICS), accepts that the relevant decisions made by his clients are susceptible to judicial review and raise issues of public law.
We note however that in another case in which questions arose about the compensation scheme established under s 54 of the 1986 Act, Securities
and Investments Board v Financial Intermediaries Managers and Brokers Regulatory Association Ltd [1991] 4 All ER 398, [1992] Ch 268, the procedure
adopted was by originating summons as opposed to judicial review. Morritt J raised the question whether this procedure was appropriate but after
discussion agreed to accept jurisdiction. He based himself on the well-known passage in the speech of Lord Diplock in O’Reilly v Mackman [1982] 3 All
ER 1124 at 1134, [1983] 2 AC 237 at 285 in which his Lordship said that it would, as a general rule, be contrary to public policy to seek to enforce public
law rights by way of an ordinary action. He qualified this by saying:
‘… I have described this as a general rule; for, though it may normally be appropriate to apply it by the summary process of striking out the
action, there may be exceptions, particularly where the invalidity of the decision arises as a collateral issue in a claim for infringement of a right of
the plaintiff arising under private law, or where none of the parties objects to the adoption of the procedure by writ or originating summons.’
For that reason Morritt J accepted jurisdiction.

That is not to say however that judicial review may not be appropriate in such a situation. In this case we are asked to proceed on facts which either
are agreed or so far as the claims against defaulting firms are concerned are accepted for the purposes of these proceedings. On that basis and since both
counsel were anxious for us to hear the applications, we accepted jurisdiction.
605
We observe, however, that there may well come a stage at which an issue which arises on a claim by an investor against the compensation fund set
up under s 54 may depend on the ascertainment of facts and will properly lie in the field of private law.
THE SCHEME OF THE FINANCIAL SERVICES ACT 1986

Section 1(2) of the 1986 Act defines ‘investment business’ as ‘the business of engaging in one or more of the activities which fall within’ Pt II of Sch
1 to that Act. That part of the schedule includes the following activities:
‘12. Buying, selling, subscribing for or underwriting investments or offering or agreeing to do so, either as principal or as an agent …
13. Making, or offering or agreeing to make—(a) arrangements with a view to another person buying, selling, subscribing for or underwriting a
particular investment …
14. Managing, or offering or agreeing to manage, assets belonging to another person if—(a) those assets consist of or include investments …
15. Giving, or offering or agreeing to give, to persons in their capacity as investors or potential investors advice on the merits of their
purchasing … an investment …’
Section 3 provides that only a person who is authorised or exempted within the provisions of the 1986 Act shall carry on investment business in the
United Kingdom, and s 4 makes it an offence to carry on investment business in contravention of s 3.
By s 7 members of recognised self-regulating organisations are authorised persons. By s 8(1):
‘In this Act a “self-regulating organisation” means a body … which regulates the carrying on of investment business of any kind by enforcing
rules which are binding on persons carrying on business of that kind either because they are members of that body or because they are otherwise
subject to its control.’
In this case the relevant self-regulating organisation is the Financial Intermediaries Managers and Brokers Regulatory Association Ltd (FIMBRA).
Section 54 of the 1986 Act provides for the setting up of the compensation fund with which we are concerned in these applications. By s 54:
Preamble
‘(1) The Secretary of State may by rules establish a scheme for compensating investors in cases where persons who are or have been authorised
persons are unable, or likely to be unable, to satisfy claims in respect of any description of civil liability incurred by them in connection with their
investment business.
(2) Without prejudice to the generality of subsection (1) above, rules under this section may—(a) provide for the administration of the scheme
and, subject to the rules, the determination and regulation of any matter relating to its operation by a body appearing to the Secretary of State to be
representative of, or of any class of, authorised persons; (b) establish a fund out of which compensation is to be paid; (c) [deals with the finance of
the scheme]; (d) specify the terms and conditions on which, and the extent to which, compensation is to be payable and any circumstances in which
the right to compensation is to be excluded or modified; (e) provide for treating compensation payable under the scheme in respect of a claim
against any 606 person as extinguishing or reducing the liability of that person in respect of the claim and for conferring on the body
administering the scheme a right of recovery against that person …’
By s 62 of the 1986 Act a breach of FIMBRA rules is actionable at the suit of a person who suffers loss as the result of the breach.
Under s 114 of the 1986 Act the Secretary of State was empowered to and did transfer to the Securities and Investments Board Ltd (the SIB) his
functions under s 54. Thus the SIB has made the rules for the scheme, which are the Financial Services (Compensation of Investors) Rules 1990. The
ICS is responsible both for managing the compensation fund and for deciding questions arising out of claims to compensation out of the fund.
Section 1 of and Sch 1 to the 1986 Act came into force on 18 December 1986, but s 4 did not come into force until 4 June 1987. The original rules
made by the SIB under s 54 were made on 27 July 1988 and came into force on 27 August 1988. The current rules took effect from 15 July 1990.
FIMBRA RULES
Under the heading ‘Conduct of business’ the rules include under the subheading ‘Dealings with and on behalf of clients’ the following:
‘4.3 Understanding of Risk

4.3.1 Subject to Rule 4.3.3, a member shall not recommend to a client a transaction in an investment or arrange or effect such a transaction with
or for a client (other than an execution-only client) unless, before the recommendation is made or the transaction is effected, the member has taken
all reasonable steps to satisfy itself that the client understands the extent to which he will be exposed to risk or further liability by entering into the
transaction.
4.3.2 Subject to Rule 4.3.3, a member shall not act as a discretionary portfolio manager on behalf of a client unless the member has taken all
reasonable steps to satisfy itself that the client has a reasonable understanding of the risks to which he will be exposed in connection with the
management of the portfolio having regard to: (a) the investment objectives set out in the client agreement; (b) the extent of the discretion conferred
on the member by the client agreement; and (c) the extent to which the client is relying on the member to supply expertise which the client does not
possess …
4.4 Best Advice
4.4.1 A member shall not: (a) give advice to any client concerning investments; or (b) recommend any investments to a client; or (c) arrange or
effect any transaction in investments with or for a client (other than an execution-only client) unless: (1) the member has fulfilled the requirements
of Rule 4.2 in relation to that client; and (2) in the light of the knowledge of the client so gained and having regard to any other relevant information
which ought reasonably to be known to the member, the member has determined, using reasonable care in so doing: (i) which class or classes of
investments; and (ii) which particular investment or investments within that class or those classes; and (iii) where appropriate, which transaction or
transactions; are the most suitable for the client …
4.4.3 A member shall not arrange or effect a transaction in investments with or for a client (other than an execution-only client) unless: (a) that
transaction is one of those determined by the member to be the most 607 suitable for the client in accordance with paragraph (2) in Rule 4.4.1;
and (b) the member reasonably believes that determination to be correct at the time when the transaction is arranged or, as the case may be, effected
…’
THE SALE OF HOME INCOME PLANS

The purpose of a home income plan was to release part of the capital represented by the home of an investor, when that home was not subject to a
mortgage. Such plans were often attractive to elderly people. The scheme was to raise a loan secured by a mortgage on the property, without reference to
the borrower’s income. Typically the loan was not repayable until the death of the borrower or the sale of the house. In some cases the interest payable
was rolled up until the total due reached a stated percentage of the current value of the property. A large proportion of the capital raised by the loan was
invested in an equity linked single premium investment bond. The balance, after deduction of fees and costs of the mortgage, was available to the
investor for his personal needs.
Provided that the investment bond performed sufficiently well to meet the interest payments on the mortgage loan when they fell due, without
depreciating the capital invested, all would be well. There was, however, an inevitable risk that, if the return from the investment and/or the value of the
property fell, and mortgage interest rates increased, the income from the bond would not service the mortgage loan. The capital invested would then
diminish at an increasing rate. This is the fate which befell many home income plans from 1989 onwards.
The home income plans proved attractive to a large number of elderly people, who had paid off the whole or the greater part of earlier mortgage
loans. In many cases such investors have either lost their homes, or are living on much reduced net incomes. There have, therefore, been many claims on
the compensation fund, including over 1,100 arising out of the default of the two brokers who acted for the present applicants. We are told that the issues
which arise in the present applications are common to a substantial number of other claims.
Home income plans were sold by insurance brokers and other agents, including those who sold such plans to the present applicants, Aylesbury
Associates and Fisher Prew Smith Ltd. Both were members of FIMBRA. In each case the brokers advised the investors to enter into the particular plans,
carried out the transactions necessary to put each plan into effect, and thereafter acted as discretionary investment managers of each investors’ fund. Put
shortly, each investor complains that the broker was in breach of contract, negligent and, where appropriate, in breach of FIMBRA rules, in the following
respects: (i) failure to give proper advice so as to ensure that the investor understood the risks inherent in entering into such a plan, in particular the risk
that the mortgagee might be entitled to claim possession of his or her home: see r 4.3.1; (ii) failure to take reasonable care to ensure that the transaction
was the most suitable for the investor: see r 4.4; (iii) failure as discretionary investment managers to advise the investors of the increasing risks resulting
from the depreciation of the capital in the fund being managed: see r 4.3.2.
In relation to all the present applicants, the ICS accept that the respective brokers were in breach of FIMBRA rules and/or were in breach of contract
in at least some of the respects we have summarised, and that they are unable to satisfy claims for compensation for such breaches by the investors. The
Preamble
608 question whether any of the investors has a valid claim to be compensated by the compensation fund depends upon the 1990 rules, that is to say
the Financial Services (Compensation of Investors) Rules 1990. The following rules are relevant.
THE 1990 RULES
‘2.01 Declaration of default

1 The Management Company may determine a participant firm to be “in default” where it appears to the Management Company that the firm is
unable, or likely to be unable, to satisfy claims in respect of any description of civil liability incurred in connection with its investment business and
that, as a result, compensation is likely to be payable under these rules …
3 The Management Company is to determine a date as the quantification date, and this date may be either on, before or after the date it makes
the determination.
2.02 Payment of compensation
Management Company so determines, any rights of his in a claim against any other person which relate to the subject matter of the claim, should
pass to it …
5 The Management Company is to postpone paying compensation where it considers that the investor should first exhaust his rights against the
firm or any third party, or make and pursue an application for compensation to any other person …
2.03 Scheme business claims
1 The first kind of “scheme business claim” is the general claim, which relates to a liability owed by the firm in connection with scheme
business done by it while it was a participant firm and with the investor or as agent on his behalf …
that this is essential in order to provide fair compensation to the investor.
2 Any claim is not a compensatable claim unless it relates to a liability which has been established before a court of competent jurisdiction or
which the Management Company is satisfied would be established if proceedings were brought before such a court …
1 Where a person has claims in different capacities, these rules apply as if the claims in each different capacity were claims of different persons.
609
2 Where two or more persons have a joint beneficial claim, then, if they are carrying on business together in partnership, the claim is treated as a
claim of the partnership, and otherwise each of those persons is taken to have a claim for his share, and, in the absence of satisfactory evidence as to
their respective shares, is taken to be entitled to an equal share …
4 Where any group of persons has a claim as trustees, they are to be treated as a single and continuing person distinct from the persons who may
from time to time be the trustees, and where the same person has a claim as trustee for different trusts, these rules apply as if the claims relating to
each of the trusts were claims of different persons.
5 Where a trustee has a claim for one or more other persons, then, where the trustee is a bare trustee, the beneficiaries are taken to have the
claim, to the exclusion of the trustee, and otherwise the trustee is taken to have the claim, to the exclusion of the beneficiaries.
quantification date …
2.07 Limits on the compensation sum
1 The maximum compensation sum payable to an investor on a default is £30,000 plus 90 per cent of the balance of his overall net claim up to a
maximum of £50,000, on which £48,000 is the maximum compensation sum payable …’
The management company referred to in these rules is the ICS.
DEFINITIONS IN THE GLOSSARY
‘“claim” means a valid claim on a firm in default in respect of a civil liability owed by the firm …
“eligible investor” means: (a) an investor who is not, within the meaning of the Financial Services (Conduct of Business) Rules 1987, a business
or professional investor; or (b) a trustee who is not a bare trustee or unit trust trustee and who is trustee of a trust which is shown to be principally
for the benefit of individuals who are eligible investors not otherwise benefiting from the Scheme or for charitable purposes …
“overall net claim”, in relation to an investor, means the aggregate of that investor’s claims against a participant firm which are both
compensatable claims and scheme business claims, less the amount of any liability which the firm may set off against any of those claims and
adjusted when required by these rules …
“participation date”, in relation to a firm, means the later of the dates on which the firm became authorised otherwise than by paragraph 1 of
Schedule 15 to the Act (Interim authorisation) and: (a) in the case of an insurance company, the commencement date of these rules; (b) in the case
of a building society within the meaning of the Building Societies Act 1986 or an associated body of such a society whose liabilities the society is
under an obligation to discharge (so far as the body is unable to discharge them out of its own assets) by virtue of section 22 of that Act, the
commencement date of these rules; and (c) in any other case, 28 August 1988;
“participant firm” means every authorised person whose business includes scheme business (and a person is also deemed to be a participant
610 firm for the purposes of compensation on liabilities to investors incurred while that person was a participant firm);
“quantification date” means the date determined by the Management Company to be the date as at which claims are to be quantified
“scheme business” has the meaning given by paragraph 2 below …
General principle
(1) In principle, “scheme business” means investment business carried on by any person after his participation date and as respects which he is
Preamble
an authorised person.’
Mr Veniard’s and Mrs Weyell’s application
FACTS GIVING RISE TO THE CLAIM
Mr Veniard
Mr Veniard is now aged 78. In 1987 he and his wife owned Cathedral Cottage, Westerham, Kent. He had retired but was acting as consultant to a
trout fishery.
In about 1986 Mr Doerr came to live in Westerham. He was a trout fisherman, and came to know Mr and Mrs Veniard socially. They attended his
wedding in 1987.
Mr Doerr informed Mr Veniard that his firm, Aylesbury Associates, were dealing in home income plans, and that they were backed by the
Cheltenham and Gloucester Building Society. From the information and advice given to him by Mr Doerr, Mr Veniard understood that the plan would be
for him to obtain a loan of £60,000 secured by a mortgage on their home. Of this, £8,000 would be used to pay off an existing mortgage loan. Aylesbury
would then invest and manage the balance in such a way as to enable them to meet all the interest payments on the mortgage and pay Mr and Mrs Veniard
an income of £200 per month. The capital sum invested would remain the same as at the start of the plan. Mr Doerr said that, though investments could
go down, they always went up again; averaging over the year Aylesbury could guarantee a return of at least 20% on the investment. Mr Doerr did not
warn Mr or Mrs Veniard that there was any risk to their home, nor did he tell them about the fees or commission his firm would be paid if they entered
into a plan. They would not have entered into the plan had they realised there was a risk they might lose their home.
Mr Veniard says that Mr Doerr did not show him any documentary information. If Mr Veniard had seen (or did see) the Aylesbury brochure
describing their home income plan, he would have seen that the information Mr Doerr had given him verbally was confirmed in writing in the following
respects. In answer to the question ‘What happens if investment values fall?’ the brochure answers:
‘The investment portfolio will be set up on a widely spread and balanced basis. In the first instance, the obligation will be to meet the mortgage
payments, and in the second to meet any income requirements. Over a period investments have produced on average in excess of mortgage interest
rates levied. In all circumstances mortgage and income payments will be maintained. If investment values fall in any one year there may be some
need to use capital to ensure a level situation continues. This should give no cause for concern. In the past, over a five year period any annual fall
in values has been compensated by renewed growth in the following years … The Home Income Equity Release Plan provides you with the extra
income you need, whilst ensuring that your property remains yours.
611
Further increase in property values will allow you to top up your scheme if you wish to do so in later years … Your investments will be
formally valued and confirmed to you on a six-monthly basis. We review the scheme with you annually to ensure that it is continuing on the
correct basis and that, if any alterations are required, they can be correctly incorporated.’
Mr and Mrs Veniard thereafter entered into a home income plan in the autumn of 1987. They applied for a loan of £60,000 secured by a mortgage to
the Cheltenham and Gloucester Building Society. On 1 October 1987 they signed a power of attorney appointing Mr Doerr and his partner, Ms Wilkins,
to invest and manage at their discretion the net proceeds of the mortgage loan, which, after repayment of the earlier loan and payment of charges,
amounted to £48,164·58. On the same day they also signed a form of agreement under which Aylesbury provided their services as managers of the
investments, in return for a fee of 1% per annum of total investments and commission on some investments. Their form of agreement with Aylesbury
contained, amongst others, the following terms:
‘2. Under this Agreement Aylesbury Associates will advise and recommend on the purchase and sale of investments. Based on clients
instructions, either verbal or written, they will buy and sell investments.
3. Aylesbury Associates will notify the client in writing as soon as possible of all changes in the investment of the Assets, once the transaction
has been confirmed …
11. Investments will be valued a minimum of twice yearly, based on middle market prices; or bid and offer prices: reference being the Financial
Times. All monies held in cash to be indicated …
15. Charges will be one per cent (1%) of total investments payable in arrears, one year from the date of this Agreement.
16. On certain investments made on behalf of the client Aylesbury Associates shall be entitled to receive any commission or marketing
allowance incorporated within the pricing structure of the investment.’
The mortgage was executed and the moneys were transferred to Aylesbury on or shortly before 12 October 1987.
Aylesbury managed the investments until 19 November 1990. Meanwhile in 1989 Mr and Mrs Veniard took a tenancy of another house at
Westerham, in which they now live. They then wished to sell Cathedral Cottage but were persuaded by Mr Doerr to let it at a rent which was not
sufficient to pay the interest on the mortgage loan. In 1988 and 1989 Mr and Mrs Veniard drew cash from the plan, with Mr Doerr’s agreement. By
November 1990 Aylesbury ceased to make any further payments of mortgage interest. The house was sold. According to Mr Veniard, by that time the
mortgage debt was £66,426 and the investment fund was empty.
On 4 March 1992 the ICS declared Aylesbury to be in default in accordance with r 2.01.1 of the 1990 rules. Mr and Mrs Veniard signed a form
claiming compensation from the ICS on 14 July 1992.
Mrs Weyell
She is now aged 69. In 1988 she owned and lived in 6 High Mead, West Wickham, Kent, a property which was then valued at £160,000 and was
free of mortgage. She had a fixed income bond producing approximately £3,000 per 612 annum and earnings of about £3,120, in addition to her
national insurance and occupational pensions. She wished to raise £10,000 to assist her son to buy a house. She read an article about Aylesbury’s home
income plan, and subsequently met Mr Doerr and Mr Shove, who was then employed by her solicitors but later moved and joined the staff of Aylesbury.
She was given information and advice similar to that given to Mr Veniard. In particular, she was not told that the plan carried any risk to her home. She
was sent a calculation of the possible effect of a plan, which showed that, if she obtained a loan of £112,000, after deducting £10,000 for her son, £4,000
for a new car for herself and some charges and costs, the balance should produce sufficient income to pay the interest on the mortgage and leave a surplus
of income exceeding £4,000 per annum.
Mrs Weyell signed an application for a mortgage loan early in July 1988, and signed Aylesbury’s terms of business and granted to them a power of
Preamble
attorney to manage the investment fund on 6 July 1988.
A mortgage loan of £115,575 was made by the Peckham Building Society on 2 September 1988, on which date the mortgage was executed. On 5
September 1988 a net sum of £93,000·62 was sent to Aylesbury for them to invest and manage under the power of attorney and their agreement with Mrs
Weyell.
On 9 May 1991 Mrs Weyell revoked the power of attorney, and on 14 May 1991 revoked her instructions to Aylesbury to manage her investment
fund. By that date her portfolio in their management was worth some £56,000 and the mortgage debt to the Cheltenham and Gloucester Building Society
(who had taken over the Peckham Building Society) was approximately £118,000.
In order to redeem the mortgage Mrs Weyell sold 6 High Mead in November 1991 for £135,000 and moved to live elsewhere.
On 4 March 1992 the ICS declared Aylesbury to be in default in accordance with r 2.01.1 of the 1990 rules. Mrs Weyell signed a form claiming
compensation from the ICS on 13 July 1992.
THE ICS DECISION ON THE TWO CLAIMS

Messrs Barnett Sampson are the solicitors acting for the present applicants and for other claimants to compensation from the ICS. They received
from the ICS a letter dated 25 November 1992 which, although it did not refer to the claims of Mr and Mrs Veniard or Mrs Weyell by name, nevertheless
notified Barnett Sampson that their claims were not accepted. The letter said, in part:
‘We refer to your several requests for a decision on whether investors who entered into home income plans before the start date of the Scheme
(or other relevant “participation” date) have eligible claims for compensation. The directors have now had the opportunity of considering this issue
in depth. The Board has accepted the advice it has received and has decided that where the wrongful investment business took place prior to the
firm’s participation date, unless the investor can properly point to advice by their broker on or after that date in connection with “scheme business”,
as defined, the investor does not have a valid claim for compensation. The reasons for this decision are set out below.’
This decision was confirmed in a further letter from the ICS to Barnett Sampson dated 18 December 1992.
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APPLICATION FOR JUDICIAL REVIEW

On 24 February 1993 Mr and Mrs Veniard and Mrs Weyell applied for leave to move for judicial review of the decision communicated in the letter
dated 25 November 1992. The relief sought comprises an order quashing that decision and a declaration in the following terms:
‘… on the basis of the facts alleged by the applicants as set out in the statements and documents in Appendices A to D, their claims against
Aylesbury Associates for breach of section 62 of the Financial Services Act, negligence, breach of contract and breach of fiduciary duty are
“scheme business claims” within Rule 2.03(1), and that the applicants are accordingly entitled to claim compensation under the Rules.’
The applicants also seek an order of prohibition which if the other relief is granted will be unnecessary.
THE ISSUES
I go back to reiterate some of the 1990 rules. I remind myself of part of r 2.02:
‘1 The Management Company [that is the ICS] is responsible for paying compensation to investors in accordance with these rules.
within a reasonable period …’
We are not here concerned with the question whether the provision that the ICS ‘may pay compensation’ means ‘shall pay compensation where it is
satisfied’ that the requirements of this rule are satisfied. For the purposes of this application, we understand the ICS to accept that if these requirements
are satisfied they will pay appropriate compensation.
The ICS accept that Mr and Mrs Veniard and Mrs Weyell are ‘eligible investors’ as defined in the rules, and that they have duly applied for
compensation. They agree that Aylesbury Associates are a participant firm in default which is unable to meet these claimants’ claims. Thus it is agreed
that the issue to be determined is whether each applicant’s claim is a ‘scheme business claim’ and thus within r 2.02.2(b).
Rule 2.03 relates to scheme business claims:
‘Scheme business claims

business done by it while it was a participant firm and with the investor or as agent on his behalf.’
As defined in the glossary, ‘scheme business’ means investment business carried on by any person after his participation date and as respects which
he is an authorised person. It is agreed that Aylesbury were authorised persons and that their participation date (also defined in the glossary) was 28
August 1988, when the ICS came into being. The applicants submit, and the ICS accept, that it follows that an applicant is eligible for compensation if
his claim relates to a liability owed by a broker in connection with investment business done by the 614 broker on or after 28 August 1988. Mr
Lawson, the chairman of the ICS, expresses this somewhat more precisely in para 32 of his affidavit sworn on 13 May 1993, in which he deposes:
‘… the Respondent has proceeded on the basis that an investor will be eligible for compensation only in respect of investment business
conducted by the participant firm after the participation date, which has resulted in a breach of duty by the firm to an investor and the demand for
compensation from the investor arises from the loss occasioned by that breach of duty.’
It is only at this point that the issues between the claimants and the ICS emerge. In summary, they are whether Aylesbury conducted investment
business for either applicant after 28 August 1988 and, if so, whether in so doing they acted in breach of a duty owed by them to the applicants which
resulted in loss to him or to her.
The basis of the decision of the ICS that the present applicants are not entitled to compensation is that, in each case, the only investment business
Preamble
which was conducted by Aylesbury for the applicants in breach of the FIMBRA rules and/or in breach of contract and/or negligently was the initial bad
advice to enter into a home income plan. In each case this advice was given before 28 August 1988, ie before Aylesbury were a participant firm. Thus
Aylesbury were under no liability to either applicant in connection with investment business which gave rise to a ‘scheme business claim’ within r 2.03.1.
Mr Strauss for Mr and Mrs Veniard and Mrs Weyell submits that the basis of the decision by the ICS, and the arguments advanced by Mr Beloff in
support of it, are flawed for the following reasons.
(1) The investment business conducted by Aylesbury on behalf of the investors comprised not only (a) the giving of the initial unsound advice to
enter into a home income plan (1986 Act, Sch 1, para 15) but also (b) the negotiations with the building society and the solicitors acting for the investor
for the making of the loan on the security of the house, (c) the purchase on behalf of the investors of the bonds and other assets to be held in the
discretionary fund (para 12), and (d) the management of that fund thereafter (para 14). Except that in our view the negotiations under head (b) above did
not constitute ‘investment business’ within the meaning of the 1986 Act, we agree with this submission.
(2) Whether Aylesbury were liable to an investor for breach of FIMBRA rules, breach of contract or in negligence, that liability (save for a nominal
liability for damages for breach of contract) did not arise until the investor first suffered damage. This was at the earliest when his/her house was
mortgaged and the loan proceeds passed to Aylesbury for investment. We agree with this submission also.
(3) Thereafter Aylesbury, as discretionary portfolio managers, remained liable to manage each investor’s portfolio in accordance with FIMBRA rules
and with reasonable skill and care. Under their agreements with the investors, Aylesbury undertook to report on the portfolio every six months. This
obligation itself imposed upon them a duty in contract to give reasonably competent advice about the future management of the clients’ portfolio.
Moreover, under r 4.3.2 of the FIMBRA rules Aylesbury were prohibited from acting as discretionary portfolio managers unless they had taken all
reasonable steps to satisfy themselves that the investor had a reasonable understanding of the risks to which he would be exposed in connection with the
management of the portfolio. As a general proposition we agree with this also. We shall consider it in more detail later.
615
(4) Initial advice to enter into a home income plan, given before 28 August 1988, which resulted in Aylesbury managing an investor’s portfolio of
investments after that date, resulted in Aylesbury being liable to the investors for eventual losses which occurred after 28 August 1988 but were
‘connected with’ the initial ‘scheme business’, ie the bad advice. If we have understood this argument correctly, we do not accept it. In our opinion, to be
‘connected with’ scheme business, a broker’s liability must arise out of that scheme business. In other words, to be eligible for compensation from the
ICS, an investor is required to have a claim against a defaulting broker which arose out of investment business conducted by the broker on or after 28
August 1988.
CONCLUSION
Mrs Weyell
It is convenient to consider first the case of Mrs Weyell. At 28 August 1988 she had been advised by Aylesbury, in breach of FIMBRA rules, to
enter into a home income plan and had accepted that advice. She had signed the application for a mortgage loan, and Aylesbury’s powers of attorney and
terms of business. At that date, however, she had suffered no loss, except perhaps for some costs which she would have incurred had she withdrawn from
the entire transaction on 28 August 1988. Her loss first arose, at earliest, when she executed the mortgage on 2 September 1988 and/or when the net
proceeds of the mortgage loan were sent to Aylesbury on 5 September 1988 for them to invest and manage.
We have already expressed our view that the purchase by Aylesbury of a bond and other investments for Mrs Weyell’s portfolio, and the
management of the portfolio thereafter, constituted investment business within the terms of the 1986 Act. At no time did Aylesbury seek to correct the
initial unsound advice they had given as to the nature of a plan suitable for Mrs Weyell, or warn her of the inherent risks.
Thus they carried out this investment business in breach of FIMBRA rules and of the implied terms of their contract. For this reason, Aylesbury
were liable to Mrs Weyell for the loss which arose out of their purchase and management of her portfolio, that is for virtually the whole of her loss.
It follows in our judgment that Mrs Weyell is entitled to be compensated by the ICS for the loss which her entry into a home income plan has caused
her, up to the limits of compensation for which the 1990 compensation rules provide. We would grant a declaration accordingly.
The decision communicated in the letter of 25 November 1992 is of wide application, and does not relate specifically to Mrs Weyell’s claim. We
therefore consider it inappropriate to quash that decision. We are confident that a declaration, if necessary with liberty to apply, should give her the relief
she needs.
It will be noted that we have arrived at our conclusion without reference to, and thus need say nothing about, a further argument advanced by Mr
Strauss that Aylesbury acted in breach of trust.
Mr and Mrs Veniard

Their claim to be compensated by the ICS presents greater difficulties. As we have said, they agreed to invest in a home income plan in the autumn
of 1987; the mortgage was executed and the fund resulting from the loan transferred to Aylesbury to manage in October 1987. Thus in their case the
purchase of the bond and other investments for their fund was investment business done by 616 Aylesbury before they became a participant firm. It
follows in our view that any claim against Aylesbury for loss resulting from that transaction was not a scheme business claim which would entitle Mr and
Mrs Veniard to claim compensation from the ICS. However, after 28 August 1988 Aylesbury reported to Mr and Mrs Veniard on the progress of their
fund in accordance with their agreement every six months. We have already expressed our opinion that by failing to warn the Veniards in those reports of
the increasing risk to their fund and thus to their home, and by not warning them of the increase in this risk resulting from their withdrawals of cash from
the fund in 1988 and 1989, Aylesbury were in breach both of the implied duty to use reasonable skill and care in their contract with the Veniards and of r
4.3.2 of the FIMBRA rules.
In his affidavit Mr Lawson deposes that the ICS rely upon the decision of the Court of Appeal in Bell v Peter Browne & Co (a firm) [1990] 3 All ER
124, [1990] 2 QB 495 as authority for the proposition that Aylesbury were not under a continuing obligation to advise Mr and Mrs Veniard about the
proper management of their plan after 28 August 1988. Mr Beloff did not rely on this decision, rightly in our view. In Bell v Peter Browne & Co (a firm)
the defendant was under no continuing contractual obligation to the plaintiff. It was the contractual obligation on Aylesbury to value the holding every
six months and to report the result as well as the continuing obligation to manage the fund which, in our view, imposed on Aylesbury the obligation to
give competent advice when making such reports, and which also resulted in periodic breaches of r 4.3.2 of the FIMBRA rules.
The Veniards’ fund was already diminished by the time Aylesbury made their first report after 28 August 1988, and was further diminished by later
cash withdrawals. If, however, the Veniards can prove that they suffered further loss to their fund following the first report by Aylesbury after 28 August
1988, they had a ‘scheme business claim’ for that loss against Aylesbury under r 2.03.1 of the 1990 rules. Aylesbury being in default, Mr and Mrs
Veniard are entitled to claim compensation from the ICS for such irrecoverable loss. We would grant a declaration to that effect.
Mr Last’s and Mrs Rowden’s application

Preamble
THE DECISION IN RESPECT OF WHICH RELIEF IS SOUGHT

The decision in respect of which relief is sought is the decision of the ICS, communicated to the applicants’ solicitors by a letter dated 3 March 1993,
not to admit the claims of personal representatives of investors who die before the firm in respect of which compensation is claimed is declared in default.
Each of the applicants entered into home income plans jointly with their respective spouses. In each case the mortgaged homes were owned by the
applicants and their respective spouses as joint tenants. All of the investments were purchased in their joint names. The first and second applicants have
claims against firms which have been declared in default. Each of them is the survivor of a spouse who died before the relevant firm was declared in
default. The ICS has decided that the first and second applicants’ respective spouses had no claim for compensation transmissible on death before the
relevant firm was declared in default, and that their claims must accordingly be halved. The applicants dispute this decision, contending that there was a
transmissible claim for compensation and that even if there was not their own claims are for the full amount of the loss and should not be halved.
617
FACTS GIVING RISE TO THE CLAIM
Mr Last
Mr Last entered into a home income plan in 1989 on the advice of Fisher Prew Smith Ltd. The mortgage was in the joint names of Mr Last and his
wife and was completed on 18 December 1989. The proceeds were invested in their joint names with LAS Investment Assurance Ltd and GRE Linked
Life Assurance Ltd. Mr Last submitted a preliminary information form in support of his claim for compensation on 13 March 1992. The claim was made
in his sole name as his wife died before Fisher Prew Smith Ltd was declared in default. On 23 April 1993 the ICS sent him an offer of compensation in
the sum of £4,971·48. This was calculated as half of the ‘eligible loss’.
The eligible loss was halved by the ICS in accordance with the decision challenged in this application.
Mrs Rowden
Mrs Rowden entered into a home income plan in 1989 on the advice of Aylesbury. The mortgage was in the joint names of Mrs Rowden and her
husband. The mortgage proposal was dated 12 April 1989. The proceeds were invested by Aylesbury in their joint names with various investment
companies. Mrs Rowden submitted a preliminary information form in support of her claim for compensation on 13 July 1992. The claim was submitted
in the joint names of Mrs Rowden and her deceased husband. On 11 February 1993 the ICS sent her an offer of compensation in the sum of £22,032·83.
On 7 May 1993, however, in accordance with the decision challenged in this application, the ICS informed Mrs Rowden’s solicitors that the offer was
revoked and that a new offer halving the sum of compensation would be made. The decision has now been confirmed by letter.
THE DECISION IN EX P BOWDEN

Mann LJ said in R v Investors Compensation Scheme Ltd, ex p Bowden [1994] 1 All ER 17 at 538–539, [1994] 1 WLR 17 at 30:
‘[Counsel for the applicants] submitted that it was absurd that an application could not be made or continued by a personal representative and
that we should construe the rules so as to avoid absurdity. We think this submission is a strong one and we hope that we do no injustice to [counsel
for the ICS] if we gained the impression that he appeared to recognise the curiosity of a personal representative’s inability. Moreover, the board’s
standard preliminary information form contemplates that applications for compensation may be made on behalf of deceased investors … Death is
inevitable but its occurrence before an application or before determination is accidental. The scheme is for the compensation of small investors and
ordinarily they will have regarded their savings as a benefit of their family. They would be surprised if the moment of death was to injuriously
affect the inheritance. Does the law require the conclusion that it does? In our judgment the answer is that the law does not require so unjust a
conclusion. An eligible investor is vested, by the rules on default of an authorised person, both with the right (or power) to apply for compensation
and with an expectation that his application will be determined. In our judgment on an investor’s death his right (or power) and his expectation are
a right and an expectation which are transmissible to his personal representatives. The layman would have regarded his right 618 and
expectation as assets and we can see no reason why the law should not accord with his view.’
Since this judgment the ICS have taken the position that investors’ rights are transmissible only after the respective firms against whom they have
claims are declared in default. The ICS rely on the sentence:
‘An eligible investor is vested, by the rules on default of an authorised person, both with the right (or power) to apply for compensation and
with an expectation that his application will be determined.’
The ICS maintain that before the declaration of default there is no transmissible right or interest.
THE APPLICANTS’ CASE

Mr Strauss for the applicants submitted the following. (1) The question of the rights of personal representatives of investors who died before a
declaration in default was not before the court in Ex p Bowden. Each of the applicants in that case had claims against firms already in default. (2) The
reasoning of the court in deciding that personal representatives can submit or pursue claims applies equally to investors who have died before the
declaration of default. It would be absurd if the inheritance depended on the time of an investor’s death relative to the date of the discretionary decision
of the ICS to declare a firm in default. (3) In the alternative, the court in Ex p Bowden was wrong in finding that on the true construction of the rules a
personal representative of a deceased investor is unable to make or pursue a claim in his own right. The applicants rely on the recent decision of the
Court of Appeal in Deposit Protection Board v Dalia [1994] 1 All ER 539. (4) In the further alternative, the claims of surviving spouses ought not to be
halved in any event. Surviving spouses are entitled to claim the full amount of their loss in their own right. In each case the applicant’s home income
plan involved (a) homes jointly owned with the applicant’s spouse, (b) a mortgage in the joint names of the applicant and the spouse and (c) the purchase
of investments in the joint names of the applicant and the spouse.
Each individual has a claim against the broker for the full amount of the loss. That loss is measured by the difference between the outstanding
mortgage balance and the value of the investments. Neither of the applicants redeemed their mortgages before the death of their spouse. On the death of
an applicant’s spouse the entire interest in the home and the investments passed to the applicant by right of survivorship. The applicant therefore bears
the full amount of the loss. In an action against the brokers at law, a surviving applicant would be able to maintain a claim in his own right for the full
Preamble
amount of the loss without having to pursue half of the claim in the capacity of the spouse’s personal representative. Alternatively, the causes of action
against the financial adviser in respect of joint investments are owned by spouses jointly. Accordingly, on the death of one of the joint investors his share
in the claim passed to the surviving spouse by right of survivorship. The survivor is therefore entitled to the full amount of the loss subject to the rules.
THE QUESTIONS THAT ARISE

Three questions arise. (i) Do the words ‘eligible investor’ include a personal representative as a matter of construction? (ii) Does an investor have a
right transmissible to his personal representative notwithstanding that the investor died before the firm in respect of which the claim is made was declared
in default? (iii) Is the ICS entitled to halve the compensation payable to an 619 applicant on the ground that a person with whom the applicant had a
joint claim against the relevant firm died before that firm was declared in default?
THE 1990 RULES

The following rules are relevant to these applications:
‘1.01 Introductory
… 4 A default declared before the commencement date is to continue to be administered in accordance with the former rules.
1.02 Interpretation
1 These rules are to be interpreted in accordance with the Glossary at the end of these rules …
3 Nothing in any rules made under section 54 of the Act is to be interpreted (if it otherwise would be) as authorising the payment of
compensation on a claim except to the extent that the claim is a claim in respect of any description of civil liability incurred on or after 18
December 1986 in connection with the investment business of a person who, at the time compensation is to be paid, is or has been an authorised
person.
2.01 Declaration of default
1 The Management Company may determine a participant firm to be “in default” where it appears to the Management Company that the firm is
unable, or likely to be unable, to satisfy claims in respect of any description of civil liability incurred in connection with its investment business and
that, as a result, compensation is likely to be payable under these rules.
2 The Management Company may postpone determining a participant firm to be “in default” where it proposes to consult with other regulatory
authorities or where it appears to it that: a. the firm is likely to enter into a formal process on the ground of insolvency; or b. arrangements are
proposed or in train to ensure the survival of the whole or part of the undertaking of the firm as a going concern or to transfer the whole or part of
its business to another person.
3 The Management Company is to determine a date as the quantification date, and this date may be either on, before or after the date it makes
the determination.
2.02 Payment of compensation
Management Company so determines, any rights of his in a claim against any other person which relate to the subject matter of the claim, should
pass to it …
2.03 Scheme business claims
business done by it while it was a participant firm and with the investor or as agent on his behalf …
620
that this is essential in order to provide fair compensation to the investor …
… 2 Where two or more persons have a joint beneficial claim, then, if they are carrying on business together in partnership, the claim is treated
as a claim of the partnership, and otherwise each of those persons is taken to have a claim for his share, and, in the absence of satisfactory evidence
as to their respective shares, is taken to be entitled to an equal share …
quantification date …’
GLOSSARY
The glossary contains the following material provisions:
‘“claim” means a valid claim on a firm in default in respect of a civil liability owed by the firm …
“eligible investor” means: (a) an investor who is not, within the meaning of the Financial Services (Conduct of Business) Rules 1987, a business
or professional investor; or (b) a trustee who is not a bare trustee or unit trust trustee and who is trustee of a trust which is shown to be principally
for the benefit of individuals who are eligible investors not otherwise benefiting from the Scheme or for charitable purposes …
2. SCHEME BUSINESS
General principle
(1) In principle, “scheme business” means investment business carried on by any person after his participation date and as respects which he is
an authorised person.’
(i) Do the words ‘eligible investor’ include a personal representative as a matter of construction?
In R v Investors Compensation Scheme Ltd, ex p Bowden [1994] 1 All ER 525 at 538, [1994] 1 WLR 17 at 29 Mann LJ said:
‘The first inquiry is an inquiry of construction and must focus upon whether a personal representative is an “eligible investor” so as to satisfy r
Preamble
2.02.2(a). In our judgment he is not within the definition, which in terms is one which looks to the person who actually made the investment. That
there may be an anomaly in regard to ill-advised life assurance cannot deter the application of a plain meaning. A personal representative cannot
claim.’
The decision of the Court of Appeal in Deposit Protection Board v Dalia [1994] 1 All ER 539 in relation to a different compensation scheme does
not justify our departing from the decision on this issue in Ex p Bowden: see R v Greater Manchester Coroner, ex p Tal [1984] 3 All ER 240, [1985] QB
67.
621
(ii) Does an investor have a right transmissible to his personal representative notwithstanding that the investor died before the firm in respect of which
the claim is made was declared in default?
The relevant question considered in Ex p Bowden was ‘as to the board’s decision on 30 November 1992 not to entertain claims made by the personal
representatives of a deceased investor and not to determine claims made by an investor who died before a determination had been made’ (see [1994] 1 All
ER 525 at 538, [1994] 1 WLR 17 at 29). It is common ground that Ex p Bowden was concerned with claims in respect of firms which the ICS had already
determined to be ‘in default’ pursuant to r 2.01.1.
Mr Beloff on behalf of the ICS submitted that the decision in Ex p Bowden involved in the interests of avoiding absurdity and/or injustice the
identification of a transmissible right. The right there described depended on the existence of a declaration in default. The critical significance of default
is, submitted Mr Beloff, apparent from the rules, see eg rr 1.01.4, 2.01, 2.02.2(b), 2.02.3(a) and the definition of ‘claim’ in the glossary. Until the
declaration of default even the inchoate right described in Ex p Bowden does not arise. There is no right to apply for compensation until that time; a
fortiori there is no expectation of a valid determination.
We consider that the answer to this question is found by an analysis of the reasoning in Ex p Bowden. It is, as we have said, common ground that Ex
p Bowden was concerned with claims in respect of firms already in default. In that case the court declared that the rules enabled, first, an application to be
made by the personal representatives of a deceased eligible investor when no application was made by the investor during his lifetime and, secondly, an
application by a deceased eligible investor to be pursued by his personal representatives. Given that it has been held that the rules on their true
construction enable such applications to be made or pursued by the personal representatives of a deceased eligible investor, do they none the less provide
that the investor’s ‘right (or power) and … expectation’ only arise where before the investor dies the ICS have determined a participant firm to be ‘in
default’? It is to be noted that Mann LJ said ([1994] 1 All ER 525 at 539, [1994] 1 WLR 17 at 30):
‘Death is inevitable but its occurrence before an application or before determination is accidental. The scheme is for the compensation of small
investors and ordinarily they will have regarded their savings as a benefit of their family. They would be surprised if the moment of death was to
injuriously affect the inheritance. Does the law require the conclusion that it does?’
It might equally be said, given the declarations in Ex p Bowden referred to above, that small investors would be surprised, if ‘the moment of death’ in
relation to the date when the ICS determined a participant firm to be ‘in default’ might (or might not) ‘injuriously affect the inheritance’ depending upon
whether the declaration was made after (or before) the eligible investor died. In making the declarations in Ex p Bowden the Divisional Court applied a
sensible and purposive construction to rules, which, though intended to benefit small investors, are in some respects not clearly drafted. We do not
consider that r 2.02 on its true construction precludes an application by the personal representatives of a deceased eligible investor when death occurred
before the determination by the ICS pursuant to r 2.01.1. In our view it is a small step beyond the decision in Ex p Bowden to hold that the contingent
‘right (or power) 622 and … expectation’ is transmissible to personal representatives, where at the date of death the ICS have not determined the
participant firm to be ‘in default’ and we so declare.
(iii) Are the ICS entitled to halve the compensation payable to an applicant on the ground that a person with whom the applicant had a joint claim against
the relevant firm died before that firm was declared in default?
In view of our finding as to the second question this question does not arise. We would however add that if, contrary to our view, an investor does
not have a transmissible right in the case of death before a determination pursuant to r 2.01.1 it would be an extraordinary result if the surviving spouse’s
claim for compensation could not reflect the fact that he or she remained liable for the full amount of the outstanding mortgage. We do not consider that r
2.05.2 provides any support for such an unjust conclusion.
Declarations accordingly.

[1994] 1 All ER 623
New Zealand Maori Council and others v Attorney General of New Zealand and others
COMMONWEALTH: Commonwealth countries: INTERNATIONAL; Treaties: COMMUNICATIONS
PRIVY COUNCIL
LORD TEMPLEMAN, LORD MUSTILL, LORD WOOLF, LORD LLOYD OF BERWICK AND SIR THOMAS EICHELBAUM
1, 2, 3 NOVEMBER, 13 DECEMBER 1993
New Zealand – Treaty of Waitangi – Protection of Maori taonga – Maori language – Restructuring of New Zealand broadcasting – Possible detrimental
effect on survival of Maori language – New Zealand government proposing to transfer state-controlled television operations and assets to state enterprise
– Principal objective of state enterprise to operate as successful business by being as profitable and efficient as comparable private business – Whether
Preamble
transfer of television assets to state enterprise incompatible with Crown’s obligation under Treaty of Waitangi to protect and preserve Maori taonga
including Maori language – Nature of Crown’s obligation under Treaty of Waitangi – Treaty of Waitangi 1840 – State-Owned Enterprises Act 1986, ss
4(1), 7, 9.
Under the Treaty of Waitangia signed in 1840 the Crown, in return for sovereignty over New Zealand being ceded by the Maori people to the Crown,
undertook to guarantee ‘the full exclusive and undisturbed possession of their Lands and Estates Forests Fisheries and other properties’. ‘Other
properties’ included Maori taonga or treasures, which included the Maori language. Section 9b of the State-Owned Enterprises Act 1986 provided that
the Crown was not permitted to act in a manner that was inconsistent with the principles of the Treaty of Waitangi when setting up state enterprises under
that Act.
________________________________________
a The Treaty is set out at p 628 a to p 629 a, post
b Section 9 is set out at p 627 e, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
623
However, under s 4(1)c of the 1986 Act state enterprises were required, as their principal objective, to operate as a successful business by being as
profitable and efficient as comparable private businesses and by exhibiting a sense of social responsibility by having regard to the interests of the
community. Under s 7d of the Act the Crown could require a state enterprise to provide goods or services to any persons on payment by the Crown of the
whole or part of the price for those goods or services. On 1 December 1988 the government dissolved the Broadcasting Corporation of New Zealand,
which until then had operated state-owned radio and television stations, and temporarily vested the assets of the corporation in the Crown prior to
transferring those assets to a new state enterprise created under the 1986 Act. The appellants, representing the Maori people, were concerned that the
proposed restructuring of New Zealand broadcasting would have a detrimental effect on the survival of the Maori language, which was in a state of
serious decline. The appellants sought declarations that the transfer of the assets of the corporation to the new state enterprise would be unlawful. At first
instance the judge declined to grant the relief claimed in respect of the radio assets and those assets were then transferred by the Crown to the state
enterprise with the consent of the appellants. After considering a scheme submitted by and an assurance given on behalf of the Crown to protect the
Maori language in the event of the assets being transferred, the judge then granted a declaration permitting the transfer of the television assets. The
appellants appealed against the grant of that declaration to the New Zealand Court of Appeal, which dismissed their appeal. The appellants appealed to
the Privy Council, contending that the transfer of the television assets by vesting them in the state enterprise would be inconsistent with the principles of
the treaty since the state enterprise’s objective under s 4(1) of the 1986 Act of being commercially successful was incompatible with promoting the Maori
language, which was bound to be unprofitable. The Crown contended that transfer of the television assets would not then or in the foreseeable future
impair to a material extent its ability to take the reasonable action which it was obliged to undertake to comply with the principles of the treaty.
________________________________________
c Section 4(1) is set out at p 631 e f, post
d Section 7 is set out at p 632 a b, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – (1) Under the Treaty of Waitangi the Crown had undertaken to protect and preserve Maori property, including the Maori language as part of Maori
taonga, in return for being recognised as the legitimate government of New Zealand by the Maori people. However, although the treaty referred to that
obligation as amounting to a guarantee by the Crown, that merely emphasised the solemn nature of the Crown’s obligation and did not mean that the
obligation was absolute and unqualified since that would be inconsistent with the Crown’s other responsibilities as the government of New Zealand, and
the relationship between Maori and the Crown which the treaty envisaged should be founded on reasonableness, mutual co-operation and trust.
Accordingly, in carrying out its obligations the Crown was not required in protecting taonga to go beyond taking such action as was reasonable in the
prevailing circumstances since, although the obligation of the Crown was constant, the protective steps which it was reasonable for the Crown to take
changed depending on the situation which existed at any particular time. In the case of the current state of 624 the Maori language, where a taonga
was in a vulnerable state, that had to be taken into account by the Crown in deciding the action it should take to fulfil its obligations and might well
require the Crown to take especially vigorous action for its protection. Accordingly, as was accepted by the Crown, the principles of the treaty imposed a
continuing obligation on the Crown to take such steps as were reasonable to assist in the preservation of the Maori language by the use of both radio and
television broadcasting (see p 629 e to j and p 631 a, post).
(2) However, the objectives for state enterprises set out in s 4(1) of the 1986 Act were to be given equal weight and the making of a profit was of no
greater importance than the other objectives identified in the subsection and it was clear from s 4(1)(c) that, as long as a state enterprise had the necessary
financial resources, it was entitled to be involved in a loss- or non-profit-making activity. It followed that, subject to any financial constraints, it would
not be inconsistent with s 4 for a state enterprise to encourage the use of the Maori language by broadcasting television programmes in that language,
since by doing so the state enterprise would be exhibiting ‘a sense of social responsibility’ and would be ‘having regard to the interests of the
community’. Furthermore, under s 7 and other provisions of the 1986 Act the Crown was able to exercise a substantial degree of indirect control over the
activities of a state enterprise and if the Crown, in order to fulfil its obligations under the Treaty of Waitangi, wished to promote more Maori language
television and was prepared to accept the cost implications of doing so then in reality it would be able to achieve that even after the transfer of the assets.
Accordingly, the transfer of the television assets would not substantially undermine the ability of the Crown to fulfil its obligations under the treaty.
Although the transfer of the television assets to a state enterprise would make it more difficult for Maori to bring pressure to bear on the Crown to fulfil its
obligations under the treaty by the use of the courts, the scheme and the assurance given on behalf of the Crown to the judge amounted to a legitimate
expectation which could give rise to a successful challenge by judicial review of any failure to act in accordance with that assurance. On that basis the
appeal would be dismissed (see p 631 g to p 632 a c to p 633 a and p 637 j to p 638 a c to g, post).
Notes
For the acquisition of sovereignty over New Zealand and the Treaty of Waitangi, see 6 Halsbury’s Laws (4th edn reissue) para 951.

Hoani Te Heuheu Tukino v Aotea District Maori Land Board [1941] 2 All ER 93, [1941] AC 308, PC.
Preamble
Khawaja v Secretary of State for the Home Dept [1983] 1 All ER 765, [1984] AC 74, [1983] 2 WLR 321, HL.
New Zealand Maori Council v A-G [1987] 1 NZLR 641, NZ CA.
Tainui Maori Trust Board v A-G [1989] 2 NZLR 513, NZ CA.
Te Runanga o Muriwhenua Inc v A-G [1990] 2 NZLR 641, NZ CA.
625
Appeal
The New Zealand Maori Council, Sir Graham Stanley Latimer, Nga Kaiwhakapumau I Te Reo Incorporated Society and Huirangi Eruera Waikerepuru
appealed with final leave granted by the Court of Appeal of New Zealand (Richardson, Casey and Hardie Boys JJ) on 22 February 1993 from the
judgment of that court (Richardson, Hardie Boys and McKay JJ (Cooke P dissenting)) ([1992] 2 NZLR 576) given on 30 April 1992 dismissing their
appeal from the judgments of McGechan J delivered on 3 May 1991 and 29 July 1991 in the High Court of New Zealand whereby he had refused to grant
the declarations sought by the applicants as against the respondents, the Attorney General of New Zealand, the Minister of Finance, the Minister of
State-Owned Enterprises and the Governor General in Council, that it would be unlawful for the Crown to transfer the assets of the former Broadcasting
Corporation to the new state enterprise set up under the State-Owned Enterprises Act 1986 and had declared that the Crown was entitled to transfer the
broadcasting assets to Television New Zealand Ltd. The facts are set out in the judgment of the Board.
Sian Elias QC, Martin Dawson and Eugenie Laracy (all of the New Zealand Bar) (instructed by Alan Taylor & Co) for the applicants.
The Solicitotor General of New Zealand (John McGrath QC), Jennifer Lake and Kristy McDonald (both of the New Zealand Bar) (instructed by Allen &
Overy) for the respondents.
13 December 1993. The following judgment of the Board was delivered.
LORD WOOLF. The Maori language (Te Reo Maori) is in a state of serious decline. It is an official language of New Zealand, recognised as such by
the Maori Language Act 1987. It is ‘a highly prized property or treasure (taonga) of Maori’ ([1992] 2 NZLR 576 at 578 per Cooke P in the Court of
Appeal) and it is also part of the national cultural heritage of New Zealand.
It is because they recognise the serious risk which exists of Maori not surviving as a living language that the appellants have commenced these
proceedings and have pursued this appeal. They are deeply concerned as to the possible effects on the survival of the Maori language of the restructuring,
which commenced in 1988, of New Zealand broadcasting. Prior to 1 December 1988, when it was dissolved, Radio and Television New Zealand was
operated by the Broadcasting Corporation of New Zealand. After the Broadcasting Corporation was dissolved its assets were temporarily vested in the
Crown and its operations were carried on by a newly created state enterprise.
State enterprises are statutory organisations created under the State-Owned Enterprises Act 1986. The Act was passed as part of the reform of the
public sector which, it is contended by the Crown, was necessary because—
‘trading operations in the public sector needed more efficient management, greater accountability and a clarification of the sometimes
competing and incompatible social and economic objectives, which they were required to achieve.’
These proceedings were commenced on 13 December 1988. The immediate object was to prevent the Crown transferring the assets of the former
Broadcasting Corporation to the new state enterprise. The appellants were 626 seeking declarations that to transfer the assets would be unlawful.
Although the appellants bring the proceedings in their personal capacity it has not been suggested that they lack standing to do so. This is not surprising
since the appellants are manifestly well qualified to advance the arguments relevant to the issues raised in these proceedings.
At first instance the proceedings were heard by McGechan J. On 3 May 1991 he gave the first of two judgments. He declined to grant the relief
claimed in respect of the radio assets. Those assets were then transferred by the Crown to the state enterprise with the consent of the appellants and they
are no longer in issue in the proceedings. However the judge adjourned the claim in respect of the television assets to give the Crown the opportunity to
submit a scheme designed to protect the Maori language in the event of the assets being transferred. McGechan J gave his second judgment on 29 July
1991. Having considered the proposals submitted by the Crown during the adjournment, he granted a declaration permitting the transfer of the television
assets. On 30 April 1992 the Court of Appeal, by a majority (Richardson, Hardie Boys and McKay JJ (Cooke P dissenting)) dismissed the appeal.
Before the Board the argument for the appellants is based entirely on s 9 of the 1986 Act. The appellants have not attempted to challenge or avoid
the decision of the Privy Council in Hoani Te Heuheu Tukino v Aotea District Maori Land Board [1941] 2 All ER 93, [1941] AC 308 where it was held
that the Treaty of Waitangi (the treaty) was not normally directly enforceable by legal action.
Section 9 and the principles of the treaty

Section 9 is in the following terms:
‘Treaty of Waitangi. Nothing in this Act shall permit the Crown to act in a manner that is inconsistent with the principles of the Treaty of
Waitangi.’
This is not the first case in which s 9 has been relied on in support of Maori interests and the New Zealand Court of Appeal has had to consider
whether proposed action by the Crown was in accord with the principles of the treaty. On this appeal particular importance was attached to the judgments
in New Zealand Maori Council v A-G [1987] 1 NZLR 641. In that case the Court of Appeal gave directions and granted declarations with the object of
preventing transfers of land which could prejudice Maori claims pending the preparation of a scheme which would protect such claims. Reliance was also
placed on Tainui Maori Trust Board v A-G [1989] 2 NZLR 513, where the Court of Appeal granted relief to the board in respect of mining rights, and Te
Runanga o Muriwhenua Inc v A-G [1990] 2 NZLR 641, in which fishing rights were considered. Although the emphasis in the judgments in those cases
differs, collectively they provide a valuable insight as to the manner in which s 9 has to be approached and as to what is meant by ‘the principles’ of the
treaty. The same can be said of the previous judgments in the present case. They have provided their Lordships with considerable assistance in
formulating their own views as to the proper approach to s 9 and the ‘principles’ of the treaty.
The treaty records an agreement executed by the Crown and Maori, which over 150 years later is of the greatest constitutional importance to New
Zealand. It was entered into on 6 February 1840. The English and the Maori texts differ, as the preamble to the Treaty of Waitangi Act 1975
acknowledges. The differences do not affect the outcome of this case and so it is sufficient to set out the English text and point out that in New Zealand
Maori Council v A-G [1987] 1 627 NZLR 641 at 662–663 the judgment of Cooke P sets out a ‘reconstruction’ in English of the Maori text which was
Preamble
accepted by the parties to be accurate for the purpose of that case. The English text set out in the 1975 Act is in the following terms:
‘HER MAJESTY VICTORIA Queen of the United Kingdom of Great Britain and Ireland regarding with Her Royal Favour the Native Chiefs
and Tribes of New Zealand and anxious to protect their just Rights and Property and to secure to them the enjoyment of Peace and Good Order has
deemed it necessary in consequence of the great number of Her Majesty’s Subjects who have already settled in New Zealand and the rapid
extension of Emigration both from Europe and Australia which is still in progress to constitute and appoint a functionary properly authorised to
treat with the Aborigines of New Zealand for the recognition of Her Majesty’s Sovereign authority over the whole or any part of those islands—Her
Majesty therefore being desirous to establish a settled form of Civil Government with a view to avert the evil consequences which must result from
the absence of the necessary Laws and Institutions alike to the native population and to Her subjects has been graciously pleased to empower and to
authorise me William Hobson a Captain in Her Majesty’s Royal Navy Consul and Lieutenant Governor of such parts of New Zealand as may be or
hereafter shall be ceded to Her Majesty to invite the confederated and independent Chiefs of New Zealand to concur in the following Articles and
Conditions.
ARTICLE THE FIRST
The Chiefs of the Confederation of the United Tribes of New Zealand and the separate and independent Chiefs who have not become members
of the Confederation cede to Her Majesty the Queen of England absolutely and without reservation all the rights and powers of Sovereignty which
the said Confederation or Individual Chiefs respectively exercise or possess, or may be supposed to exercise or to possess over their respective
Territories as the sole Sovereigns thereof.
ARTICLE THE SECOND
Her Majesty the Queen of England confirms and guarantees to the Chiefs and Tribes of New Zealand and to the respective families and
individuals thereof the full exclusive and undisturbed possession of their Lands and Estates Forests Fisheries and other properties which they may
collectively or individually possess so long as it is their wish and desire to retain the same in their possession; but the Chiefs of the United Tribes
and the individual Chiefs yield to Her Majesty the exclusive right of Preemption over such lands as the proprietors thereof may be disposed to
alienate at such prices as may be agreed upon between the respective Proprietors and persons appointed by Her Majesty to treat with them in that
behalf.
ARTICLE THE THIRD
In consideration thereof Her Majesty the Queen of England extends to the Natives of New Zealand Her royal protection and imparts to them all
the Rights and Privileges of British Subjects.
W. HOBSON Lieutenant Governor.
Now therefore We the Chiefs of the Confederation of the United Tribes of New Zealand being assembled in Congress at Victoria in Waitangi
and We the Separate and Independent Chiefs of New Zealand claiming 628 authority over the Tribes and Territories which are specified after
our respective names, having been made fully to understand the Provisions of the foregoing treaty, accept and enter into the same in the full spirit
and meaning thereof: in witness of which we have attached our signatures or marks at the places and the dates respectively specified.’
The obligations of Her Majesty, the Queen of England, under the treaty are now those of the Crown in right of New Zealand.
While the second article refers to ‘other properties’, the Maori text uses the word ‘taonga’ and in the reconstruction of that text the word ‘taonga’ is
translated as treasures. It is accepted that those treasures include the Maori language.
Both the 1975 Act and the 1986 Act refer to the ‘principles’ of the treaty. In their Lordships’ opinion the ‘principles’ are the underlying mutual
obligations and responsibilities which the treaty places on the parties. They reflect the intent of the treaty as a whole and include, but are not confined to,
the express terms of the treaty. (Bearing in mind the period of time which has elapsed since the date of the treaty and the very different circumstances to
which it now applies, it is not surprising that the Acts do not refer to the terms of the treaty). With the passage of time, the ‘principles’ which underlie the
treaty have become much more important than its precise terms.
Foremost among those ‘principles’ are the obligations which the Crown undertook of protecting and preserving Maori property, including the Maori
language as part of taonga, in return for being recognised as the legitimate government of the whole nation by Maori. The treaty refers to this obligation
in the English text as amounting to a guarantee by the Crown. This emphasises the solemn nature of the Crown’s obligation. It does not however mean
that the obligation is absolute and unqualified. This would be inconsistent with the Crown’s other responsibilities as the government of New Zealand and
the relationship between Maori and the Crown. This relationship the treaty envisages should be founded on reasonableness, mutual co-operation and
trust. It is therefore accepted by both parties that the Crown in carrying out its obligations is not required in protecting taonga to go beyond taking such
action as is reasonable in the prevailing circumstances. While the obligation of the Crown is constant, the protective steps which it is reasonable for the
Crown to take change depending on the situation which exists at any particular time. For example in times of recession the Crown may be regarded as
acting reasonably in not becoming involved in heavy expenditure in order to fulfil its obligations although this would not be acceptable at a time when the
economy was buoyant. Again, if as is the case with the Maori language at the present time, a taonga is in a vulnerable state, this has to be taken into
account by the Crown in deciding the action it should take to fulfil its obligations and may well require the Crown to take especially vigorous action for
its protection. This may arise, for example, if the vulnerable state can be attributed to past breaches by the Crown of its obligations, and may extend to
the situation where those breaches are due to legislative action. Indeed any previous default of the Crown could, far from reducing, increase the Crown’s
responsibility.
The present state of the Maori language

In the course of his first judgment McGechan J carefully surveyed the substantial evidence before him as to how the Maori language came to be in its
present state and the steps by way of education and broadcasting on the radio 629 and television which had been taken to retard its decline. His
assessment has been largely accepted by the parties and the Court of Appeal and for that reason it should be set out in some detail since their Lordships’
conclusions have to a substantial extent been based on that assessment.
In relation to education the judge refers in particular to the language nests (Kohanga Reoi) movement started in the 1980s, as a result of which
pre-school Maori children ‘in increasing numbers, for a small fee but with state assistance, were learning basic Maori language in a total immersion
environment, with the rapidity of which the very young are so capable’. He describes the initiatives which had occurred in respect of radio, but
acknowledges that while modest progress had taken place the efforts were limited, ‘as commonly is the case in New Zealand society, by financial
constraints’. For television, mention is made of an unsuccessful attempt, supported by the Broadcasting Corporation of New Zealand, to obtain for the
Maori language the available third channel. In addition the judge draws attention to a group known as the Iwi Television Trust which had been
established with the object of promoting Maori controlled production and transmission of television programmes based on Maori language and cultures.
The judge also mentions proposals by the New Zealand Maori Council, the fact that little was achieved to ensure the use of one of the UHF frequencies
which the government had indicated would be reserved for television by non-commercial and Maori broadcasting (here once more there was a problem
over resources) and a suggestion that TV3, the third and non-mass viewing TVNZ channel, should be used for this purpose which proved to be
Preamble
unacceptable. The result is that the contribution of television has been, in the words of the judge, ‘slight, both relatively and absolutely’ without there
being ‘any immediate prospect of more’.
The effect of this failure to achieve any material exposure of the Maori language on television was serious for a language which was being
suffocated by the enveloping effect of the English language and contemporary culture. The loss of fluent native speakers among the elderly was not being
compensated for by ‘the gain of many slightly skilled and less interested speakers among the young’. The judge concluded that if the trend continued
Maori would be ‘a living language … no more’. The situation was fast approaching where Maori would be the ‘preserve of a very small elite with a
heavy academic concentration’. Such a ‘survival like church Latin’ would not be ‘a survival’. There was a real prospect of the use of Maori sinking
below the point ‘where revival and maintenance is impracticable’. This situation, said the judge, is very damaging to Maori culture since the language is
the ‘core’ of that culture. Urgent action is required. Broadcasting, particularly on television, would be of the greatest importance in strengthening the
language. Together with home use and education it is one of a ‘trio of major influences’ on the viability of the language. Since the other influences are
weak, this increases its importance. According to the judge the influence of television could be twofold. It could result in the language being heard by a
mass audience which is important in itself. In addition its use, especially on television, could give the language status which would be of assistance in
making it credible and even fashionable with the young people whose support is crucial to providing Maori with a viable future.
630
The obligations of the Crown, Maori and state enterprises

As already indicated, this assessment by the judge of the state of the Maori language is accepted, in general, by the Crown. It is also accepted by the
Crown that in this situation the principles of the treaty impose a continuing obligation on the Crown to take such steps as are reasonable to assist in the
preservation of the Maori language by the use of both radio and television broadcasting. The Crown urge that this is not their obligation alone and in this
they are correct. Under the treaty the obligation is shared. Maori are also required to take reasonable action, in particular action in the home, for the
language’s preservation.
The Crown contends that it is fulfilling its obligations and in any event the transfer of the assets by vesting them in the state enterprise would not be
inconsistent with the principles of the treaty; inconsistency with those principles being the only matter which the appellants are entitled to raise in these
proceedings. Whether the Crown is correct in this contention is a question which is central to the outcome of this appeal. The answer depends on
whether the transfer of the assets could now or in the foreseeable future impair, to a material extent, the Crown’s ability to take the reasonable action
which it is under an obligation to undertake in order to comply with the principles of the treaty.
The 1986 Act apart from s 9

To determine the answer it is necessary to return to the 1986 Act and examine provisions to which their Lordships have not yet referred. Section
4(1) reads:
‘Principal objective to be successful business.—(1) The principal objective of every state enterprise shall be to operate as a successful business
and, to this end, to be—(a) as profitable and efficient as comparable businesses that are not owned by the Crown; and (b) a good employer; and (c)
an organisation that exhibits a sense of social responsibility by having regard to the interests of the community in which it operates and by
endeavouring to accommodate or encourage these when able to do so.’
Miss Elias QC, on behalf of the appellants, submits that as the principal objective of a state enterprise under s 4 is to operate as a successful business
this is inconsistent with it becoming voluntarily involved in a non-commercial activity such as promoting the Maori language on television. However,
what can amount to operating ‘as a successful business’ has to be determined in the context of the three requirements set out in paras (a), (b) and (c) of s
4(1). There is nothing to suggest that those paragraphs are not to be treated as being of the same weight. The creation of profit is of no greater
importance than the other objectives identified in the subsection. The language of para (c) makes it clear that, as long as the state enterprise has the
necessary financial resources, it is perfectly entitled to be involved in a loss- or non-profit-making activity. Therefore, subject to any financial
constraints, it would not be inconsistent with s 4 for the state enterprise to encourage the use of the Maori language by broadcasting television
programmes in that language. By doing so the state enterprise would be exhibiting ‘a sense of social responsibility’ and would be ‘having regard to the
interests of the community’. Section 4 with its reference to ‘successful business’ reflects the general intent of the Act that the performance of state
enterprises should be efficient and businesslike. While in the foreseeable future there is little prospect of Maori broadcasts being 631 profitable, there
is no reason why they should not be presented in an efficient and in a businesslike manner.
Section 7 states:
Non-commercial activities.—Where the Crown wishes a state enterprise to provide goods or services to any persons, the Crown and the state
enterprise shall enter into an agreement under which the state enterprise will provide the goods or services in return for the payment by the Crown
of the whole or part of the price thereof.’
The terms of this section provide an example of the Crown being able to exercise a degree of control over the activities of the state enterprise and
even though the Crown has to make some payment for such activities it is not without significance that the payment may be limited to ‘part of the price’.
It must not be overlooked that in practice it is inevitable that the Crown would have to bear a substantial proportion of the costs of any Maori language
broadcast whether or not the assets are transferred.
The primary change which will result from the transfer of the assets is that they will cease to be under the direct control of the Crown. But this will
not bring about as significant a change as Miss Elias argues. Although, under the Act, a state enterprise is structured so that it is separate from the Crown,
as its title indicates, it remains very much the Crown’s creature. Ministers may hold shares in the state enterprise (s 10); except for certain redeemable
preference shares and equity bonds a shareholding minister cannot permit shares in the state enterprise to be transferred to anyone other than a
shareholding minister (s 11); ministers may also give to the board of a state enterprise directions, with which the board is required to comply, inter alia, as
to the objectives and the nature and scope of its activities which should be set out in its statement of corporate intent (s 13); in addition ministers have
responsibilities to the House of Representatives in respect of state enterprises (ss 6 and 17); the board of directors of a state enterprise are accountable to
ministers, in particular as to the preparation and amendment of its statement of corporate intent and its annual report (ss 6, 14 and 15) and when assets or
liabilities of the Crown are transferred to a state enterprise, the transfer does not entitle any person to terminate, alter or in any way affect the rights or
liabilities of the Crown or the state enterprise under any Act or agreement (s 23—‘agreement’ and ‘rights’ are given an extremely wide meaning by s 29.
An ‘agreement’ need be no more than an understanding which is not enforceable in law and ‘rights’ includes powers, privileges etc). Finally under s 23,
upon transferring assets to the state enterprise, or authorising it to act on behalf of the Crown, or upon granting rights in respect of Crown assets, the
Crown can impose conditions on the state enterprise.
Preamble
The combined effect of the statutory provisions to which reference has been made demonstrates that after transfer the Crown can exercise a
substantial degree of indirect control over the manner in which the assets are employed. If the Crown in order to fulfil its obligations under the treaty
wishes to promote more Maori language television and is prepared to accept the cost implications of what it wishes to achieve then in reality it will be
able to bring this about even after the transfer of the assets. It is unlikely that a state enterprise will seek to frustrate the Crown once the Crown has made
its attitude clear. Even if it did so and the Crown found that its powers under the 1986 Act were inadequate, it would remain open to the Crown to seek
the necessary legislative powers to 632 intervene to achieve its objective. The transfer of the assets will not therefore substantially undermine the
ability of the Crown to fulfil its obligations under the treaty. The power of control will be less direct and immediate than before but the only significant
difference that the transfer will make is that it will be more difficult for Maori to bring pressure to bear on the Crown to fulfil its obligations under the
treaty by the use of the courts.
The purpose of s 9 is not, however, to provide a lever which can be used to compel the Crown to take positive action to fulfil its obligations under
the treaty. The section operates indirectly in relation to the issues in this case. It prevents the transfer of the assets when this would be inconsistent with
the principles of the treaty. None the less the existence of s 9 can have the effect of facing the Crown with the option of either taking the steps which will
result in it meeting those obligations or being unable to take the action which it wishes of transferring the assets. In this case, pending the outcome of
these proceedings, the Crown has overcome the problem of being prevented from transferring the assets by, instead of transferring the assets, informally
permitting them to be used by the state enterprise (a situation about which the appellants do not complain, presumably because it does not involve loss of
control of the assets by the Crown).
The Broadcasting Commission

The Crown has also been able to delegate the responsibility for promoting Maori culture to the Broadcasting Commission created by the
Broadcasting Act 1989. The commission is funded by charging the public a broadcasting fee, by appropriations from Parliament and by its revenue
producing activities. From the time it began its operations, the commission has been required by a ministerial direction to devote not less than 6% of that
fee to Maori broadcasting. In the year 1989–90 7·2% was in fact allocated to Maori television broadcasting and in the year 1992–93 $4·75m was spent on
Maori television programmes, including Maori language programmes, and a further $3·35m was used to fund programmes which did not present the
Maori in a stereotyped manner or which were produced, directed or written by a Maori. It is not disputed that this scale of funding is insufficient to
achieve what is necessary to re-establish the Maori language.
The judgments at first instance and in the Court of Appeal

McGechan J came to the conclusion that, in the past, the Crown had failed to comply with its treaty obligations by not carrying out adequate
investigations and consultation. The need for ‘Maori language to be heard on television, in prime time, and within a programme format which will be
watched, by youth in particular’ had not been met. He therefore considered that options should be kept open so that, if possible, a solution should be
found. He contemplated a number of options. A separate Maori UHF channel, with its own production and transmission facilities. He had doubts
whether the necessary finance would be available for this. Another solution was for increased Maori language programmes to be inserted into one or
other of TVNZ’s programmes. (TV3 was not considered because it ‘was lost beyond the pale’.) This, the judge thought, had the disadvantage that it
could result in a backlash with possible racist overtones. It would therefore require careful introduction over a period of some years; there would be
problems of financing and it might carry ‘the dreaded risk that a viewer will switch to another channel, and then stay with 633 that other channel for
the rest of the evening’. In addition to the gradual introduction of more Maori language programming over forthcoming years on existing TVNZ channels
at times when it will be heard ( which would involve this being accompanied by the increasing dedication of the television facilities necessary for the
purpose), there might be at some point in the future the development of a dedicated Maori production house and Maori language UHF channel. He
considered that the reservation of a UHF channel already went a considerable way, but if there were to be a blanket release of all the assets this could
result in the reservation being an empty right. As the decision as to what course to take in these circumstances was for the Crown, the judge adjourned the
hearing and the question of the release of the television assets and directed:
‘... the Crown promptly should make the necessary inquiries and proposed reservation arrangements, seek agreement from Maori if available,
and whether or not agreement is available, come back to this Court for a declaratory release of the TVNZ assets concerned subject to any proper
reservations.’
The Crown then appointed an Officials Committee to investigate and formulate a recommended Crown response. Submissions to the committee
were invited. There was a considerable Maori response. In addition to the options referred to above, the Committee considered others such as VHF,
satellite, cable and Sky TV where access was available, and could be guaranteed at reasonable cost in a manner which would be binding on subsequent
owners. It also examined access to production facilities. The committee’s report was endorsed by ministers and submitted to the Cabinet and (as was
agreed for the purpose of the proceedings) the Cabinet then came to a decision based on the report on 15 July 1991, in the following terms:
‘b ... conditional upon agreement by the Maori applicants to the immediate transfer of the former BCNZ assets to Radio New Zealand (RNZ)
and Television New Zealand (TVNZ): (i) agreed that the Crown should enter into contracts with TVNZ and RNZ guaranteeing access to
transmission and production facilities and Maori archival material on the most favourable terms and conditions applying to comparable
users—these contracts to be signed prior to the transfer of assets from the Crown to RNZ and TVNZ; (ii) authorised a new one-off payment on
behalf of the Crown within Vote: Communications of $15,000 in 1991/92 for the purpose of securing the contracts referred to in (b) above; (iii)
authorised a new payment on behalf of the Crown, within Vote: Communications, in the amount of $3 million in 1991/92, $5 million in 1992/93, $5
million in 1993/94 (all amounts expressed in 1991 dollars), for the purpose of promoting Maori language and the culture in broadcasting, part or all
of which could be used to assist in the development of special purpose Maori television; (iv) agreed that the level of funding set out in (d) above
[sic; semble ‘ iii above’] should be reviewed before 31 March 1994; (v) agreed that a Maori broadcasting funding agency, Te Reo Whakapuaki
Irirangi, should be established to manage and disburse this additional funding, including funding for the access to or development of transmission
and production facilities which may be required in the development of Maori television ...’
Maori interests had very little time to consider the Cabinet decision but although they expected further discussions on the matters causing them
634 concern, which they identified, they indicated they were willing to settle the issue on the basis of the Cabinet decision subject to the following
modifications:
‘(a) Crown contracts with TVNZ and RNZ were to guarantee Maori access to transmission and production facilities “and the broadcasting of
Preamble
Maori programmes on their mainstream broadcasting services”. In the absence of comparable users, charges were to be on most favourable terms
consistent with reasonable return. Archival material was to be available on a costs recovery basis. In event of sale of TVNZ or RNZ assets to
which access was guaranteed (whether transmission, production, services or archives) and non-retention of sufficient capacity, access requirements
were to be imposed on new owners. Contracts were to be in a form acceptable to Maori. (b) Policies (special purpose Maori television and
mainstreaming) were to be decided by 31 August 1992 after Government inquiry, consultation, and discussions attempting to reach agreement. The
development of such policies was to include criteria for special purposes television, “reconsideration of existing legislation”, targets for special
purpose television and mainstreaming, and funding and delivery mechanisms. (c) The Crown would direct the BC to maintain the present level of
funding for Maori television and radio, and would review “the overall level of funding for Maori broadcasting for both radio and television” as part
of the policy review required by 31 August 1992, and ( if not increased) likewise review before 31 March 1994.’
Although this response indicated that there was not an unbridgeable gulf between the parties the Crown declined to accept any modification to its
decision. Mainstreaming, which was an important issue, was to be dealt with within the context of the continuing consultations foreshadowed in the
Officials Committee Report.
The case was resumed before the judge on 26 July 1991. During the hearing the Crown placed before the court contracts with TVNZ and RNZ. The
contracts gave one Maori broadcaster access to transmission equipment on most favourable terms. In addition there was to be access to TVNZ production
facilities.
Having heard further submissions, the judge in his second judgment drew attention to the limits on the court’s powers under s 9 of the 1986 Act. He
recorded that the Crown is expected to act honourably in relation to Maori and concluded that he was ‘satisfied from the viewpoint of treaty principles
with the position proposed by the Crown in relation to transmission sites, production facilities (including archives), and the associated matter of access
funding’. In his detailed explanation for coming to these conclusions the judge expressed his views as to mainstreaming. He indicated that while the
developments, which he identified, could in time make this less important because of the danger of the language ‘slipping away to a point of no return’,
the issue had to be tackled by him now. However, having taken into account current economic conditions which were resulting in widespread social
hardship and his reservations as to the practicability of enforced mainstreaming, he came to the conclusion that he would not be justified in requiring the
Crown to provide an ‘additional major allocation’ of the finance which would be needed. He thought that despite the urgency gradualism was the proper
course. Introduction on any immediate substantial basis of mainstreaming of the Maori language would go beyond what the court can reasonably require.
He however stressed that Maori are 635 ‘entitled to the protection of judicial observation that immediate and good faith discussion … is a matter of
urgent treaty obligation’ and that this should result in ‘a suitably programmed approach’. The judge then granted a declaration permitting the transfer of
the television assets.
Reference has already been made to the fact that the assessment of the judge as to the factual situation was in general not challenged. In his
dissenting judgment Cooke P went so far as to say: ‘I respectfully agree with and adopt almost everything said by him in both his judgments’, with one
exception, that was in relation to the ‘judicial observation’ referred to above. Cooke P commented that that ‘protection might not prove very substantial’
but accepted that ‘the real point on which this case turns is not the present programme content’. As their Lordships understand his judgment, the point on
which the case turned, in the opinion of Cooke P, was that ‘to resign control of both programme content and assets is to leave the Treaty partner’s
language unprotected by the television system’.
The other members of the court each gave their own reasons for agreeing with the conclusion of the judge. Richardson J only gave a short judgment
as he agreed with the detailed judgment of McKay J. Hardie Boys J, in giving his own reasons, made it clear that he fully appreciated the gravity of the
problem that faced the Maori language and then added:
‘It should be apparent from the foregoing that my heart would lead me to the same conclusion as the President. I share his grave concern that
policies on the development of Maori television are still in the formative stage; and that the overriding market forces philosophy makes it unlikely,
certainly in current economic circumstances, that when formulated those policies will meet the need and satisfy the obligation I have been
discussing. Yet I cannot escape the conclusion that such considerations as these are not relevant to the court’s task in the particular circumstances
of this case.’
The difference between the approach of Cooke P and that of McKay J was as to the significance which they attached respectively to the
consequences which followed from the changes which had been made already to the broadcasting structures. Cooke P considered that they made it of
vital importance to ensure that assets were not released until some solution was provided which would meet the needs of the Maori language. McKay J
on the other hand, although he accepted that it was questionable whether the Crown now had the capacity to fulfil its treaty obligations to the Maori
language, considered that as the changes had already happened and had been achieved by legislative action, those changes had to be accepted and the
result was that the transfer of the assets would make no difference to the ability of the Crown to protect the language. The majority of the Court of
Appeal also took into account that the assets involved were ‘substitutable’, that is assets which could be replaced by acquiring other assets of the same
nature. They were different from the assets involved in earlier cases where what was being considered was, for example, land which was not
substitutable. The land was itself taonga and could not be replaced by land which was not taonga.
The validity of the arguments of the appellants

Miss Elias naturally strongly supports the reasoning of Cooke P. She argues that the approach of the majority of the Court of Appeal involves
‘reading down’ or qualifying s 9 of the 1986 Act as a result of the changes introduced by 636 the Broadcasting Act 1989 and by their approach to
substitutability; if the majority had not ‘read down’ s 9, they would have concluded on their and the judge’s assessment of the facts that s 9 applied to the
proposed transfer.
Section 9 is not a statutory provision which requires the Crown to establish, as Miss Elias argues, as precedent fact, that the transfer would not be
inconsistent with the principles of the treaty. The decision in Khawaja v Secretary of State for the Home Dept [1983] 1 All ER 765, [1984] AC 74, on
which she relied, was dealing with a different situation where the Crown’s conduct would be unlawful except in a case of an illegal entrant so the Crown
had to establish that their actions related to an illegal entrant. Here, on the other hand, the conduct of the Crown was only not permitted if it fell foul of s
9; accordingly, the onus was on the appellants to show that the transfer was not permitted in the normal manner. But, as is usually the situation, the
outcome of this case does not depend on any question of onus of proof. Equally the Solicitor General and the majority of the Court of Appeal (if this is
what they were saying, which is by no means clear) were mistaken in suggesting that as the question of the manner in which the Crown chooses to fulfil
its obligations under the treaty is a matter of policy the court has no power to intervene unless the court is satisfied that the policy is unreasonable in a
Wednesbury sense (see Associated Provincial Picture Houses Ltd v Wednesbury Corp [1947] 2 All ER 680, [1948] 1 KB 223). The question is a matter
on which the court must form its own judgment on the evidence before the court.
As to ‘reading down’ s 9 and ‘substitutability’, Miss Elias is correct in contending that neither qualify the test laid down by the section. However the
court does not apply the section in a vacuum. As previously pointed out, the court in deciding whether the Crown is acting reasonably takes into account
Preamble
current circumstances. Part of those circumstances is any other relevant legislation. That legislation cannot justify the rejection of the appellants’
contentions if the transfer of assets will impair the ability of the Crown to comply with its obligations. On the other hand the policy which is reflected in
legislation is one which the Crown is perfectly entitled to adopt, subject to complying with its obligations (which are not directly legally enforceable)
under the treaty, and that policy should not be frustrated by the court unless the statutory prohibition applies. The position is exactly the same in respect
of the quality of the assets. If they are readily replaceable this makes it less likely that s 9 will apply since, in the present context, the Crown could, if this
is the case, fulfil its obligations by using replacement assets. The court should however approach these questions with a firm grip on reality. So if, as a
matter of practical politics, once the assets are transferred they are most unlikely to be replaced, the fact that theoretically they could be is of little
significance.
However the critical issue remains whether Cooke P was correct in his single criticism of the judge’s approach. Would the transfer of the assets
impair the ability of the Crown to fulfil its obligations? On this issue their Lordships have already set out their approach as to the proper interpretation of
the statutory provisions. The position is that in practice the Crown can exert considerable control over the state enterprise. Accordingly, the transfer of
the assets will have little, if any, effect on the Crown’s ability to fulfil its obligations to preserve the language.
It is no doubt correct that the Crown would use these powers sparingly since it would impinge on the directors’ responsibility (as is pointed out in the
affidavit of John Chetwin), but the exercise of the powers, in the unlikely event 637 of this being necessary, would be fully justified because of what
would be at stake. In this connection it should be noted that the need for intervention is made less likely since the state enterprise’s statement of corporate
intent already identifies as a subsidiary objective ‘serving the people of New Zealand by the presentation of programmes which reflect New Zealand
identity and culture’ and specifies that social objectives are to—
‘reflect and develop ... Maori language and Maori culture, by producing and broadcasting programmes about New Zealand or New Zealand
interests and operate in a manner which actively reflects the cultural ... diversity of our society.’
Any question which may exist as to the financial commitment of the Crown to carry out its obligation would be unaffected by the transfer of the
assets. However, in relation to the bona fides of the Crown it is to be noted that the Solicitor General, subject to the variations necessary due to the
passage of time, gave their Lordships an assurance that the proposals made by the Cabinet between the two hearings at first instance would still be
adhered to by the Crown if this appeal is dismissed. The judge was entitled to take this assurance into account, as can their Lordships in determining the
outcome of this appeal, in assessing the reasonableness of the Crown’s conduct. The assurance may not be directly enforceable in law and it has to be
considered in the context of Maori fulfilling their responsibilities to take such action as is reasonably available to preserve the language, but this does not
mean that it is devoid of legal significance. The assurance once given creates the expectation, or to use the current parlance the ‘legitimate expectation’,
that the Crown would act in accordance with the assurance, and if, for no satisfactory reason, the Crown should fail to comply with it, the failure could
give rise to a successful challenge on an application for judicial review.
In these circumstances their Lordships can see no grounds for differing from the judge’s very careful assessment of the facts and issues.
Accordingly, the appeal should be dismissed and their Lordships will humbly so advise Her Majesty.
There remains the question of costs. Although the appeal is to be dismissed, the appellants were not bringing the proceedings out any motive of
personal gain. They were pursuing the proceedings in the interest of taonga which is an important part of the heritage of the New Zealand. Because of
the different views expressed by the members of the Court of Appeal on the issues raised on this appeal, an undesirable lack of clarity inevitably existed
in an important area of the law which it was important that their Lordships examine and in the circumstances their Lordships regard it as just that there
should be no order as to the costs on this appeal.
Appeal dismissed. No order as to costs.
638
[1994] 1 All ER 639
R v Cheema
CRIMINAL; Criminal Evidence

LORD TAYLOR OF GOSFORTH CJ, HIDDEN AND BUCKLEY JJ
12, 13 JULY, 4 OCTOBER 1993
Criminal evidence – Corroboration – Evidence against co-defendant – Direction to jury – Whether full corroboration warning required.
Criminal evidence – Corroboration – Accomplice – Whether one accomplice can corroborate another accomplice.
The appellant was alleged to have entered into a plot with her son, K, and two other men, M and N, to murder her husband for his wealth. The husband
was shot by N at his shop but survived. However, he was later murdered by N on the day he was discharged from hospital. M and N were tried
separately from and before the appellant and K and either pleaded guilty to or were convicted of both attempted murder and murder. At the trial of the
appellant and K the prosecution case depended primarily on M’s evidence, while the case against the appellant also depended on the evidence which K
gave in his own defence. The appellant was convicted of both attempted murder and murder. She appealed on the grounds that in respect of K’s evidence
the judge ought to have given the jury the full corroboration warning appropriate to the evidence of an accomplice and that since K was in effect an
Preamble
accomplice he could not corroborate the evidence of his accomplice M.

(1) There was no rule of law which required a full corroboration direction in respect of a co-defendant’s evidence. All that was required when one
defendant implicated another in evidence was simply a warning to the jury of what might very often be obvious, namely that the defendant witness may
have had a purpose of his own to serve. The judge had given just such a direction when he warned the jury that K might have had an axe to grind in
giving the evidence he did against the appellant in his own defence (see p 647 j to p 648 a c j to p 649 a and p 650 j, post); R v Barnes, R v Richards
[1940] 2 All ER 229, R v Knowlden (1981) 77 Cr App R 94, R v Loveridge (1982) 76 Cr App R 125 and R v Mills [1983] Crim LR 210 followed; R v
Prater [1960] 1 All ER 298, R v Stannard (1962) [1964] 1 All ER 34 and R v Russell (1968) 52 Cr App R 147 considered; R v Barrow (1934) 24 Cr App
R 141, R v Garland (note) (1943) 29 Cr App R 46 and R v Rudd (1948) 32 Cr App R 138 doubted.
(2) Furthermore, there was no rule of law that one accomplice could not corroborate another. On the facts, K was not to be treated as an accomplice,
nor was he to be treated as a witness requiring the judge to give a full corroboration direction because it was not a case of one accomplice called by the
prosecution being treated as capable of corroborating another accomplice called by the prosecution. Instead, K and M had had no motive or opportunity
to concoct a story together and had different interests to serve. Accordingly, the judge had been entitled to direct the jury that K’s evidence was capable
of corroborating M’s evidence (see p 649 f h j and p 650 d j, post); DPP v Kilbourne [1973] 1 All ER 440 applied.
639
Notes
For corroboration and accomplices’ evidence, see 11(2) Halsbury’s Laws (4th edn reissue) paras 1140–1143, and for cases on the subject, see 15(2)
Digest (2nd reissue) 124–131, 235–237, 19298–19362, 20291–20312.

Davies v DPP [1954] 1 All ER 507, [1954] AC 378, [1954] 2 WLR 343, HL.
DPP v Kilbourne [1973] 1 All ER 440, [1973] AC 729, [1973] 2 WLR 254, HL.
R v Allen and Edwards [1973] Qd R 395, Qld CCA.
R v Bagley [1980] Crim LR 572, CA
R v Barnes, R v Richards [1940] 2 All ER 229, 27 Cr App R 154, CCA.
R v Barrow (1934) 24 Cr App R 141, CCA.
R v Baskerville [1916] 2 KB 658, [1916–17] All ER Rep 38, CCA.
R v Garland (note) (1941) 29 Cr App R 46, CCA.
R v Knowlden (1981) 77 Cr App R 94, CA.
R v Loveridge (1982) 76 Cr App R 125, CA.
R v Lucas [1981] 2 All ER 1008, [1981] QB 720, [1981] 3 WLR 120, CA.
R v Mills [1993] Crim LR 210, CA.
R v Prater [1960] 1 All ER 298, [1960] 2 QB 464, [1960] 2 WLR 343, CCA.
R v Rudd (1948) 32 Cr App R 138, CCA.
R v Russell (1968) 52 Cr App R 147, CA.
R v Stannard (1962) [1964] 1 All ER 34, [1965] 2 QB 1, [1964] 2 WLR 461, CCA.
R v Te Whiu [1965] NZLR 420, NZ CA.
R v Teitler [1959] VR 321, Vict SC Full Ct.
R v Tooma [1971] Qd R 212, Qld CCA.
R v Wade (1990) Independent, 25 May, CA.
Cases also cited or referred to in skeleton argument

McCourt v HM Advocate 1977 SLT 22, HC of Just.
McGuinness v HM Advocate 1971 SLT 7, HC of Just.
McNee v Kay [1953] VLR 520, Vict SC.
R v Bassett [1952] VLR 535, Vict SC.
R v Blackman (5 February 1982, unreported), CA.
R v Dean (1924) 18 Cr App R 21, CCA.
R v Dunbar and Logan (1982) 68 CCC (2d) 13, Ont CA.
R v McDougald (1953) 107 CCC 279, Man CA.
R v Mainwaring, R v Madders (1981) 74 Cr App R 99, CA.
R v Martin (1910) 5 Cr App R 4, CCA.
R v Meredith, R v Bluston, R v Bramley (1943) 29 Cr App R 40, CCA.
R v O’Boyle (1990) 92 Cr App R 202, CA.
R v Pavalini [1942] 1 WWR 74, BC CA.
R v Rigney (1975) 12 SASR 30, SA SC Full Ct.
R v Spencer, R v Smails [1985] 1 All ER 673, [1985] QB 771, CA.
Slowey v HM Advocate 1965 SLT 309, HC of Just.
Wallace v HM Advocate 1952 JC 78, HC of Just.
Appeal against conviction

Julie Mary Ann Francis Cheema appealed, with the leave of the single judge, against her conviction on 24 July 1991 in the Central Criminal Court before
Alliott J and a jury of attempted murder (count 2) and murder (count 3). On 25 640 July 1991 she was sentenced to 15 years’ imprisonment on count
2 and to life imprisonment on count 3. The facts are set out in the judgment of the court.
Robin Simpson QC and Fergus Mitchell (assigned by the Registrar of Criminal Appeals) for the appellant.
Victor Temple QC (instructed by the Crown Prosecution Service) for the Crown.
Preamble
At the conclusion of the argument the court announced that the appeal would be dismissed for reasons to be given later.
LORD TAYLOR OF GOSFORTH CJ. On 13 July 1993 we dismissed this appeal. We now give our reasons.
On 24 July 1991, in the Central Criminal Court, the appellant was convicted of two offences and on 25 July 1991 was sentenced as follows: on count
2, for attempted murder, 15 years’ imprisonment; on count 3, for murder, life imprisonment. She appealed against conviction by leave of the single judge.
The victim of these offences was the appellant’s husband, Mohinder Singh Cheema, aged 57 at the time of his death on 3 October 1990. He was a
successful businessman, reputed to be very wealthy and with several properties in England and India. These included premises at 84 Cromwell Road,
Hounslow, consisting of an off-licence shop with attached accommodation where he and his family lived.
The appellant, aged 43 at the date of the trial, was the deceased’s second wife, having married him in 1985 after a relationship with him lasting some
15 years. The appellant bore the deceased two sons. The elder did not feature in the case, but the younger, Kismet, was aged 18 at the time of his joint
trial with the appellant.
The deceased has lost contact with his first family, save for the eldest son, John, from whom he had been estranged, but whose relationship with the
deceased improved in the months prior to the deceased’s death following the birth of John’s first child. The deceased’s marriage to the appellant had
become loveless and unhappy.
In brief, the prosecution case was that the appellant wanted to be rid of the deceased and involved others in a plot to kill him. There was an abortive
expedition to do so on 16 August 1990, followed by the attempt on 19 August 1990 when the deceased was shot in the back at close range in the shop at
Cromwell Road by an intruder. The deceased survived, spending six weeks in hospital. The appellant and Kismet suggested to the police that young
Asian gangsters who had threatened the family might be responsible.
On 3 October 1990 the deceased was discharged from hospital and on the same day was again shot by an intruder at the rear of the living quarters at
Cromwell Road. He was killed instantly.
The indictment charged four defendants with involvement in the deceased’s death. They were the appellant and Kismet, together with two young
men, Neil Marklew, aged 19, a friend of Kismet, and Robert Naughton, aged 20, a friend of Marklew. Marklew and Naughton were charged on counts 2
and 3, Naughton as the gunman on both occasions and Marklew as planner and recruiter of Naughton, ferrying him to and from the scene on each
occasion. Naughton and Marklew were tried separately from and before the appellant and 641 Kismet. Naughton pleaded guilty to both counts.
Marklew pleaded guilty to count 2. He sought to rely on diminished responsibility on count 3, but was convicted of murder.
In the subsequent joint trial of the appellant and Kismet, the appellant faced counts 2 and 3. It was alleged the idea to kill the deceased was hers
because she had come to hate him and also wanted to inherit his wealth before his improving relationship with his son John might lead him to provide for
the latter in his will. Kismet faced count 1 (conspiracy to murder) and count 4 (doing acts tending to and intended to pervert the course of public justice).
As to count 1, it was contended he was party to the agreement to kill the deceased and was willing to assist, although his active involvement was limited
to driving Marklew on the abortive expedition to shoot the deceased on 16 August, abandoned due to loss of nerve.
On count 4 it was contended that Kismet helped to hide the murder weapon and made a false witness statement to the police after the killing on 3
October. He pleaded not guilty to both counts, but changed his plea on count 4 to guilty during the course of the trial. He was convicted on count 1 and
was sentenced to a total of three years’ detention.
The prosecution case depended primarily on Marklew’s evidence supported, as against the appellant, by evidence which Kismet gave in his own
defence. Marklew had known Kismet for some years and had visited 84 Cromwell Road. He said he did not like the deceased, and the appellant made it
clear to him that she did not like the deceased either. Indeed, she said she hated him and on occasions that she wanted to kill him but did not know how.
Marklew said that in the summer of 1990, he ‘offered jokingly to bump [the deceased] off’, and the appellant took him at his word, asking how much it
would cost. Marklew told her the transfer of the shop to him would suffice, and suggested shooting the deceased. According to Marklew, Kismet, who
also expressed dislike of the deceased, was present during the discussion. Marklew said he could get a gun for £1000, and the appellant paid him that sum
without demur. In fact, Marklew obtained a sawn-off shotgun for only £90 and retained the balance for himself. He described the abortive expedition of
16 August, saying it was agreed with both the appellant and Kismet that the deceased was to be shot in the shop at 84 Cromwell Road, with Marklew as
the gunman and Kismet as the get-away driver. It was also agreed the shooting would be blamed on the Asian gang. However, nearing the shop they got
cold feet and drove away. They dismantled the gun and returned it to the appellant who called them cowards.
On 19 August Marklew approached Naughton and asked him to shoot the deceased. The price was to be a flat owned by the deceased which the
appellant was willing to provide for Naughton and his girlfriend. Naughton agreed and the shooting was arranged for that very evening at 84 Cromwell
Road. Marklew drove Naughton to the scene. Naughton shot the deceased at the shop. Marklew drove Naughton home, where the gun was left. He then
returned to the shop and drove Kismet to the hospital where the appellant congratulated him, believing the deceased to be close to death.
When it became clear the deceased would survive his injuries, a further plan was discussed, according to Marklew, by all four of those charged. It
was decided the deceased should be shot again as he emerged from hospital. Meanwhile, a sexual relationship developed between the appellant and
Marklew. On the night of 2 October, Naughton stayed at the appellant’s home. Next day, the appellant gave Marklew a balaclava, one of two she had
purchased 642 a week earlier. The gun was assembled at Cromwell Road and was oiled by Naughton with lubricant from a can later found at the
house by the police. It had been arranged that John Cheema would collect the deceased from hospital and drive him home. The appellant telephoned
John’s wife to discover the make, colour and registration number of John’s car. She wrote these details on a piece of paper which, according to Marklew,
she gave to him to pass to Naughton so that the latter would know where to lie in wait.
In the event, Naughton and Marklew missed the deceased’s emergence from the hospital. Marklew telephoned the appellant and it was arranged that
he and Naughton would come to Cromwell Road and consider an alternative plan en route. They drove to a public house, and Naughton went on foot to
the shop to shoot the deceased. Meanwhile, Marklew picked up Kismet and took him to the public house. Naughton entered 84 Cromwell Road from the
rear, shot the deceased dead in the back part of the premises, returned to the public house and all three men, Naughton, Marklew and Kismet then drove to
Naughton’s address where the gun was dismantled and the note containing particulars of John’s car was burnt.
Marklew was arrested the same day. Initially, he made no mention of the appellant, but in subsequent interviews, he admitted his own part in the
shootings and implicated both the appellant and Kismet. The police searched Naughton’s address and found a balaclava and the remains of the burnt note
given, according to Marklew, by the appellant to him.
The prosecution also relied on evidence about the appellant’s behaviour at the shop after the deceased returned from hospital with his son John and
his father. There was evidence that the appellant unusually left the backyard door open, that she contrived that the deceased should unusually go into the
back part of the premises, after which she closed the doors between the shop and the back rooms which was also unusual. She herself went next door to
make a telephone call, unusually, on the pay phone there. She claimed the phone call was to a Mrs Bianchi, who, however, denied receiving one. The
Preamble
Crown suggested she was telephoning Marklew on his mobile telephone, which she had bought him as a present, and there was evidence of an unusual
number of telephone calls made on that phone on the day of the murder. Finally, a dog which would normally have barked at the rear of the shop was
silent when Naughton arrived, and it was suggested the appellant had confined it elsewhere.
When arrested, the appellant denied any complicity in her husband’s death and also denied her affair with Marklew. In evidence, she admitted the
sexual relationship, but again denied her guilt. She said she had bought the balaclavas for Kismet to use on college field trips. She admitted writing the
particulars of John’s car on a piece of paper, but asserted she gave it to Kismet not to Marklew and that the purpose was innocent.
As against the appellant, the prosecution also relied on the evidence given by Kismet in his own defence. He admitted he knew the appellant and
Marklew had agreed to kill the deceased, but said he never agreed it should happen. He admitted driving Marklew on 16 August but said he had no
intention of going through with the plan and that was the reason it was aborted, not because of loss of nerve by Marklew. He had nothing to do with the
first shooting, or any plans between then and 3 October. He had not gone to the police because it was clear his mother was involved. He had no
knowledge of any field trips at his college, nor had he any need for a balaclava. He denied the appellant gave him the note with details of John’s car.
Finally, in cross-examination, he maintained 643 the appellant told him that the deceased was going to cut them out of his will in favour of John and
that she was going to have him killed.
Two submissions were made to the learned judge on behalf of the appellant, and both were rejected. Before the start of the trial, there was an
application that the appellant should be tried separately from Kismet. The second submission was that the charge of attempted murder on count 2 was not
the subject of a charge before the justices prior to committal, and it was further contended that the committal documents did not disclose a prima facie
case on that charge. Therefore, the count was bad.
Mr Simpson QC raised the same points on this appeal, contending that the learned judge’s rulings were wrong. His contention that the appellant and
Kismet ought to have been tried separately was based upon two arguments. First, that the two counts against Kismet were not so closely related in time to
those against the appellant as to require a joint trial in the interests of justice. Kismet was charged with conspiracy in relation to the abortive expedition
of 16 August, and with seeking to pervert the course of justice on and after 3 October. The specific counts against the appellant related to the two
shootings on 19 August and 3 October. Thus, the time span was fairly close. However, time is not the only factor to be considered on this issue. It was
perfectly clear that from before 16 August, through until 3 October, there was an ongoing project to murder the deceased. The gap between the abortive
expedition and the first shooting was only three days. The gap between the first and the second shooting was dictated simply by the length of time the
deceased was detained in hospital. Clearly, the events of 16 August, 19 August and 3 October were closely interrelated and the offences charged formed
a series all pursuant to the same plot to kill the deceased. In our judgment, there was therefore no merit in the argument based upon the time factor.
Secondly, Mr Simpson argued that the effect of a joint trial would be that evidence given by Kismet (if any) would, on the state of the authorities to
be reviewed later in this judgment, enable anything he said against the appellant to go to the jury without a full corroboration warning and indeed to
amount in itself to corroboration of Marklew’s evidence. This, it was contended, would be unfair to the appellant. How Kismet’s evidence should have
been left to the jury by the trial judge, is the subject of the main grounds of appeal to be considered later. However, we do not consider that this aspect of
the case could justify ordering separate trials where the alleged motivation and interaction of wife and son in the killing of the deceased were so close and
interdependent. Accordingly, we cannot fault the exercise by the learned judge of his discretion to order a joint trial.
As to the count of attempted murder, it is true that no such charge was preferred before the committing justices. However, it is common ground that
there was evidence justifying committal on the charge of murder. The nature of the case on that charge was that the deceased was killed at the behest, in
the interests and with the complicity, of the appellant. That being so, there was a strong inference that the earlier attempt was similarly motivated. The
learned judge, in his ruling, put the matter very clearly:
‘Once one considers the committal upon admissible evidence upon the count of murder and once one considers that the murder was itself a
repeat of an attempt upon the life of the same man, by the same gunman, using the same weapon, driven to the venue by the same driver, it seems to
me—I hope I am not being simplistic—there is an inference that the jury would 644 be perfectly entitled to take, upon the separate occasions
supporting the committal that Mrs Cheema was also guilty of attempted murder.’
We cannot fault that approach, and this ground of appeal also fails.
We turn to the two grounds of appeal which were the subject of fullest argument. Both concern the effect of Kismet, as the appellant’s co-defendant,
giving evidence implicating her. Mr Simpson argued (1) since the Crown contended Kismet was jointly involved with the appellant in plotting the killing,
the learned judge ought to have given the jury the full corroboration warning in respect of Kismet’s evidence appropriate to the evidence of an accomplice
and (2) that since Kismet was in effect an accomplice, he could not corroborate the evidence of the accomplice Marklew.
In support of his first proposition, Mr Simpson referred the court to a long line of authorities bearing on whether a full corroboration direction needs
to be given in respect of a defendant who implicates a co-defendant. In brief, up to 1948 there were in English law conflicting authorities, some stating
that such a warning is necessary, others to the contrary. However, in recent times, the authorities have been unanimous in holding that a full
corroboration warning is not necessary.
Mr Simpson relied strongly on R v Barrow (1934) 24 Cr App R 141. There, a co-defendant, West, gave evidence implicating the appellant Barrow.
Avory J said (at 144):
‘Further, it was admitted by Mr Du Cann that no warning was given to the jury against accepting the evidence of the accomplice West without
corroboration … A warning was necessary and, in its absence, we cannot hold that the jury were properly directed.’
It is to be noted, however, that the Crown conceded a corroboration direction was requisite; so the point was not argued.
Mr Simpson further relied upon the decision of this court in R v Garland (note) (1941) 29 Cr App R 46. There, Humphreys J said:
‘The co-defendant of the appellant had given evidence before the jury on her own behalf, and what she said on that occasion was evidence for
all purposes in the case, and in that sense evidence against the appellant … It is said that the evidence given by the co-defendant of the appellant
was very detrimental to him, as no doubt it was. It is said that the learned Recorder [of London] omitted to remind the jury that in the position
which she occupied in the case she ought to be treated as an accomplice, because her statement admitted to a great extent the case against her, and
went on to state that she did what she did at the instance of the appellant. There is no doubt of the correctness of that proposition of law, and this
Court will do nothing to weaken the force of those judgments in which it has been repeatedly said by this Court that it is most desirable that a Judge
dealing with such a case, where it involves the evidence of an accomplice, should remind the jury of the danger of convicting upon the evidence of
an accomplice unless corroborated.’
Those are very strong words and they were repeated by Humphreys J in R v Rudd (1948) 32 Cr App R 138 at 142.
However, between R v Barrow, decided in 1934, and R v Garland, decided in 1941, this court gave a decision to the contrary effect in R v Barnes, R
Preamble
v Richards 645 [1940] 2 All ER 229, 27 Cr App R 154. The headnote of that case reads in part (27 Cr App R 154):
‘Where prisoners are tried jointly, and one of them gives evidence on his own behalf incriminating a co-prisoner, the prisoner who has given the
incriminating evidence is not placed in the position of an accomplice, nor does the rule of practice with regard to the corroboration of an accomplice
apply to such a case. The rule applies only to witnesses called for the prosecution.’
Two women who were co-defendants of the appellants gave evidence implicating them. Lord Hewart CJ said ([1940] 2 All ER 229 at 232):
‘As was stated in R. v. Baskerville ([1916] 2 KB 658 at 665, [1916–17] All ER Rep 38 at 42): “The rule of practice as to corroborative evidence
has arisen in consequence of the danger of convicting a person upon the unconfirmed testimony of one who is admittedly a criminal. What is
required is some additional evidence rendering it probable that the story of the accomplice is true and that it is reasonably safe to act upon it.” In no
respect is it true to say that the evidence which is referred to in this part of the notice of appeal, was evidence called by the prosecution nor was the
jury being asked by the prosecution to act upon the evidence given by either of those two women. One looks in vain for any case in which it has
been decided that, where prisoners are tried together on the charge of being jointly concerned in the commission of a crime, and they elect to give
evidence, and in so doing one of them happens incidentally to give a piece of evidence which tells against another of the persons accused, it is
requisite that the warning with regard to the evidence of accomplices should be given.’
It is evidence from that passage that R v Barrow was not cited to the court. Likewise, it does not appear that R v Barnes, R v Richards was cited to the
court either in R v Garland or in R v Rudd.
Davies v DPP [1954] 1 All ER 507, [1954] AC 378 was a leading case dealing with the scope of the term ‘accomplice’. However, although R v
Garland and R v Rudd were cited by counsel, Lord Simonds LC, who delivered the only speech, said expressly that the House was concerned only with
witnesses for the Crown and not with the co-defendants (see [1954] 1 All ER 507 at 512, [1954] AC 378 at 398).
In R v Prater [1960] 1 All ER 298 at 299, [1960] 2 QB 464 at 465 the conflicting authorities already cited were considered and were said ‘by no
means [to] point in the same direction’. Edmund Davies J giving the judgment of the court said ([1960] 1 All ER 298 at 299, [1960] 2 QB 464 at 466):
‘For the purposes of the present appeal, this court is content to accept that, whether the label to be attached to Welham in this case was strictly
that of an accomplice or not, in practice it is desirable that a warning should be given that the witness, whether he comes from the dock, as in this
case, or whether he be a Crown witness, may be a witness with some purpose of his own to serve.’
Thus, the court declined to decide, as a matter of law, which line of authority was correct and merely stated what was desirable practice.
This was underlined in R v Stannard (1962) [1964] 1 All ER 34 at 40, [1965] 2 QB 1 at 14, where Winn J, giving the judgment of the court, said:
646
‘The rule, if it be a rule, enunciated in R. v. Prater ([1960] 1 All ER 298, [1960] 2 QB 464), is no more than a rule of practice. I say
deliberately “if it be a rule” because, reading the passage of the judgment [of Edmund Davies J] as I have read it, it really seems to amount to no
more than an expression of what is desirable and what, it is to be hoped, will more usually than not be adopted, at any rate where it seems to be
appropriate to the learned judge. It certainly is not a rule of law, and this court does not think that it can be said here that there was any departure in
this respect from proper procedure of trial …’
Similarly, in R v Russell (1968) 52 Cr App R 147 at 149–150 Diplock LJ, giving the judgment of the court, said:
‘… it is said that there is a rule of law or a rule of practice that the jury must be warned in terms of the need for corroborative evidence. In the
view of this Court, where a co-defendant gives evidence there is no rule of law to that effect. The correct approach is set out in the case of
PRATER ([1960] 1 All ER 298 at 300, [1960] 2 QB 464 at 466) …’
The rule of practice that some warning, but not necessarily a full corroboration direction, is required where a witness, eg a co-defendant, may have a
purpose of his own to serve was reaffirmed in R v Knowlden (1981) 77 Cr App R 94. Having cited R v Prater and R v Garland, Watkins LJ said (at
100–101):
‘In exercising his discretion, [the judge] is at the least to be expected to give the customary clear warning to a jury where the defendants have
given damaging evidence against one another to examine the evidence of each with care because each has or may have an interest of his own to
serve. Whether he should also advise the jury to look for corroboration of the evidence of a co-defendant and specify what evidence may or may
not be corroboration will be decided by him, having regard to the nature and severity of the attack made by one co-defendant on another. The need
for this advice should rarely arise in our experience since the simple customary warning will suffice to ensure that the jury regards the evidence in
question with proper and adequate caution. The content of whatever kind of warning or advice is given is best formulated by the trial judge and,
although invited to, we decline to introduce through this judgment a formula which trial judges should use no matter what circumstances confront
them.’
In R v Loveridge (1982) 76 Cr App R 125 at 127 Mr Simpson’s proposition was firmly rejected in the following terms by Ackner LJ:
‘Very shortly before the learned judge summed up in the present case, this Court, in BAGLEY ([1980] Crim LR 572) made it abundantly clear
that when a defendant called in his own defence gives evidence against a co-defendant the full warning which is appropriate in respect of a witness
for the prosecution who may be an accomplice need not be given.’
Finally and most recently, in R v Mills [1993] Crim LR 210 this court again emphasised the need to spell out that evidence of a co-defendant should
be approached with the greatest care when it implicated another defendant, but the court did not suggest that a full corroboration direction was required.
The effect of this considerable body of case law is to show that in recent years time and again the court has reiterated that although a warning in
suitable 647 terms as to the danger of a co-defendant having an axe to grind is desirable, there is no rule of law or practice requiring a full
corroboration direction. Mr Simpson contends that the old cases of R v Barrow, R v Garland and R v Rudd have never been expressly overruled, and that
this court should follow them. He referred to a number of Commonwealth authorities. The Canadian cases were against him, but he relied on three
Preamble
Australian cases, R v Teitler [1959] VLR 321 at 341, R v Tooma [1971] Qd R 212 at 233 and R v Allen and Edwards [1973] Qd R 395 at 396 and also on
a New Zealand case, R v Te Whiu [1965] NZLR 420 at 424.
Although the Scottish cases proceed on a different legal basis as to what is an accomplice (or socius) and as to the nature of corroboration, they
support the view that a full corroboration direction in respect of a co-defendant should not be given.
In our judgment, English law does not recognise a rule requiring a full corroboration direction in respect of a co-defendant’s evidence. Despite the
existence of the early cases upon which Mr Simpson placed reliance, we were not persuaded that they represent the present law. The issue does not seem
to have been fully argued in those cases and although they have not been expressly overruled, the weight and frequency of more recent authority to the
contrary effect is now overwhelming. It may, in terms of pure logic, seem incongruous that a witness should be treated as an accomplice if called for the
Crown, but not be so treated if he gives like evidence as a co-defendant. However, there are a number of practical grounds for maintaining the distinction
so long as the present rules concerning corroboration are maintained.
First, one must look at the basic rationale for requiring an accomplice’s evidence to be corroborated. It is summarised in the passage from R v
Baskerville [1916] 2 KB 658 at 665, [1916–17] All ER Rep 38 at 42 cited by Lord Hewart CJ, in R v Barnes, R v Richards [1940] 2 All ER 229 quoted
above. The burden of proof being upon the prosecution, if they call a witness of doubtful reliability, it is necessary that the jury should be warned of the
danger of convicting upon that witness’s evidence if it is uncorroborated. The same consideration does not apply in relation to the evidence of a
co-defendant.
Secondly, it would be unfair to defendant A, whose evidence implicates defendant B, for the jury to be given a full corroboration direction. It would
devalue A’s evidence on his own behalf to tell the jury that it was dangerous to rely upon it unless it is corroborated. This, of course, does not apply to a
witness for the Crown said to require corroboration since that witness is not in peril in the particular proceedings. Mr Simpson argues that the direction
needs to be given only in respect of such evidence from A as implicates B and not in relation to the whole of A’s evidence. However, often the whole
thrust of A’s defence will be to cast blame on B. The milder form of warning to the jury, to have in mind that A may have an axe to grind, steers a middle
course of fairness as between A and B.
Thirdly, the complication involved in requiring a judge to give full corroboration directions in respect of co-defendants implicating each other, would
be likely to confuse and bewilder a jury. Especially if there are several defendants, the difficulty of giving the full warning in relation to each, and
identifying which pieces of evidence are capable of corroborating each of them, would create a minefield of difficulties.
Accordingly, in our judgment, what is required when one defendant implicates another in evidence is simply to warn the jury of what may very often
be obvious—namely that the defendant witness may have a purpose of his 648 own to serve. That is precisely what the learned judge did in the
present case. He said:
‘Let me turn to co-defendant’s evidence. Over the years one has one’s shorthand ways of referring to it and “axes to grind” is the way I always
think of this one. If you decide that the evidence of one defendant has damaged the other defendant’s case, you must examine that evidence with
particular care for the witness in saying what he or she did, may have been paying more regard to his or her own interests in protecting himself or
herself, than to speaking the truth. Do bear that in mind when deciding whether or not you feel able to accept what one defendant has said about
another. I shall give you some examples, one for each, as it were. Was Kismet seeking to reduce his own culpability when saying his mother and
Marklew hatched the original plot or was he reluctantly telling the truth? Was Mrs Cheema desperate to account innocently for (the note of the car
particulars) when she said she slipped it into Kismet’s pocket or was she telling the truth?’
We turn to Mr Simpson’s second proposition. Given, as we have ruled, that there was no obligation to treat Kismet as an accomplice and give a full
corroboration direction in regard to his evidence, was it nevertheless correct to direct the jury that he was capable of corroborating Marklew? The learned
judge said he was. It is submitted that one accomplice cannot corroborate another. Accordingly, pursuing his argument as to Kismet’s status, Mr
Simpson argued that Kismet could not corroborate Marklew.
However, we have held that, in this highly technical area of the law, Kismet was not to be treated as an accomplice, nor as a witness requiring the
judge to give a full corroboration direction. This was not, therefore, a case of one accomplice called for the prosecution being treated as capable of
corroborating another accomplice called for the prosecution. Moreover, even if Kismet should have been regarded as akin to an accomplice, there is no
absolute rule that one accomplice cannot corroborate another. That was made clear in the speech of Lord Hailsham LC in DPP v Kilbourne [1973] 1 All
ER 440 at 453, [1973] AC 729 at 747–748, where he said:
‘The reason why accomplice evidence requires corroboration is the danger of a concocted story designed to throw blame on the accused. The
danger is not less, but may be greater, in the case of fellow accomplices. Their joint evidence is not “independent” in the sense required by R v
Baskerville [1916] 2 KB 658 at 667, [1916–17] All ER Rep 38 at 43, and a jury must be warned not to treat it as corroboration. But this illustrates
the danger of mistaking the shadow for the substance.’
Here, there was no question of Kismet and Marklew putting their heads together. Marklew gave evidence for the Crown against both the appellant
and Kismet; the latter, so far from having any motive or opportunity to concoct to a story with Marklew, was at loggerheads with him. They had different
interests to serve.
A similar situation arose in R v Wade (1990) Independent, 25 May. There, an accomplice, B, gave evidence for the prosecution against the appellant.
A co-accused, O, gave evidence on his own behalf which also implicated the appellant. After citing passages from DPP v Kilbourne, Glidewell LJ went
on as follows (and we read from the transcript):
649
‘Was the judge right in ruling as he did that [O’s] evidence, under those circumstances, could—if the jury accepted it despite the warning he
gave them—be, in law, corroboration of the evidence of [B]? In our opinion the judge was correct. He was entitled so to direct the jury. He was so
entitled first because, as I have already said, [O] did not give evidence for the prosecution. The evidence that he gave that was relevant on the issue
with which we have been dealing was given during the course of his testimony on his own behalf. Secondly, for the reason that while it is
undoubtedly the fact that both [B] and [O] may well have had an interest of their own to serve in the evidence they gave, it was by no means the
same interest … It is a risk of two accomplices getting their heads together and telling false story which is the foundation of the rule that, in certain
circumstances, the evidence of an accomplice cannot corroborate the evidence of another accomplice.’
We can see no basis for distinguishing between R v Wade and the present case. Accordingly, in our judgment, the learned judge was entitled, on the
present state of the law, to direct the jury that the evidence of Kismet was capable of corroborating the evidence of Marklew.
Before leaving the two grounds of appeal based upon the judge’s directions, we should comment on the present rules regarding corroboration. This
Preamble
case illustrates, par excellence, the highly technical and some may think anomalous rules which have by accretion come to govern this area of the law.
We note that the Law Commission, in Corroboration of Evidence in Criminal Trials (working paper no 115 (1990)), recommend the abolition of the
present rule in favour of a simpler form of judicial warning. The report of the Royal Commission on Criminal Justice (Cm 2263) (1993) echoes that
recommendation, and we would add our support for a review of this area of the law which has become arcane, technical and difficult to convey to juries.
The one remaining ground of appeal concerns the learned judge’s direction to the jury about lies by the appellant. He indicated that lies could
amount to corroboration, and proceeded to give the jury a direction based upon R v Lucas [1981] 2 All ER 1008, [1981] QB 720. However, although he
dealt impeccably with the first three elements necessary to establish a lie as possible corroboration, he omitted the fourth—that the statement must clearly
be shown to be a lie by evidence other than that of the person who has to be corroborated. The learned judge gave as examples of such lies: (a) the
slipping of the note into Kismet’s pocket on 3 October; and (b) the reason for purchasing the balaclavas. The evidence which required corroboration in
regard to these matters was that of Marklew who said the note was given to him and that he was given a balaclava as disguise for the murder. The
evidence capable of corroborating Marklew was that of Kismet, who said the note was not (as the appellant claimed) put into his pocket and he had no
need of a balaclava for any field expedition. A summing up should be tailored to the needs of the particular case. Here, in our judgment, it was
unnecessary for the learned judge to emphasise that the corroboration had to come from a source different from the witness to be corroborated.
Accordingly, this ground also fails.
For the reasons we have endeavoured to give, this appeal was dismissed.
Appeal dismissed.
12 October. The court refused leave to appeal to the House of Lords but certified, under 650 s 33(2) of the Criminal Appeal Act 1968, that the
following points of law of general public importance were involved in the decision: (i) where a co-defendant/accomplice gives evidence which
incriminates another defendant, ought the trial judge to give a full accomplice direction in respect of such evidence? (ii) if the answer to the above
question is No and a ‘Prater type’ direction is sufficient, ought the trial judge to direct the jury that such evidence cannot corroborate the incriminating
evidence of an accomplice called by the Crown?
16 December. The Appeal Committee of the House of Lords (Lord Keith of Kinkel, Lord Browne-Wilkinson and Lord Woolf) refused leave to appeal.

[1994] 1 All ER 651
R v Higher Education Funding Council, ex parte Institute of Dental Surgery

ADMINISTRATIVE: EDUCATION

MANN LJ AND SEDLEY J
19, 20, 30 JULY 1993
Judicial review – Duty to give reasons – Higher Education Funding Council – Council assessing quality of institutional research of university and other
institutions to determine research grants – Council deciding to lower applicant institute’s rating for grant purposes – Whether council under duty to give
reasons for decision.
The respondent council, which was established by s 131 of the Education Reform Act 1988, was responsible for administering state funding for the
provision of education and research by universities. By s 131(6) the council had power to make grants for research to universities. The council appointed
a panel of academic specialists to assess and rate universities and other research institutions falling within the council’s remit for the purpose of providing
funding on the basis of the quality of the research undertaken. In 1992 the applicant institute, a university college entirely dedicated to postgraduate
teaching and research in dentistry, was rated 2·0 on a 5-point scale. The applicant institute had previously been rated 3·0 and the lower rating was directly
reflected in a reduction in funding of approximately £270,000. No reasons were given for the reduction in the applicant institute’s rating and in further
correspondence the chief executive of the council refused to disclose the panel’s reasons for the lower rating and refused to consider any appeal against
the assessment unless it was shown that the assessment had been made on the basis of erroneous information. The council’s view was that the assessment
had been made by a peer review procedure whereby the panel had made a collective professional value judgment on the relative merits of the various
institutions and to demand a further review of one institution’s assessment would require the ratings of all the other institutions to be reviewed. The
applicant institute applied for judicial review of the council’s decision to assess its rating as 2·0, contending, inter alia, that the council had acted unfairly
in failing to give 651 reasons for its decision and that in the absence of reasons its decision was irrational.
Held – There was no duty on administrative bodies to give reasons for their decisions either on general grounds of fairness or simply to enable any
grounds for judicial review of a decision to be exposed. Instead, as the law stood, whether such a duty existed depended on where, in the particular
circumstances, the decision fell in the spectrum between decisions which obviously demanded reasons, for example because an interest so highly regarded
by the law (such as personal liberty) was involved, and decisions where reasons were entirely inapposite. In some cases the nature of the process itself
required reasons to be given, while in other cases there was something peculiar to the decision which required reasons to be given. An apparently
aberrant decision might require reasons so that it could be seen whether it was challengeable. However, the fact that reasons had been withheld without
apparent justification was not in itself a reason for imposing a duty to give reasons, since a prima facie duty had first to be established. Moreover, if a
decision was challengeable only by reference to the reasons given for it, such as the pure exercise of academic judgment, fairness alone would not require
reasons to be given. Although the respondent council’s refusal to give reasons for the decision to lower the applicant institute’s rating was not well
grounded, neither intrinsically nor on the evidence was there a sufficient basis on which the court could hold the lower rating to be so aberrant as in itself
Preamble
to call for an explanation; the court lacked precisely the expertise which would permit it to judge whether the council’s decision was extraordinary or not.
It followed that there was no ground for requiring the council to give reasons and accordingly the application would be dismissed (see p 666 d, p 667 a to
c, p 669 j to p 670 a and p 671 j to p 672 c, post).
R v Civil Service Appeal Board, ex p Cunningham [1991] 4 All ER 310 and Doody v Secretary of State for the Home Dept [1993] 3 All ER 92
considered.
Notes
For the duty of public decision-making bodies to give reasons for decisions, see 1(1) Halsbury’s Laws (4th edn reissue) para 83.
For the Education Reform Act 1988, s 131, see 15 Halsbury’s Statutes (4th edn) (1990 reissue) 574.

Doody v Secretary of State for the Home Dept [1993] 3 All ER 92, [1993] 3 WLR 154, HL.
Lonrho plc v Secretary of State for Trade and Industry [1989] 2 All ER 609, [1989] 1 WLR 525, HL.
R v Civil Service Appeal Board, ex p Cunningham [1991] 4 All ER 310, CA.
R v Poole BC, ex p Beebee [1991] 2 PLR 27.
Ridge v Baldwin [1963] 2 All ER 66, [1964] AC 40, [1963] 2 WLR 935, HL.

Coombs (T C) & Co (a firm) v IRC [1991] 3 All ER 623, [1991] 2 AC 283, HL.
McInnes v Onslow-Fane [1978] 3 All ER 211, [1978] 1 WLR 1520.
Mountview Court Properties Ltd v Devlin (1970) 21 P & CR 689, DC.
Payne v Lord Harris of Greenwich [1981] 2 All ER 842, [1981] 1 WLR 754, CA.
652
R v Immigration Tribunal, ex p Khan (Mahmud) [1983] 2 All ER 420, [1983] QB 790, CA.
R v Lancashire CC, ex p Huddleston [1986] 2 All ER 941, CA.
Shah v Barnet London BC [1983] 1 All ER 226, [1983] 2 AC 309, HL.

The Institute of Dental Surgery applied, with the leave of Brooke J given on 3 March 1993, for judicial review of the decision of the Universities Funding
Council dated 17 December 1992 to assess the Institute at level 2 of research quality for the purpose of determining the grant for research for 1993–94.
The relief sought was (i) a declaration that the Universities Funding Council had erred in law in its assessment of the Institute, (ii) an order of certiorari to
quash the decision and (iii) an order of mandamus to require the Universities Funding Council or its successor body, the Higher Education Funding
Council for England, to reconsider the matter. The facts are set out in the judgment of the court.
David Pannick QC and Javan Herberg (instructed by Church Adams Tatham & Co) for the applicant.
Michael Beloff QC and Cherie Booth (instructed by Beachcroft Stanleys) for the respondent.
Cur adv vult
SEDLEY J. This is an application for judicial review of a decision of the Universities Funding Council (the UFC) as it then was, published on 17
December 1992, to place the Institute of Dental Surgery, the applicant, at level 2·0 in its assessment of the quality of institutional research. The decision
has direct implications for the level of government funding and indirect implications for the level of outside funding which the institute can expect in the
year 1993–94. Brooke J gave leave on 3 March 1993 to apply, with expedition, for a declaration that the respondent council had erred in law in its
assessment of the applicant institute; certiorari to quash the decision, and mandamus to require the successor body, the Higher Education Funding
Council, to reconsider the matter.
The applicant institute is a college of the University of London. Uniquely in the United Kingdom, it is entirely dedicated to postgraduate teaching
and research in dentistry. The UFC was established by s 131 of the Education Reform Act 1988. It was established as a body corporate consisting of
fifteen members appointed by the Secretary of State, six of them being engaged and experienced in higher education. By sub-s (4) the UFC was made
responsible for administering central funds made available to it for the support of eligible activities, these being defined by sub-s (5) as including the
provision of education and the undertaking of research by universities. Subsection (6) gave the UFC power to make grants for the prescribed purposes to
the governing bodies of universities. Subsection (7) provides:
‘In exercising their functions in relation to the provision of financial support for activities eligible for funding under this section the [UFC] shall
have regard to the desirability of not discouraging any university in respect 653 of which grants are made under subsection (6) above from
maintaining or developing its funding from other sources.’
Subsection (9) places an obligation on the governing body of any university to give the UFC such information as it requires for the foregoing
purposes.
By s 235(1) a university is defined so as to include a college, so that the Institute of Dental Surgery acquires independent status for grant purposes.
These functions remain in place, but the body initially exercising them, the UFC, was dissolved on 1 April 1993 by s 63(1) of the Further and Higher
Education Act 1992, and its extant property, rights and liabilities were transferred to one of the two bodies corporate established by s 62(1), the Higher
Education Funding Council (HEFC) for England (the other was a similarly named council for Wales). Sections 65 and 66 of the 1992 Act confer upon
the new bodies functions broadly similar to those of their predecessor. Section 70(1) requires the HEFC to establish a quality assessment committee to
advise it on the performance of an express duty to provide for assessing the quality of education in institutions falling within its remit; but no such
obligation is spelt out on assessing the quality of research. The HEFC thus has a free hand in devising proper means of arriving at its decisions on the
funding of research in higher education. Although, unusually, it appears to have no express power of delegation, Mr David Pannick QC for the applicant
Preamble
has realistically accepted that without devolving its functions to a considerable number of suitably qualified people the council cannot function, and he
has taken no point on the system which was adopted and to which we will come.
In consequence of this change in the identity of the respondent, the decisions impugned and the object of relief sought have been amended without
objection. Also without objection the form of the order of mandamus sought has been expanded by amendment so as to require the respondent body not
only to reconsider the matter but to give reasons for the assessment decision.
The UFC was in its time the successor of the University Grants Committee (UGC) which in 1984 had adopted a policy of selective funding of
research in order to make the best use of available funds. To implement the policy, the UGC in 1986 undertook a research assessment exercise with the
object of rating institutions according to the quality of their research and of awarding grant accordingly. A similar exercise was carried out in 1989 and
again in 1992.
On 6 March 1992 the UFC issued to all interested institutions a circular letter 5/92 announcing the form to be taken by the 1992 research assessment
exercise. It included the following paragraphs:
‘1. Circular Letter 22/91 set out preliminary proposals for the next Research Assessment Exercise and invited comments. This circular
describes how the Exercise will be conducted and invites higher education institutions (HEIs) to make submissions.
2. Nearly 300 replies were received from HEIs, professional and learned bodies, subject associations, individuals and other interested parties.
They have been carefully studied and have been taken into account in defining the arrangements for the 1992 Exercise …
Purpose of the Exercise
5. The purpose of the Exercise is to produce research ratings, which will be used by the new Higher Education Funding Councils (HEFCs) for
England, Scotland and Wales, and in respect of institutions in Northern Ireland, by the Department of Education for Northern Ireland, in the 654
determination of grant for research with effect from 1993/94. The White Paper in May 1991, and the subsequent letters from the Secretary of State
for Education and Science to the Chairmen of the two Funding Councils, expressed the Government’s wish to see increased selectivity in the
allocation of research resources. The assessments made as a result of this Exercise will assist in this.
Conduct of and timetable for the Exercise
6. The 1992 Exercise will follow broadly the same approach as in 1989, with information provided by HEIs as the basis for peer review
assessment of research quality by a number of specialist panels. Institutions are invited to list up to two publications and up to two other forms of
public output for each member of staff whose research is to be taken into account, and these will contribute to the basis for the judgements of
research quality. As in 1989, panels will also have available to them a range of data to take into account in making their judgements. However,
compared to 1989, there are a number of significant changes to the Exercise, which are described below …
Coverage: research to be assessed
8. Account will be taken of the full range of research (applied, strategic and basic) as defined at Annex A. Although research covers a
continuous spectrum between applied and basic, the two extremes are nevertheless distinct. In the case of engineering and science only (units of
assessment 12–16, 20–23, and 27–34 in Annex B), panels will be asked to assign separate ratings for applied and for basic/strategic research. In
these units of assessment institutions are therefore asked explicitly to categorise research output as either applied or basic/strategic although final
judgements will be made by the relevant assessment panels. In this context we are concerned that full recognition should be given to work of direct
relevance to the needs of commerce, industry, and the public and voluntary sectors …
Units of assessment
12. The subject areas to be used as the units of assessment are listed at Annex B …
Assessment panels
14. Each unit of assessment will be assessed by a panel with appropriate specialist membership including non-academic members where
appropriate. Panels, which may assess work within a group of related units of assessment, will operate on a “core plus adjunct” model where the
core panel (typically 5–8 members) is joined by a number (typically 2–3) of specialist advisers to cover specific areas as required. It will be the
core panel which has responsibility for grading submissions. The names of the members of the panels and the specialist advisers will be published.
Assessment ratings
15. The assessments made must reflect as far as possible the specific characteristics of each subject area, but at the same time the ratings applied
must mean the same across all subjects. As for the 1989 Exercise the ratings will therefore be made on a common five-point scale (see paragraph
11) with common definitions of the points, as given in Annex C. However, as it is expected that no research funding will be allocated in respect of
any department which receives the lowest rating of the assessment scale, for funding purposes the ratings are expected to run from 0-4 instead of
1-5. More specific guidance will be given to panels than in 1989, a draft of which 655 is given at Annex D: in addition individual panels may
produce their own more specific subject-related guidance …
Appeals
20. There will be no provision for appeals against individual ratings.’
Annex B included clinical dentistry as a discrete unit of assessment. Annex C needs to be reproduced in full:
‘ANNEX C
The rating scale—interpretation of scale points
The following 5-point scale accompanying descriptions and notes will be used for the Exercise. The descriptions relate only to that research in
a particular submission to a unit of assessment which was assessed.
Assessment rating point Funding Description rating point
5 4 Research quality that equates to attainable levels of international
excellence in some sub-areas of activity and to attainable levels of
national excellence in virtually all others.
4 3 Research quality that equates to attainable levels of national excellence
in virtually all sub-areas of activity, possibly showing some evidence of
international excellence, or to international level in some and at least
national level in a majority.
in a majority of the sub-areas of activity, or to international level in some.
in up to half of the sub-areas of activity.
Preamble
in none, or virtually none, of the sub-areas of activity.
Notes
1. The concept of a “sub-area” of research activity is applicable to the work of individual researchers as well as to that of groups.
2. “Attainable” levels of excellence refers to an absolute standard of quality in each unit of assessment, and should be independent of the
conditions for research within individual departments.
3. The international criterion adopted should equate to a level of excellence that it is reasonable to expect for the unit of assessment, even
though there may be no current examples of such a level whether in the UK or elsewhere. In the absence of current examples, standards in cognate
656 research areas where international comparisons do exist, will need to be adopted. The same approach should be adopted when assessing
studies with a regional basis against “national” and “international” standards.
4. For the Research Assessment Exercise “national” refers to the United Kingdom of Great Britain and Northern Ireland.’
Clinical dentistry was to be assessed by a panel of eight specialists under the chairmanship of Professor Roy Storer of the University of
Newcastleupon-Tyne. On 15 July 1992 the panel met to establish its method of working. On 15 and 16 October 1992 the panel met and considered
submissions from 16 institutions. Each member gave initial ratings by secret ballot to each institution except that of which he or she was a member. It is
now known that the average rating received by the applicant on this exercise was 2.6, which if it had stood would have been rounded up to three.
On 23 October 1992 the panel met to make its final assessments. Each member was asked to confirm or modify his or her original ratings. It was
agreed that six institutions required extensive discussion, namely Bristol University, Glasgow University, the United Medical and Dental Schools, Kings
College London, the London Hospital Medical College and the applicant institute. The first the applicant knew of the outcome was the formal publication
on 17 December 1992 of all the ratings, by means of UFC Circular 26/92. The applicant had been rated at 2·0. The circular contained the following
further information:
‘2. The ratings will be used by the Higher Education Funding Councils for England, Scotland and Wales, and in respect of institutions in
Northern Ireland, by the Department of Education for Northern Ireland, in the determination of grant for research with effect from 1993/94. These
bodies will issue separate documents on their methods for funding of research, and on financial allocations.
3. The Council wishes to emphasise that the assessments relate only to research quality. Teaching quality and other features of higher education
institutions (HEIs) activity have not been assessed.
Conduct of the Exercise …
6. Account was taken of the full range of research, as defined at Annex A. Submissions were made in 72 units of assessment; these are listed
with a brief description in Annex B. All submissions were assessed against a common scale as reproduced at Annex C …
Timetable and Scale of the Exercise
8. Circular 5/92 was issued in early March 1992 and by the closing date of 30 June some 2,700 submissions had been received from 170 HEIs
across the 72 units of assessment. The work of over 43,000 full time equivalent academics was included in the submissions. The submissions were
assessed by 63 panels and subpanels with some 450 members and 50 assessors …
Comparability of the 1989 and 1992 Ratings
17. Although the same rating scale has been used in both the 1989 and 1992 Exercises with the same definitions, the 1992 Exercise has been
carried out on a different basis and the results should not be directly compared with the earlier ratings. In the 1989 Exercise information was
requested on all academic staff within an institution, whether or not they were active in research. For the 1992 Exercise HEIs were asked to put
forward for 657 assessment only those academic staff that they judged to be active in research. Furthermore the units of assessment used in the
two Exercises are not always the same.’
The table of ratings in clinical dentistry, interpreted in the light of the coding explained in the body of the circular, showed that the applicant, in
addition to being rated 2·0, had been identified as having one or more specific departments or research groups with particular excellence in research above
the overall rating for the submission; the proportion of the academic staff in the department or unit submitted for assessment had been between 80% and
94%; the number of academic staff in post on 30 June 1992 and assessed in the submission had been 28·7%; and the research in developmental biology
and periodontology had been assessed in part by the appropriate panel and given an overall rating, although it contained a significant proportion of
research covered by another unit of assessment.
This rating caused understandable dismay in the applicant institute. It had had a rating of 3·0 on the previous assessment exercise, and this change in
its grading was likely to be directly reflected in a loss of some £270,000 in grant. Moreover, and it is to this that the present proceedings relate, the grade
had been assigned without any reason beyond what could be inferred from the published description of the process and the interpretation of the published
schedule of ratings.
On 23 December the dean of the institute, Professor Gerald Winter, wrote to Professor Graeme Davies, the chief executive of, as it then was, the
UFC seeking a review of the decision or reasons for it. Neither this nor a subsequent letter brought a satisfactory response. On 9 February 1993 Professor
Davies wrote to Professor Winter:
‘As undertaken in our initial telephone conversation, I have arranged to have your documentation scrutinised to establish whether or not there
was any factual information which had not been available to the Assessment Panel for Clinical Dentistry. I have confirmed that your original
submission including factual information, conformed with that provided by other institutions and that all the submitted material plus the standard
analyses were considered by the Assessment Panel for Clinical Dentistry. Your letter of 21 January 1993 refers to the possibility that a higher
standard was applied to the Institution, as a postgraduate institution, than to undergraduate institutions. I can confirm that this was not the case and
that the guidance for assessment panels drew no distinction between postgraduate and undergraduate institutions. On the contrary, Circular 5/92
specifically stated that the “attainable” levels of excellence referred to an absolute standard of quality in each unit of assessment, and should be
independent of the conditions for research within individual departments. If a decision was based on erroneous information then we would
reconsider the submission. This does not appear to be so in the case of the Institute of Dental Surgery and, in the circumstances, I regret that there
is no basis on which to take further action.’
In response, and promptly, application was made for leave to apply for judicial review. In response to the affidavit evidence of Professor Winter
affidavits have been sworn by Professor Davies and Professor Storer. From the evidence the following facts emerge: (i) the reduction from a rating of 2·6
to a rating of 2·0 on 16 October was the greatest reduction amongst the 16 658 institutions concerned and was the only case of a downgrading of in
excess of 0·5; (ii) the only other institution awarded an average score with a 0·6 on the ballot had it rounded up; (iii) the way in which the 2·6 rating
became 2·0 was that two members of the panel reduced their ratings by one point, giving an average of 2·4 which, after further discussion, was rounded
down to 2·0; (iv) of the six institutions intensively discussed, Bristol, the London Hospital, the United Medical and Dental Schools and Glasgow
Preamble
University had their ratings raised in consequence, and two, Kings College London and the applicant institute did not. The four successful institutions
had representatives on the panel. No allegation of bad faith is made but it is submitted that this lends force to the suggestion that something may have
gone wrong through unconscious bias.
The applicant has complained consistently of the failure to give it any reasons for this decision. In para 7 of his affidavit of 1 June 1993 Professor
Winter puts it this way:
‘In all these circumstances, I simply cannot understand why, if there was some substantive factor which justified conferring a score of 2, and in
particular in reducing the Applicant’s assessment from the score of 2.6 on the secret ballot, the Respondent is unwilling to explain what it was. In
academic life, we are used to giving reasons for our assessment of the quality of publications and of research work. If there were characteristics of
the work done by the Applicant’s researchers which justified a score of 2, then I do not understand why those characteristics could not briefly be
explained to the Applicant. I should explain that the consequence to the Applicant of the award of a 2 rather than a 3 is a reduction of about
£270,000 in our grant from the respondent for 1993–1994, plus a consequent decline in private funding because of our reduction in status.’
This was a response to the affidavit in reply of Professor Davies sworn on 22 April 1993, in para 46 of which he said:
‘There was no provision for an appeal against the assessment. This is because of the very nature of a peer review procedure which was
formulated to ensure that the best panels were assembled to carry out the review and form a judgement. In these circumstances it was decided that
the decision should be final rather than attempting to set up a further layer of appeal. This was made clear to all participating institutions at the
outset … It was also for this reason that I felt unable to respond to Professor Winter’s request for reasons why the Panel graded the IDS in the way
it did; to do so would undermine the whole nature of the process which had been carefully designed to ensure a fair and uniform procedure for all
participating institutions. The panel is essentially making an expert value judgement on the relative merits of the various institutions. A challenge
to one result is a challenge to all.’
In his further affidavit of 6 July 1993, in para 2, Professor Davies said:
‘Professor Winter complains that the evidence filed by the Respondent does not explain why the Applicant was assessed at level 2. This is
because it is not possible to explain why without undermining the whole purpose of a peer review assessment. This is not a mechanistic process but
one of collective professional judgement. The grade awarded to a particular institution was not determined by a score against specific features but
was 659 a synthesis of the independent assessments of the acknowledged experts in the relevant field. It is not possible to disaggregate the
collective view without undermining the nature of the whole Research Assessment Exercise for which professional Peer review judgements are a
central and essential part. This is also the case for a range of other Peer review based evaluations … It is only possible therefore to describe the
process and the safeguards built into the process according to which that judgement was made.’
For the applicant, Mr David Pannick QC now submits that the respondent has acted unfairly by failing to give reasons for its panel’s decision; and
that in the absence of reasons, the decision can properly be treated as irrational. For the respondent, Mr Michael Beloff QC argues that in the absence of a
general duty to give reasons, no special factors call for reasons here, given in particular that the assessment is an exercise of academic judgement; and that
there is nothing ostensibly, let alone demonstrably, irrational in the rating given to the applicant. These submissions are straightforward; the law,
unfortunately, is not.
The principal issue is whether the court can properly require a respondent to give reasons for the kind of decision which was made here. This in turn
breaks down into two further questions. One is whether either the general demands of fairness or the characteristics of a particular decision can call forth
reasons when the decision in question is a collective expert evaluation of quality. The other is whether, if in principle this can happen, reasons ought to
be given in the present case. In the present state of development of the law in this area, however, we do not think that they can be addressed and
answered seriatim.
Beyond these questions lies Mr Pannick’s alternative submission that, absent reasons, the decision under challenge is so inexplicable that it should be
struck down as perverse. For reasons to which we will come, however, this submission cannot succeed if the applicant fails on the first issue of law; and
if the applicant succeeds on the first issue this submission will be premature.
For his principal submission of law Mr Pannick relies on two recent decisions: that of the Court of Appeal in R v Civil Service Appeal Board, ex p
Cunningham [1991] 4 All ER 310 and that of the House of Lords in Doody v Secretary of State for the Home Dept [1993] 3 All ER 92, [1993] 3 WLR
154.
The applicant in R v Civil Service Appeal Board, ex p Cunningham was unfairly dismissed from a post in the Prison Department of the Home Office
and so had to seek compensation from the Civil Service Appeal Board, a body set up under prerogative powers, rather than from an industrial tribunal.
The board awarded him compensation of £6,500, giving no reasons in spite of requests from the applicant. Had he been able to go to an industrial
tribunal, his compensation would have been somewhere near £15,000. Otton J rejected the submission that the award was irrational in itself but declared
the decision of the board and its refusal thereafter to supply reasons to be unlawful on the ground that it frustrated a legitimate expectation that civil
servants would be treated no less favourably than other employees. Both parties appealed. In the leading judgment, Lord Donaldson MR ([1991] 4 All
ER 310 at 318) quoted the already classic passage of the speech of Lord Bridge in Lloyd v McMahon [1987] 1 All ER 1118 at 1161, [1987] AC 625 at
702–703:
660 concept, what the requirements of fairness demand when any body, domestic, administrative or judicial, has to make a decision which will
affect the rights of individuals depends on the character of the decision-making body, the kind of decision it has to make and the statutory or other
framework in which it operates. In particular, it is well established that when a statute has conferred on any body the power to make decisions
affecting individuals, the courts will not only require the procedure prescribed by the statute to be followed, but will readily imply so much and no
more to be introduced by way of additional procedural safeguards as will ensure the attainment of fairness.’
Applying that test, Lord Donaldson MR (at 320) held that, in addition to the ground founded on by Otton J, the applicant succeeded—
‘upon the broader ground that fairness requires a tribunal such as the board to give sufficient reasons for its decision to enable the parties to
know the issues to which it addressed its mind and that it acted lawfully.’
McCowan and Leggatt LJJ did not consider that a case of legitimate expectation was made out, but upheld the first instance decision on grounds
Preamble
which, although broader than those relied on by Otton J, were not those of Lord Donaldson MR. McCowan LJ said (at 322–323):
‘To this day neither he, nor for that matter this court, has any idea why the board recommended that he receive so little. As Mr Pannick says, it
cries out for some explanation from the board. As I would put it, not only is justice not seen to have been done but there is no way, in the absence
of reasons from the board, in which it can be judged whether in fact it has been done. I find that a thoroughly unsatisfactory situation, in which this
court should hold, if it can properly do so, that the board ought to give reasons for its recommendation. In reaching a conclusion as to the propriety
of Otton J’s order, I am influenced by the following factors. 1. There is no appeal from the board’s determination of the amount of compensation.
2. In making that determination the board is carrying out a judicial function. 3. The board is susceptible to judicial review. 4. The procedure
provided for by the code, that is to say the provision of a recommendation without reasons, is insufficient to achieve justice. 5. There is no statute
which requires the courts to tolerate that unfairness. 6. The giving of short reasons would not frustrate the apparent purpose of the code. 7. It is not
a case where the giving of reasons would be harmful to the public interest. These considerations drive me to the view that this is a case where the
board should have given reasons and I would, therefore, dismiss the appeal.’
Leggatt LJ said (at 323):
‘But it seems obvious that for the same reason of fairness that an applicant is entitled to know the case he has to meet, so should he be entitled
to know the reasons for an award of compensation, so that in the event of error he may be equipped to apply to the court for judicial review. For it
is only by judicial review that the board’s award can be challenged.’
He said (at 325):
661
‘Without an obligation to give reasons the board’s procedures cannot be checked, let alone challenged; and without reasons neither the person
dismissed nor the court can tell whether to apply for or to grant judicial review. In relation to many, if not most, administrative decisions it may
well be undesirable, for one reason or another, to give reasons. But there are not here, as in certain contexts there are, any valid grounds for
adhering to the general rule that there is no duty to give reasons. On the contrary, there are here particular grounds for departing from the general
rule. [The applicant] has a legitimate grievance, because it looks as though his compensation is less than it should be, and yet he has not been told
the basis of the assessment.’
Later he continued (at 325):
‘The cardinal principles of natural justice are that no one shall be judge in his own cause and that everyone is entitled to a hearing. But the
subject-matter of the decision or the circumstances of the adjudication may necessitate more than that. An award of compensation by the board
concerns the applicant’s means of livelihood for the period to which the award relates. The board’s determination binds the Home Office, and also
the applicant subject to his right to challenge it by applying for judicial review. But that right is nugatory unless the award is so aberrant as to
compel the inference that it must have been wrong, or unless the board explains how the figure was arrived at, so as to enable the applicant to tell
whether the award can be successfully impugned. Those two grounds for requiring reasons elide here.’
He concluded (at 326):
‘In default of explanation [the applicant’s] award was so far below what, by analogy with the award of an industrial tribunal, he was entitled to
expect as in my judgment to compel the inference that the assessment was irrational, if not perverse. Because there was no general duty to give
reasons, the absence of reasons does not by itself entitle the court to hold that the award was not supportable. But the unexplained meagreness of
the award does compel that inference. As Lord Keith said in Lonrho plc v Secretary of State for Trade and Industry [1989] 2 All ER 609 at 620,
[1989] 1 WLR 525 at 540: “The only significance of the absence of reasons is that if all other known facts and circumstances appear to point
overwhelmingly in favour of a different decision, the decision-maker who has given no reasons cannot complain if the court draws the inference
that he had no rational reason for his decision.” In my judgment the duty to act fairly in this case extends to an obligation to give reasons. Nothing
more onerous is demanded of the board than a concise statement of the means by which they arrived at the figure awarded. Albeit for reasons
which go wider than those relied on by the judge, I too agree that the appeal should be dismissed and cross-appeal allowed.’
In Doody v Secretary of State for the Home Dept the issue was very different: the Home Secretary appealed to the House of Lords against a decision
of the Court of Appeal that prisoners mandatorily sentenced to life imprisonment for murder were entitled to be told by the Home Secretary what period
or periods had been recommended by the judiciary as necessary for the purposes of retribution and deterrence and to be given an opportunity to make
662 representations to him before he determined what the period should be. The Court of Appeal, however, had rejected the further submission that
the Home Secretary should give reasons for his decision, at least when departing from the judicial view of the appropriate period to be served. On the
Home Secretary’s appeal to the House of Lords, the decision of the Court of Appeal in favour of an opportunity to receive information and make
representations was upheld, and on the prisoners’ cross-appeal their Lordships further declared that—
‘The Secretary of State is obliged to give reasons for departing from the period recommended by the judiciary as the period which [the prisoner]
should serve for the purposes of retribution and deterrence.’ (See [1993] 3 All ER 92 at 113, [1993] 3 WLR 154 at 175.)
Giving the single reasoned speech, in which all their Lordships concurred, Lord Mustill said ([1993] 3 All ER 92 at 106–107, [1993] 3 WLR 154 at 169):
‘… the respondents acknowledge that it is not enough for them to persuade the court that some procedure other than the one adopted by the
decision-maker would be better or more fair. Rather, they must show that the procedure is actually unfair. The court must constantly bear in mind
that it is to the decision-maker, not the court, that Parliament has entrusted not only the making of the decision but also the choice as to how the
decision is made … Accordingly, I prefer to begin by looking at the question in the round, and enquiring what requirements of fairness, germane to
the present appeal attach to the Home Secretary’s fixing of the penal element. As general background to this task, I find in the more recent cases on
judicial review a perceptible trend towards an insistence on greater openness, or if one prefers the contemporary jargon “transparency”, in the
making of administrative decisions.’
Preamble
After dealing with arguments based on the statutory framework, Lord Mustill went on ([1993] 3 All ER 92 at 108, [1993] 3 WLR 154 at 170):
‘One further argument for the Secretary of State must be mentioned, namely that since the prisoner already knows all the circumstances of his
offence, in the light of which the trial judge made his recommendation on the penal element, he can deduce without the need for any more
information both the factual basis of the Secretary of State’s decision, and the intellectual reasons why the penal element was fixed at a particular
term of years. Although something akin to this argument has found favour in other cases, I am quite unable to accept it here. The prisoner does
indeed know what primary materials were before the court, but he does not know what the judge and the Home Secretary made of them, nor does he
know what other materials, not brought out at the trial, may have formed an element in the decision. That the choice of the penal element is not self
evident appears quite clearly from the number of occasions on which the Home Secretary’s appraisal differs from that of the judges. Either there is
something in the material before the Home Secretary which was not known to the judges, or the Home Secretary approaches his task in a way
which is different from that adopted by the judiciary when passing sentence. In either event, the missing factor is hidden from view, and the
prisoner can do no more than guess what it might be.’
663
Having upheld the decision of the Court of Appeal on the prisoner’s right to make informed representations, Lord Mustill went on ([1993] 3 All ER
92 at 110–111, [1993] 3 WLR 154 at 172–173):
‘I accept without hesitation, and mention it only to avoid misunderstanding, that the law does not at present recognise a general duty to give
reasons for an administrative decision. Nevertheless, it is equally beyond question that such a duty may in appropriate circumstances be implied,
and I agree with the analyses by the Court of Appeal in R v Civil Service Appeal Board, ex p Cunningham [1991] 4 All ER 310 of the factors which
will often be material to such an implication. Turning to the present dispute I doubt the wisdom of discussing the problem in the contemporary
vocabulary of “prisoner’s rights”, given that as a result of his own act the position of the prisoner is so forcibly distanced from that of the ordinary
citizen, nor is it very helpful to say that the Home Secretary should out of simple humanity provide reasons for the prisoner, since any society
which operates a penal system is bound to treat some of its citizens in a way which would, in the general, be thought inhumane. I prefer simply to
assert that within the inevitable constraints imposed by the statutory framework, the general shape of the administrative regime which ministers
have lawfully built around it, and the imperatives of the public interest, the Secretary of State ought to implement the scheme as fairly as he can.
The giving of reasons may be inconvenient, but I can see no ground at all why it should be against the public interest: indeed, rather the reverse.
This being so, I would ask simply: Is refusal to give reasons fair? I would answer without hesitation that it is not. As soon as the jury returns its
verdict the offender knows that he will be locked up for a very long time. For just how long immediately becomes the most important thing in the
prisoner’s life. When looking at statistics it is easy to fall into the way of thinking that there is not really very much difference between one
extremely long sentence and another: and there may not be, in percentage terms. But the percentage reflects a difference of a year or years: a long
time for anybody, and longer still for a prisoner. Where a defendant is convicted of, say, several armed robberies he knows that he faces a stiff
sentence: he can be advised by reference to a public tariff of the range of sentences he must expect; he hears counsel address the judge on the
relationship between his offences and the tariff; he will often hear the judge give an indication during exchanges with counsel of how his mind is
working; and when sentence is pronounced he will always be told the reasons for it. So also when a discretionary life sentence is imposed, coupled
with an order under s 34 [of the Criminal Justice Act 1991]. Contrast this with the position of the prisoner sentenced for murder. He never sees the
Home Secretary; he has no dialogue with him: he cannot fathom how his mind is working. There is no true tariff, or at least no tariff exposed to
public view which might give the prisoner an idea of what to expect. The announcement of his first review date arrives out of thin air, wholly
without explanation. The distant oracle has spoken, and that is that. My Lords, I am not aware that there still exists anywhere else in the penal
system a procedure remotely resembling this. The beginnings of an explanation for its unique character might perhaps be found if the executive had
still been putting into practice the theory that the tariff sentence for murder is confinement for life, subject only to a wholly discretionary release on
licence: although even in such a 664 case I doubt whether in the modern climate of administrative law such an entirely secret process could be
justified. As I hope to have shown, however, this is no longer the practice, and can hardly be sustained any longer as the theory. I therefore simply
ask, is it fair that the mandatory life prisoner should be wholly deprived of the information which all other prisoners receive as a matter of course. I
am clearly of the opinion that it is not. My Lords, I can moreover arrive at the same conclusion by a different and more familiar route, of which Ex
p Cunningham [1991] 4 All ER 310 provides a recent example. It is not, as I understand it, questioned that the decision of the Home Secretary on
the penal element is susceptible to judicial review. To mount an effective attack on the decision, given no more material than the facts of the
offence and the length of the penal element, the prisoner has virtually no means of ascertaining whether this is an instance where the
decision-making process has gone astray. I think it important that there should be an effective means of detecting the kind of error which would
entitle the court to intervene, and in practice I regard it as necessary for this purpose that the reasoning of the Home Secretary should be disclosed.’
We readily accept Mr Beloff’s submission that Lord Mustill was not holding, in the final part of this passage, that reasons are called for wherever it
is desired to know whether grounds for challenge exist; for to do so would be to create just such a general duty as Lord Mustill at the start of the passage
was careful to exclude. Rather he was holding that, in the situation of near total ignorance and impotence in which the prisoner found himself about
something as vital to him as his prospects of liberty, such a duty arose. It follows nonetheless from Lord Mustill’s reasoning that the ‘more familiar route’
exemplified by Cunningham’s case may be broader than the Cunningham situation alone and capable of embracing other situations in which ‘it is
important that there should be an effective means of detecting the kind of error which would entitle the court to intervene’.
This being so, it seems both desirable and practical to test by a common standard both the fairness of not telling a person the reasons for a decision
affecting him and the desirability of exposing any grounds of legal challenge. There are, moreover, reasons of principle for a unitary test. As the
judgments in Cunningham’s case show, one aspect of unfairness may be precisely the inability to know whether an error of law or of process has
occurred. But since the latter is not a free-standing ground for requiring reasons (for if it were, it would apply universally), it can only be on grounds of
fairness that it will arise; so that the need to know whether there has been an error of law or of process is rightly seen not as an alternative to the demands
of fairness but as an aspect of them.
This approach places on an even footing the multiple grounds on which the giving of reasons may in any one case be requisite. The giving of
reasons may among other things concentrate the decision-maker’s mind on the right questions; demonstrate to the recipient that this is so; show that the
issues have been conscientiously addressed and how the result has been reached; or alternatively alert the recipient to a justiciable flaw in the process. On
the other side of the argument, it may place an undue burden on decision-makers; demand an appearance of unanimity where there is diversity; call for the
articulation of sometimes inexpressible value judgments; and offer an invitation to the captious to comb the reasons for previously unsuspected grounds of
Preamble
665 challenge. It is the relationship of these and other material considerations to the nature of the particular decision which will determine whether or
not fairness demands reasons.
In the light of such factors each case will come to rest between two poles, or possibly at one of them: the decision which cries out for reasons, and
the decision for which reasons are entirely inapposite. Somewhere between the two poles comes the dividing line separating those cases in which the
balance of factors calls for reasons from those where it does not. At present there is no sure indication of where the division comes. Asked to give an
example of the kind of decision in which in the light of his submissions fairness will not require reasons to be given, Mr Pannick was unable or unwilling,
at least without further reflection, to commit himself. No doubt the common law will develop, as the common law does, case by case. It is not entirely
satisfactory that this should be so, not least because experience suggests that in the absence of a prior principle irreconcilable or inconsistent decisions
will emerge. But from the tenor of the decisions principles will come, and if the common law’s pragmatism has a virtue it is that these principles are
likely to be robust. At present, however, this court cannot go beyond the proposition that, there being no general obligation to give reasons, there will be
decisions for which fairness does not demand reasons. It follows that in appraising each case, the present included, too catholic an approach will amount
to generalising what is still a particular obligation—though we are not prepared to accept Mr Beloff’s contention that it is any longer an exceptional one.
It may be useful here to touch on an unresolved but potentially important question highlighted by the relief which Mr Pannick seeks in the form of
mandamus to give reasons: is the giving of reasons, in a case where it is ‘the justice of the common law’ which requires it, a free-standing duty
enforceable by mandamus or simply, as Mr Beloff contends, a form of relief where independent grounds for it, such as irrelevant factors or irrationality,
are established? If it is the latter, then (pace the limited remedies in RSC Ord 53) relief should consist of the remission of the matter for reasons to be
given, and if adequate reasons are then not given the court will be entitled to infer that there were none and that the decision was therefore irrational: see
Lonrho plc v Secretary of State for Trade and Industry [1989] 2 All ER 609 at 620, [1989] 1 WLR 525 at 540 per Lord Keith. Neither R v Civil Service
Appeal Board, ex p Cunningham nor Doody v Secretary of State for the Home Dept gives an explicit answer. In the former case, however, a declaration
was made and upheld on appeal that the refusal to give reasons was unlawful and ultra vires, strongly suggesting the existence of an independent legal
obligation. In the latter case the House of Lords declared that the Home Secretary is obliged to give reasons for departing from the period recommended
by the judiciary. If in such a case the maximum remedy was simple remission for the giving of reasons with the threat of quashing if none were given,
mere non-compliance would frustrate the court’s order without redress. The prisoner would lose, by its quashing, even the first review date set by the
Home Secretary. This too powerfully suggests that the obligation to give reasons, where it is established, is an independent and enforceable legal
obligation and hence a ground of nullity where it is violated. Such an outcome would have a satisfactory symmetry with the ordinary consequence of
non-compliance with a statutory requirement to give reasons. In both cases the discretion as to remedy would of course remain.
666
That an apparently inexplicable decision is not, however, a general requisite for leave or for relief is now clear from the decision of the House of
Lords in Doody’s case, where the length of the actual tariff periods set by the Home Secretary when matched against the facts of appellants’ crimes
formed no part of the grounds for requiring reasons in the interests of fairness. It follows that an apparently inexplicable decision may be a sufficient but
is not a necessary condition for requiring reasons; it may equally be fair to require them on other grounds. It is arguable that since the decision in
Doody’s case the role of the inexplicable decision is to be regarded as evidential rather than legal, bearing principally on the discretionary decisions
whether to grant leave and whether to grant relief by pointing to the need for reasons in the particular case. But we prefer the view that in the present
state of the law there are two classes of case now emerging: those cases, such as Doody’s case, where the nature of the process itself calls in fairness for
reasons to be given; and those, such as Cunningham’s case, where (in the majority view) it is something peculiar to the decision which in fairness calls for
reasons to be given. This does not mean that differing tests of fairness are to be applied; only that, as always, the requirements of fairness will vary with
the process to which they are being applied. In this context we unhesitatingly reject Mr Beloff’s submission that the judicial character of the Civil Service
Appeal Board and the quasi-judicial function of the Home Secretary in relation to life sentence prisoners distinguish the cases requiring reasons from
cases of purely administrative decisions such as the present one. In the modern state the decisions of administrative bodies can have a more immediate
and profound impact on people’s lives than the decisions of courts, and public law has since Ridge v Baldwin [1963] 2 All ER 66, [1964] AC 40 been
alive to that fact. While the judicial character of a function may elevate the practical requirements of fairness above what they would otherwise be, for
example by requiring contentious evidence to be given and tested orally, what makes it ‘judicial’ in this sense is principally the nature of the issue it has
to determine, not the formal status of the deciding body.
The first limb of Mr Pannick’s submission is accordingly that the decision of the respondent was of a kind for which fairness requires that reasons be
given. His written contention is that this will be the case—
‘when the relevant decision has important consequences for the individual or body concerned, especially if the absence of reasons makes it very
difficult for the applicant and the court to know whether the respondent has acted by reference to irrelevant factors, and especially if there is no
justification for withholding reasons.’
In our view this formula will not do. The absence of reasons always makes it difficult to know whether there has been an error of approach. The question
of justification for withholding reasons logically comes after the establishment of a prima facie duty to give them. Neither can therefore add to the
principal ground advanced, which is of such width that it would make a duty to give reasons a universal rule to which the only exception would be cases
of no importance to anybody. There are certainly good arguments of public law and of public administration in favour of such a rule, but it is
axiomatically not, or not yet, part of our law. It remains to be seen what the ‘continuing momentum in administrative law towards openness of
decision-making’ (per Lord Mustill in Doody’s case [1993] 3 All ER 92 at 111, [1993] 3 WLR 154 at 174) will bring.
667
To his written criteria Mr Pannick has added, in argument, the absence of an appeal. This may well be crucial in justifying recourse to the court, but
it cannot logically render unfair a silence which is otherwise not unfair.
In this situation it is not in our view possible to formulate a different or more precise rule or test in substitution for Mr Pannick’s. Instead it is
necessary to turn to the factors on which Mr Pannick relies and to see which pole they tend towards. They are these. (a) The decision is very important to
the future of the applicant institute. Both directly and indirectly it affects the institute’s funding in very large sums. (b) It is a decision to lower the
applicant’s grading from that which it previously enjoyed. (c) In the absence of reasons there is a real risk that the respondent may have been influenced
by irrelevant factors. This is fully argued out by Mr Pannick by reference to the detailed history of the readjusted rating, but for reasons which we will
come to it is not appropriate to set them out here. (d) The applicants are frustrated by their inability to know whether the respondent acted on irrelevant
factors. (e) There is no justification for the failure to give reasons, and certainly not that given by Professor Davies. We will consider them in reverse
order.
We agree with practically all of Mr Pannick’s criticisms of the respondent’s objections to giving reasons. It is not suggested for a moment that the
panel collectively and its members individually did not have, and did not have to have, reasons for each grading they made. It seems to us disingenuous
to talk, as Professor Davies repeatedly does, about the impossibility of ‘disaggregating the collective view’, when that view was an aggregate view in the
Preamble
first place. Schiemann J’s reference in R v Poole BC, ex p Beebee [1991] 2 PLR 27 at 31 to ‘the theoretical difficulties of establishing the reasoning
process of a corporate body which acts by resolution’ does not bear directly on what in our judgment is more correctly viewed as a collegiate than a
corporate decision. To suggest that the panel’s conclusion cannot be explained without ‘undermining the whole purpose of a peer review assessment’
seems to us, with respect, to devalue the assessment process. It would take a great deal more than this to persuade us that experienced and distinguished
academics, whether individually or collectively, cannot assign reasons for their own judgment. It is unlikely that a similar reticence affects them either
individually at examiners’ meetings or collectively when writing joint reports. But Mr Pannick’s contention assumes what is yet to be proved, for if
otherwise there is no obligation to give reasons, the question whether the respondent is justified in withholding them does not arise. The casuistic grounds
advanced by the respondent for not giving reasons, while they do not help the respondent, do not help the applicant.
Inability to know whether the rating has been arrived at in reliance on irrelevant factors is universal in unreasoned decisions, except where such
factors are revealed by chance. It is a ground for a general duty to give reasons, but for that very reason it cannot found a particular duty.
The oddities of the decision, on what is known to the applicant, meet a further logical difficulty. In considering whether the nature of the material
decision and decision-making process require the giving of reasons, the particular outcome does not matter. As illustrations of the risk of a concealed
flaw such oddities will form part of the broad argument in favour of a general duty, but no more. It is under the alternative approach, the argument from
an aberrant outcome, that these factors may matter, and to this we will come.
Mr Pannick has not dwelt on the submission that the lowering of the grade contributed to the need for reasons. Not only was this a product and not a
part 668 of the questioned process; the whole statutory exercise was predicated on the proposition that no institution had any right to have its previous
grade preserved until displaced: every point had to be freshly earned. Mr Pannick was wise to pass over it.
This leaves the importance of the decision to the applicant’s future. We do not doubt a word of Professor Winter’s evidence about this. Not only
does a reduced rating directly affect the quantum of government funding; it reduces the standing and competitiveness of the institute in seeking outside
funding. The morale and the future of an institution such as the applicant are shaken by such a decision. We do not accept Mr Beloff’s suggestion that an
institutional applicant is fundamentally different from an individual in this context. In many contexts the difference will be real and material, but for what
is a collegiate body of individuals collaborating in one area of science, we would be loth to diminish its expectations of the protection of the law below
that which individuals can expect.
The chief benchmark of significance which we have at present in this setting is Doody’s case. There the applicant knew the evidence on which he
had been convicted but little else, while a considerable body of highly relevant matter had accumulated in the hands of the decision-maker and was going
to affect many years of his liberty. If the Home Secretary were then to depart from the judicial view of tariff, it is not easy to think of a stronger case for
the disclosure of reasons not merely to the applicant but to all mandatory life sentence prisoners, to each of whom result of the case will necessarily apply.
Equally here the argument, it seems to us, must be good for all applicants, not just disappointed ones, if they want to know why they have been rated as
they have been. One would like to be able to hold that for all such applicants, disappointed or not, the importance of the decision alone was enough. But
to do so would generalise the duty to give reasons to a point to which this court, at least, cannot go.
We must therefore look also at the other indicia: the openness of the procedure, widely canvassed in advance and published in circular form; the
voluntary submission of self-selected examples of work; the judgment of academic peers. These, it seems to us, shift the process substantially away from
the pole represented by Doody’s case, not on mere grounds of dissimilarity (there will be many dissimilar cases in which reasons are nevertheless now
required) but because the nature of the exercise was that it was open in all but its critical phase, and its critical phase was one in which, as Professor
Davies deposes, ‘the grade awarded to a particular institution was not determined by a score against specific features’. We shall return to this, which we
find remarkable, but it is a fact and not one which Mr Pannick has been able to assault on legal grounds. In the result, the combination of openness in the
run-up with the prescriptively oracular character of the critical decision makes the respondent’s allocation of grades inapt, in our judgment, for the giving
of reasons, notwithstanding the undoubted importance of the outcome to the institutions concerned.
From this case-specific conclusion, it is possible to generalise to a certain extent. The only mystery left in the process is precisely why the final
grade of 2·0 was arrived at. As Mr Pannick points out, the evidence is replete with answers to the question how it was arrived at, but not why. The
question ‘why’, in isolation as it can now be seen to be, is a question of academic judgment. We would hold that where what is sought to be impugned is
on the evidence no more than an informed exercise of academic judgment, fairness 669 alone will not require reasons to be given. This is not to say
for a moment that academic decisions are beyond challenge. A mark, for example, awarded at an examiners’ meeting where irrelevant and damaging
personal factors have been allowed to enter into the evaluation of a candidate’s written paper is something more than an informed exercise of academic
judgment. Where evidence shows that something extraneous has entered into the process of academic judgment, one of two results may follow depending
on the nature of the fault: either the decision will fall without more, or the court may require reasons to be given, so that the decision can either be seen to
be sound or can be seen or (absent reasons) be inferred to be flawed. But purely academic judgments, in our view, will as a rule not be in the class of
case, exemplified (though by no means exhausted) by Doody’s case, where the nature and impact of the decision itself call for reasons as a routine aspect
of procedural fairness. They will be in the Cunningham case class, where some trigger factor is required to show that, in the circumstances of the
particular decision, fairness calls for reasons to be given.
Is there then such a trigger factor here? The second limb of Mr Pannick’s submission is that the applicant institute has been confronted with a
decision which, on the evidence, is inexplicable: the institute’s excellence is widely acknowledged and attested; its original rating of 2·6 would have
qualified for rounding up to a 3·0; and the reduction to 2·4 and hence to a rating of 2·0 followed reconsideration in circumstances which, at the lowest, can
be regarded as unsatisfactory. Mr Beloff responds, and we agree with him, that neither intrinsically nor on the evidence is there a sufficient basis on
which this court can hold the eventual rating to be so aberrant as in itself to call for an explanation. We lack precisely the expertise which would permit
us to judge whether it is extraordinary or not. It may be a misfortune for the applicant that the court, which in Cunningham’s case could readily evaluate
the contrast between what the board awarded and what an industrial tribunal would have awarded, cannot begin to evaluate the comparative worth of
research in clinical dentistry; but it is a fact of life. The applicant’s previous grading, the volume and frequency of citation of its research and the high
level of peer-reviewed outside funding which it has attracted, to all of which Mr Pannick points, may well demonstrate that the applicant has been
unfortunate in the grading it has received, but such a misfortune can well occur within the four corners of a lawfully conducted evaluation.
Mr Pannick also points to the fact, undoubtedly an uncomfortable one for the respondent, that of the six institutions reconsidered in detail, the four
which were up-rated had members on the panel, albeit these members very properly left when their own institutions were discussed, while the two which
were down-rated did not. He does not found upon this as a discrete head of challenge. Rather and wisely he relies on it as converting into a probability
the possibility that the oddity of the decision betrays a flawed approach. But without the major premise of patent oddity the minor premise of
unconscious bias cannot advance his argument.
The inexorable conclusion is that neither the nature of the material decision nor its eventual content was such as to oblige the respondent to furnish
reasons for it.
However, we have pointed out that, irrespective of any obligation to give reasons, it goes without saying that any decision-making body, above all
one with the powers and duties of the respondent, must have reasons for every 670 decision it takes, and we have given our grounds for rejecting Mr
Beloff’s fallback argument that in matters of academic judgment such reasons are somehow incapable of being formulated or articulated. Each panel
member will have had reasons for his or her own initial rating, and in discussion each will have been in a position to advance those reasons and to modify
Preamble
them in the light of the reasoning of others. This case, however, has had to proceed on the given fact that the respondent, a modern body charged with
important public functions and recognising, as the respondent does, the need for uniformity and consistency of approach, did not work by agreeing the
criteria by which it would judge the point on the scale to which each institution was to be allocated, so that each panel member might before and after
discussion make an evaluation within an agreed range on each criterion. Somehow, according to its minutes, the Clinical Dentistry Panel on 15 and 16
October agreed that at its coming meeting on 23 October—
‘all ratings will be reviewed to ensure that the criteria on which assessment had been based had been applied consistently to all institutions
across the board; and to enable the panel to make any modifications they felt necessary to the ratings recorded’
when on the evidence no such criteria of assessment existed: the only fixed points were the verbal descriptions of the level represented by each scale point
in annex C, but not the criteria by which the allocation of institutes to points on this scale was to be carried out. Indeed we have cited above Professor
Davies’s unequivocal testimony that—
‘the grade awarded to a specific institution was not determined by a score against specific features.’
Industrial tribunals and courts have come to appreciate that such a procedure enables evaluation to be carried out on a basis of parity both among
panel members and among candidates, providing a uniform foundation for differential evaluations and making the eventual collective evaluation both
explicable and defensible, so that if as may happen the law calls for reasons to be given, they exist and do not have to be called into being.
Parenthetically, such a procedure also enables candidates, successful as well as unsuccessful, to be told why and in what areas they have done well or
badly, information which may be as important to them as their actual rating. It is of course not for the court to advise an independent body on how to
arrange and conduct its procedures. But it is necessary for public decision-making bodies to appreciate that there are already some circumstances (eg
where unlawful race or sex discrimination is alleged), and more may well come, in which their legal position may depend on their ability to account
intelligibly for their decisions by explaining not simply how but why they have reached them. This much, we think, bears a practical relationship to the
movement of the law towards open or ‘transparent’ decision-making to which Lord Mustill refers in Doody’s case.
In summary, then:
1. There is no general duty to give reasons for a decision, but there are classes of case where there is such a duty.
2. One such class is where the subject matter is an interest so highly regarded by the law—for example personal liberty—that fairness requires that
reasons, at least for particular decisions, be given as of right.
671
3. (a) Another such class is where the decision appears aberrant. Here fairness may require reasons so that the recipient may know whether the
aberration is in the legal sense real (and so challengeable) or apparent. (b) It follows that this class does not include decisions which are themselves
challengeable by reference only to the reasons for them. A pure exercise of academic judgment is such a decision. (c) Procedurally, the grant of leave in
such cases will depend upon prima facie evidence that something has gone wrong. The respondent may then seek to demonstrate that it is not so and that
the decision is an unalloyed exercise of an intrinsically unchallengeable judgment. If the respondent succeeds, the application fails. If the respondent
fails, relief may take the form of an order of mandamus to give reasons, or (if a justiciable flaw has been established) other appropriate relief.
But just as it is outwith this court’s powers to judge degrees of excellence in clinical dentistry research, or for that matter the wisdom of a body’s
administrative arrangements, so it is not open to this court to require the communication of reasons, even where such reasons must necessarily exist, in the
current absence of a legal basis for the requirement. We would accordingly dismiss this application.

[1994] 1 All ER 672
Practice Direction
(Chancery Division: Order and Accounts Section)
(Chancery 2/93)
PRACTICE DIRECTIONS
CHANCERY DIVISION
19 November 1993
Practice – Chancery Division – Order and Accounts Section – Merger of Accounts Section and Drafting Section.
1. As from 11 January 1994, the commencement of the Hilary term, the Accounts Section of the Chancery Division will merge with the Drafting Section
(which is concerned with the drawing of Chancery orders), and will be known as the Order and Accounts Section.
The work now done by the Accounts Section will in future be carried out in room TM5.07 (telephone 071-936 6258 and 6854).
2. The consolidated Chancery Division Practice Directions (see The Supreme Court Practice 1993 vol 2, paras 801–873) are amended accordingly.
By direction of the Vice-Chancellor.
J M DYSON Chief Chancery Master.

19 November 1993
Preamble
672
[1994] 1 All ER 673
Smith (Inspector of Taxes) v Abbott

and related appeals
Fitzpatrick v Inland Revenue Commissioners (No 2)and related appeals
TAXATION; Income Tax, Emoluments from office or employment
HOUSE OF LORDS
LORD KEITH OF KINKEL, LORD TEMPLEMAN, LORD JAUNCEY OF TULLICHETTLE, LORD BROWNE-WILKINSON AND LORD MUSTILL
5–8 JULY 1993, 17 FEBRUARY 1994
Income tax – Emoluments from office or employment – Expenses wholly, exclusively and necessarily incurred – Newspaper allowance – Journalists
receiving newspaper allowance as reimbursement towards expenses incurred in purchasing newspapers and periodicals – Whether reading of other
newspapers and periodicals to be regarded as means of maintaining general qualifications and fitness of journalists to carry out employment or as part of
daily performance of journalists’ duties – Whether expenses wholly, exclusively and necessarily incurred in performance of journalists’ duties – Income
and Corporation Taxes Act 1970, s 189(1).
In two separate appeals (the Scottish appeals and the English appeals) the issue arose whether newspaper allowances paid to ten journalists (the taxpayers)
by the newspapers on which they were employed to reimburse them for the expenses incurred in purchasing newspapers and periodicals were deductible
for income tax. In each case the taxpayer appealed against an assessment to income tax under Sch E claiming that the newspaper allowance was
deductible under s 189a of the Income and Corporation Taxes Act 1970 on the grounds that it was a condition of his employment that he purchased and
read newspapers and periodicals and that it was an integral part of his duties to do so. In the Scottish appeals the Special Commissioners refused the
taxpayers’ claim, holding that the taxpayers read newspapers and periodicals merely to prepare themselves for their duties and not ‘in the performance of’
their duties. The Court of Session dismissed the taxpayers’ appeals on the ground that whether expenditure was incurred in preparation for or in the
performance of the duties of employment was a question of fact and, on the evidence, the commissioners had been entitled to hold that the expenditure on
newspapers was incurred in preparation for performing the duties of the taxpayers’ employment and not in the performance of their duties. The taxpayers
appealed to the House of Lords. In the English appeals the General Commissioners accepted evidence that reading newspapers and periodicals was a
necessary part of the duties of their employment and was not merely a means of qualifying them or maintaining their qualifications to do their duties. The
commissioners allowed all five appeals, holding that the expenditure in question had been incurred wholly, exclusively and necessarily in the 673
performance of the taxpayers’ duties and that the allowance was therefore deductible under s 189. The judge upheld the commissioners’ determination in
the cases of four of the taxpayers but allowed the Crown’s appeal in the other case. The Court of Appeal dismissed the Crown’s appeals in respect of the
first four taxpayers and allowed the fifth taxpayer’s appeal on the grounds that the true and only reasonable conclusion from the facts found by the
commissioners was that the expenditure on newspapers and periodicals had been incurred wholly, exclusively and necessarily in the performance of the
taxpayers’ duties. The Crown appealed to the House of Lords.
________________________________________
a Section 189, so far as material, is set out at p 676 d e, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held (Lord Browne-Wilkinson dissenting) – The question whether money was expended ‘wholly, exclusively, and necessarily in the performance of’ a
journalist’s duties when he purchased and read newspapers and periodicals was a mixed question of fact and law which the court was entitled to review.
On the true construction of s 189 of the 1970 Act and applying the distinction between expenses which were deductible because they were incurred ‘in the
performance of duties’ and expenses which were not deductible because they were incurred ‘in order to enable the duties to be performed’, a journalist
did not read newspapers and periodicals ‘in the performance’ of his duties but in order to enable his duties to be performed. Accordingly, the expenses
incurred by the taxpayers in the purchase of newspapers and periodicals were not deductible under s 189 from their assessable income. The Crown’s
appeals in the English appeals would therefore be allowed and (Lord Browne-Wilkinson concurring) the taxpayers’ appeals in the Scottish appeals would
be dismissed (see p 676 b, p 679 e, p 680 b c e, p 683 c d f g, p 684 c e f, p 685 a b e f j to p 686 d, p 692 g h and p 693 f g j to p 694 a, post).
Dicta of Rowlatt J in Simpson (Inspector of Taxes) v Tate [1925] 2 KB 214 at 219 and of Lord Salmon in Taylor v Provan (Inspector of Taxes)
[1974] 1 All ER 1201 at 1223 applied.
Decision of the Court of Appeal in Smith (Inspector of Taxes) v Abbott [1993] 2 All ER 417 reversed.
Notes
For relief for necessary expenses incurred in the performance of the duties of an office or employment, see 23 Halsbury’s Laws (4th edn reissue) para
677, and for cases on the subject, see 28(2) Digest (2nd reissue) 134–25, 2455–2510.
In relation to tax for the year 1988–89 and subsequent years of assessment s 189 of the Income and Corporation Taxes Act 1970 was replaced by s
198 of the Income and Corporation Taxes Act 1988. For s 198 of the 1988 Act, see 44 Halsbury’s Statutes (4th edn) (1993 reissue) 282.

Blackwell (Inspector of Taxes) v Mills [1945] 2 All ER 655.
Brown v Bullock (Inspector of Taxes) [1961] 3 All ER 129, [1961] 1 WLR 1095, CA.
Edwards (Inspector of Taxes) v Bairstow [1955] 3 All ER 48, [1956] AC 14, [1955] 3 WLR 410, HL.
Preamble
Elwood (Inspector of Taxes) v Utitz (1965) 42 TC 482, NI CA.

Ensign Tankers (Leasing) Ltd v Stokes (Inspector of Taxes) [1992] 2 All ER 275, [1992] 1 AC 655, [1992] 2 WLR 469, HL.
Humbles (Inspector of Taxes) v Brooks (1962) 40 TC 500.
Lomax (Inspector of Taxes) v Newton [1953] 2 All ER 801, [1953] 1 WLR 1123.
674
Nolder (Inspector of Taxes) v Walters (1930) 15 TC 380.
Owen v Pook (Inspector of Taxes) [1969] 2 All ER 1, [1970] AC 244, [1969] 2 WLR 775, HL.
Ricketts v Colquhoun (Inspector of Taxes) [1926] AC 1, HL.
Simpson (Inspector of Taxes) v Tate [1925] 2 KB 214.
Taylor v Provan (Inspector of Taxes) [1974] 1 All ER 1201, [1975] AC 194, [1974] WLR 394, HL.
Appeals
Smith (Inspector of Taxes) v Abbott and related appeals

The Crown appealed from the decision of the Court of Appeal (Ralph Gibson, Mann and Nolan LJJ) ([1993] 2 All ER 417, [1993] 1 WLR 1114) of 15
March 1993 dismissing its appeals in the cases of Messrs Holt, Scovell, Shuttleworth and Woodhouse (the four taxpayers) and allowing a cross-appeal by
Mr Abbott from a decision of Warner J of 18 October 1991 ([1991] STC 661, [1992] 1 WLR 201). Warner J upheld determinations by the General
Commissioners in the cases of the four taxpayers that expenditure on newspapers and periodicals had been incurred wholly, exclusively and necessarily in
the performance of their duties and was therefore deductible from their taxable income under s 189 of the Income and Corporation Taxes Act but allowed
the Crown’s appeal in the case of Mr Abbott on the ground that the expenditure on newspapers and periodicals had been incurred by Mr Abbott in order
to keep himself qualified to perform the duties of his employment. The facts are set out in the opinion of Lord Templeman.
Fitzpatrick v IRC (No 2) and related appeals

The taxpayers (Thomas Fitzpatrick, Rosemary Long, Barclay McBain, Cameron Simpson and James Traynor) appealed from the interlocutor of the Inner
House of the Court of Session (the Lord President (Hope) and Lord Cullen (Lord McCluskey dissenting)) ([1992] STC 406) of 14 February 1992
upholding a determination by the Special Commissioners that expenditure on newspapers by the taxpayers had been incurred in preparation for the duties
of the taxpayers’ employment and not in the performance of their duties. The facts are set out in the opinion of Lord Templeman.
Peter Whiteman QC , Marion Simmons and Robert Anderson (instructed by Berwin Leighton) for the taxpayers.
G N H Emslie QC (of the Scottish Bar), Timothy Brennan and P S Hodge (of the Scottish Bar) (instructed by the Solicitor of Inland Revenue, agent for
the Solicitor of Inland Revenue for Scotland, Edinburgh) for the Crown in the Scottish appeals.
Alan Moses QC, Timothy Brennan and Rabinder Singh (instructed by the Solicitor of Inland Revenue) for the Crown in the English appeals.

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LORD KEITH OF KINKEL. My Lords, for the reasons given in the speech to be delivered by my noble and learned friend Lord Templeman, which I
have had the opportunity of reading in draft and with which I agree, I would dismiss the Scottish appeals and allow the appeals by the Crown in the
English cases.
LORD TEMPLEMAN. My Lords, these Scottish and English appeals are concerned with the expenses of ten journalists. Each journalist worked for a
newspaper and purchased and studied copies of other newspapers and periodicals. The question is whether the sums expended by the journalist in the
purchase of newspapers and periodicals are deductible from the income of the journalist liable to income tax pursuant to s 189 of the Income and
Corporation Taxes Act 1970, which, so far as material, provides:
‘(1) If the holder of an office or employment is necessarily obliged to incur and defray out of the emoluments thereof the expenses of travelling
in the performance of the duties of the office or employment … or otherwise to expend money wholly, exclusively, and necessarily in the
performance of the said duties, there may be deducted from the emoluments to be assessed the expenses so necessarily incurred and defrayed ’
The relevant provisions of s 189 of the 1970 Act were first enacted in s 51 of the Income Tax Act 1853 and are now reproduced in s 198(1) of the
Income and Corporation Taxes Act 1988.
Three of the Scottish journalists worked for the Glasgow Herald which is a newspaper circulating throughout Scotland and two worked for the
Glasgow Evening Times which circulates in the area of Glasgow. The proprietors of both the Scottish newspapers were George Outram & Co Ltd. Four
of the English journalists worked for the Daily Mail and the fifth for the Mail on Sunday. The proprietors of these newspapers were Associated
Newspapers Ltd.
Each of the ten journalists was a member of the National Union of Journalists employed on the terms of an agreement negotiated between the union
and the proprietor of the newspaper. The agreement between the Scottish proprietors and the union for the period 1 July 1983 to 30 June 1984 included
the following terms:
‘(5) Hours of Work

(a) All members will have the right to work a four day week.
(b) All members of the Chapels employed full time shall not exceed an average of 34 hours per week if exclusively engaged in night work, 36·5
hours if exclusively engaged in day work …
(12) Expenses
(a) Expenses will be paid to Chapel Members, who incur expenditure in the course of their duties, in accordance with Appendix “B” of this
Preamble
Agreement.’
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Appendix B dealt with meal expenses, car expenses, clothing, telephones, removal expenses and:
‘3. Newspaper and TV Licence Expenses

In compliance with Inland Revenue Regulations all expenses associated with the purchase of Newspapers and Television Licence were grossed
up and consolidated into salaries with effect from 1st October 1982. Journalists employed by the Company at that time have the option of having
these expenses paid on a monthly or six-monthly basis.’
For the purpose of the present proceedings it was agreed between the parties that each journalist in the Scottish appeals received from his employer
in 1985–86 a newspaper allowance of £1,063, that this allowance formed part of his emoluments for the year for the purposes of s 183 of the 1970 Act
and that the journalist spent at least £1,063 in purchasing newspapers and periodicals. The question in the Scottish appeals was whether the sum of
£1,063 was deductible from the income of each journalist as expenses under s 189 of the 1970 Act.
In the case of the English newspapers it was agreed between the parties that each journalist in the English appeals received from his employer in
1985–86 a newspaper allowance, that the allowance formed part of his emoluments for the purposes of s 183 of the 1970 Act and that the journalist spent
an amount at least equal to the allowance in the purchase of newspapers and periodicals. The question in the English appeals was whether the amount of
the allowance thus spent was deductible from the income of each journalist as expenses under s 189 of the 1970 Act.
In the Scottish cases the Special Commissioners refused the claims of each journalist to deduct the expenses of purchasing newspapers and
periodicals on the grounds that the journalist read in order to prepare himself for his duty and that the reading was not undertaken ‘in the performance’ of
his duties. The First Division of the Inner House of the Court of Session (the Lord President (Hope) and Lord Cullen (Lord McCluskey dissenting))
([1992] STC 406) upheld the commissioners and the journalists now appeal.
In the English cases the General Commissioners upheld the claims of each journalist to deduct the expense of purchasing newspapers and periodicals
on the grounds that the journalist was reading ‘in the performance’ of his duties. That decision was upheld (save in one instance) by Warner J ([1991]
STC 661) and all the claims were upheld by the Court of Appeal (Ralph Gibson, Mann and Nolan LJJ) ([1993] 2 All ER 417, [1993] 1 WLR 1114). The
Crown now appeals.
The five journalists involved in the Scottish appeals were employed respectively as follows.
(1) An assistant picture editor. He purchased nine daily newspapers, three Sunday newspapers and the following periodicals: Radio Times, TV
Times, Woman, Woman’s Own, Cosmopolitan, Private Eye, Ideal Home and Practical Gardener.
(2) A features writer and weekly columnist. She purchased five newspapers everyday and other daily papers from time to time. On Sundays she took
five or six newspapers. She took some magazines regularly as useful background reading including the Economist, History Today, Illustrated London
News, Listener, Spectator, Private Eye, Life, Radio Times, TV Times and Time Out and others such as Woman, Woman’s Own, Cosmopolitan and She
when it seemed from the cover they might have something useful for her work.
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(3) A staff reporter. He bought four daily and two Sunday papers. He also bought the Spectator, New Scientist, Newsweek, Time, Economist, New
Society, Listener, Punch and Private Eye regularly and, on occasion, Vogue and Good Housekeeping. He sometimes bought the Times Educational
Supplement.
(4) A sub-editor. He nearly always bought five daily newspapers and one of the quality English papers. On Sundays he bought five newspapers. He
also bought a variety of magazines as they appeared such as the Listener, Radio Times, TV Times, Exchange and Mart, Scottish Field, Homes and
Gardens, UK Press Gazette, Woman and Woman’s Own.
(5) A sports sub-editor. He bought eight daily papers, five Sunday papers and also the Radio Times, TV Times, Punch, Tennis World,
Cosmopolitan, Soccer Journal and a number of other magazines.
The five journalists involved in the English appeals were employed respectively as follows.
(6) A picture editor. He purchased all the daily and Sunday newspapers and on each day two or three editions of the evening newspapers. He also
purchased each publication of the British Journal of Photography, SLR, Amateur Photographer, Paris Match, Stern, Creative Camera, Epoca, Punch,
Time, Sussex Courier, Life, Express and Star, Illustrated London News, Tatler, Country Life, Bunte, Cosmopolitan and Melbourne Newsweek.
(7) A news sub-editor. He purchased eight daily papers, seven Sunday papers, Radio Times, TV Times, Time, Smash Hits, Spectator, Economist,
New Statesman, Private Eye, Newsweek and UK Press Gazette when he considered it necessary.
(8) A sports reporter. He purchased all the dailies and eight Sunday newspapers. He regularly bought the Cricketer, Wisden Cricket Monthly,
Shoot, World Soccer, Match Weekly, Spectator, New Statesman, Private Eye, Newsweek, Time, UK Press Gazette together with other periodicals and
foreign newspapers which he considered relevant.
(9) A staff photographer. He purchased nine daily papers, and two or more Sunday papers and in addition he bought the Catholic Pictorial, The
Herald and Universe.
(10) A news layout journalist. He purchased all the daily and Sunday newspapers and in addition the New Statesman, Newsweek, Time, Campaign,
UK Press Gazette, Kent Messenger, TV Times and Radio Times.
Each journalist read the newspapers and periodicals which he purchased in his spare time mostly at home but sometimes while travelling to and from
work and sometimes in his spare time at work. Some of the journalists kept cuttings for future reference. The evidence given by or on behalf of each
journalist giving reasons for such reading was similar to and almost identical with the other cases. The journalist said that he read newspapers because he
must know what has happened and what is likely to happen. He can find out what is happening by reading newspapers and periodicals. He needs to have
an up-to-date knowledge of all aspects of the news. He has to know what other newspapers are doing about a particular news item, what stage various
issues in a story have reached, judge every story in relation to everything else going on, avoid repeating stories appearing in other newspapers the
previous day and take the story forward where it is a continuing event. In addition, newspapers and periodicals provide the journalist with ideas, and
suggest different methods of presentation, style and language. There was evidence that a 678 newspaper proprietor expected or required his
journalists to read widely and that if a journalist neglected to read other newspapers and periodicals the quality of his work would suffer and he would
expect to be reprimanded or even dismissed in the final analysis.
In the Scottish cases the Special Commissioners held ([1992] STC 406 at 425):
‘By reading newspapers and magazines the taxpayers, generally speaking at any rate, provided themselves with background material with which
to approach their respective tasks as reporter, features writer, sub-editor or photo journalist as the case might be. They were not at that time
preparing articles, photographs or reports for publication, but preparing themselves to carry out the duties of their employment.’
Preamble
In the English cases the General Commissioners ([1991] STC 661)—
‘accept the evidence of Mr Burden and the taxpayer that the reading of this material was a necessary part of the duties of [the journalist] … and
was not merely required to qualify, or maintain the qualifications of, the taxpayer to do the work.’
My Lords, the Special Commissioners and the General Commissioners cannot both be right. The facts in all the Scottish and English cases were
indistinguishable. If a sub-editor sits in his parlour in Scotland reading English newspapers and a sub-editor sits in his parlour in England reading Scottish
newspapers then both or neither of the sub-editors must be reading in the performance of the duties of a sub-editor. The deductibility of the expenses of
purchasing newspapers by thousands of journalists cannot vary from journalist to journalist according to the composition or differing views of different
commissioners. The question in each case is whether when a journalist reads newspapers he is performing the duties of his employment.
The conditions necessary to be fulfilled in order for expenses of an employee to qualify for deduction under s 189 of the 1970 Act or its predecessors
have been judicially considered in the past but not in relation to journalists.
In Simpson (Inspector of Taxes) v Tate [1925] 2 KB 214 a medical officer of health joined certain medical and scientific societies in order that by
means of their meetings and published transaction he might be aware of all recent advances in sanitary science and keep himself up to date on all medical
questions affecting public health. Rowlatt J said ([1925] 2 KB 214 at 219):
‘The respondent qualified himself for his office before he was appointed to it, and he has very properly endeavoured to continue qualifying by
joining certain professional and scientific societies, so that by attending their meetings and procuring their publications he may keep abreast of the
highest developments and knowledge of the day. He seeks to deduct from his assessable income the subscriptions paid by him to these bodies as
money expended necessarily in the performance of the duties of the office. When one looks into the matter closely, however, one sees that these
are not moneys expended in the performance of his official duties. He does not incur these expenses in conducting professional inquiries or get the
journals in order to read them to the patients. If he did, the case would be altogether different. He incurs these expenses in qualifying himself for
continuing to hold his office, just as before being appointed to the office he qualified himself for obtaining it … In my view the principle is that the
679 holder of a public office is not entitled … to deduct any expenses which he incurs for the purpose of keeping himself fit for performing the
duties of the office, such as subscriptions to professional societies, the cost of professional literature and other outgoings of that sort. If deductions
of that kind were allowed in one case every professional office holder would claim to be entitled to deduct the payments made by him to every
scientific society to which he happened to belong and the price which he paid for every professional publication, and there would be no end to it.’
Similarly in the present cases it seems to me that a journalist does not purchase and read newspapers in the performance of his duties but for the
purpose of ensuring that he will carry out his duties efficiently. If deductions of this kind were allowed in one case every journalist or other similar
employee would claim to be entitled to deduct the payment made by him for every newspaper and periodical which he chose to purchase and there would
be no end to it. A sports reporter is employed to report sport, not to read newspapers, a photographer is employed to produce pictures for his newspaper
not to study the pictures of others. An editor is employed to select, draft and arrange items in his newspaper, not to read other newspapers. A journalist
who reads newspapers does so in order to be able to perform his duties to the highest possible standard but he does not read in performance of his duties.
These were the reasons given by the Lord President (Hope) and Lord Cullen for upholding the Scottish commissioners in Fitzpatrick v IRC (No 2) [1992]
STC 406. I am unable to agree with the contrary conclusion reached by Lord McCluskey and emphatically unable to approve the attempt by Lord
McCluskey (at 440) to express the words of s 189 in his own terms.
In Ricketts v Colquhoun (Inspector of Taxes) [1926] AC 1 the Recorder of Portsmouth was not allowed the expense of travelling from his home in
London to his court in Portsmouth. Travelling expenses fall into a separate category because each employee chooses where he will live and cannot
establish that every employee must incur the same expenses. Lord Blanesburgh said ([1926] AC 1 at 7):
‘… the language of [r 9 of Sch E in Sch 1 to the Income Tax Act 1918] points to the expenses with which it is concerned being only those
which each and every occupant of the particular office is necessarily obliged to incur in the performance of its duties—to expenses imposed upon
each holder ex necessitate of his office, and to such expenses only … the terms employed are strictly, and, I cannot doubt, purposely, not personal
but objective …’
In the present cases every journalist is free to choose the method by which he will keep himself up to date and efficient. This may or may not
involve reading one newspaper or any particular number of newspapers.
In Nolder (Inspector of Taxes) v Walters (1930) 15 TC 380 an airline pilot was not allowed to deduct the cost of transport between his home and the
aerodrome or the cost of the telephone at his home. Rowlatt J said (at 387):
‘“In the performance of the duties” means in doing the work of the office, in doing the things which it is his duty to do while doing the work of
the office. A man who holds an office or employment has, equally necessarily, to do other things incidentally, and spend money incidentally,
because he has the office. He has to get to the place of employment, for 680 one thing … Incidentally, he is obliged to do that, but it is not in
doing the work of the office, which begins when he arrives, and sets to work to perform his duties.’
In the present cases the work of each journalist began when he arrived at the office or when he went out on location to obtain information or other
material designed to be incorporated in his newspaper.
A recorder and an airline pilot must travel from home in order to work; a journalist must read in order to work well. But in both cases, it seems to
me, travelling to work and reading are not activities carried out in the performance of the work but activities which are a necessary preliminary to or
preparation for performing the work.
In Blackwell (Inspector of Taxes) v Mills [1945] 2 All ER 655 a student assistant in the research laboratory of a company was required, as a condition
of his employment, to attend classes in preparation for the final examination for the degree of Bachelor of Science. He was allowed time off to attend
classes for that purpose and claimed to deduct for income tax purposes the expenses he incurred in travelling to and from the classes and in the purchase
of textbooks. Macnaghten J said (at 656–657):
‘It was a condition of [the taxpayer’s] employment that he should attend the evening classes. Although counsel for the [taxpayer] contended
that, since the subject-matter of the evening classes was not unconnected with the duties that [the taxpayer] had to perform, he should be regarded
as performing the duties of his office when he was attending the Chelsea Polytechnic, in my opinion, any such view is inadmissible. The duties of
Preamble
his employment were as a student assistant in the research laboratories of the General Electric Company. It seems to me impossible to say that,
when he was listening to the lecturer at the Chelsea Polytechnic, he was performing the duties of a student assistant at the laboratories of the
company.’
In the present cases there was some dispute as to whether a journalist was required as a condition of his employment to read newspapers and
periodicals of his choice. But it appears from Blackwell v Mills that this dispute is not relevant. The duties of a sports reporter were to report sport.
Adapting the words of Macnaghten J it seems to me impossible to say that when the sports reporter was reading newspapers in the quiet of his home he
was performing the duties of a sports reporter either at the offices of the newspaper or on location.
In Lomax (Inspector of Taxes) v Newton [1953] 2 All ER 801 at 802, [1953] 1 WLR 1123 at 1125 Vaisey J said—
‘… the provisions of [r 9 of Sch E (now s 189(1) of the 1970 Act)] are notoriously rigid, narrow and restricted in their operation. In order to
satisfy the terms of the rule it must be shown that the expenditure incurred was not only necessarily, but wholly and exclusively, incurred in the
performance of the relevant official duties … An expenditure may be “necessary” for the holder of an office without being necessary to him in the
performance of the duties of that office. It may be necessary in the performance of those duties without being exclusively referable to those duties.
It may, perhaps, be both necessarily and exclusively, but still not wholly, so referable. The words are, indeed, stringent and exacting.
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Compliance with each and every one of them is obligatory if the benefit of the rule is to be claimed successfully.’
In that case a regimental officer was not allowed to deduct his annual mess subscription although he was obliged to be a member of the mess and would
no doubt have been transferred or even cashiered if he failed to pay. An officer in the Territorial Army was not allowed his mess subscriptions or his
share of mess expenditure on guests. The officer was also not allowed the cost of attending social functions given by warrant officers and other ranks.
Vaisey J said ([1953] 2 All ER 801 at 804, [1953] 1 WLR 1123 at 1127):
‘I agree that participation in the social life of the battalion was part of the social duties of the taxpayer, but was it any part of his official duties?
Was he at the sergeants’ dance in the proper sense of the expression “on duty”? I think not. I am quite unable to see how this item can be brought
within the rule. I apply to it a description from the contentions of the Crown as set out in the Case, and say that these sums are expenses incurred
from tradition and custom, accepted voluntarily by the officers of the unit and containing elements of personal choice and benefit, and, therefore,
not within the rule.’
Similarly in the present cases the journalist is not on duty when he is reading at home and his expenditure on newspapers contains elements of
personal choice and benefit. Indeed one of the journalists gave evidence that he was a compulsive buyer of newspapers.
In Humbles (Inspector of Taxes) v Brooks (1962) 40 TC 500 the headmaster required to teach history was not allowed the expense of attending a
series of weekend lectures on history. Ungoed-Thomas J citing the authorities said (at 502):
‘“In the performance of the said duties” means in the course of their performance … It means “in doing the work of the office, in doing the
things which it is his duty to do while doing the work of the office” … It does not include qualifying initially to perform the duties of the office, or
even keeping qualified to perform them … it does not mean adding to the taxpayer’s usefulness in performing his duties. The requirement of the
employer that the expenditure shall be incurred does not, of itself, bring the expense within the Rule, nor does the absence of such a requirement
exclude it from the application of the Rule …’
The judge accepted (at 503) that the headmaster—
‘attended the course to improve his background knowledge of the subject … he gleaned useful information from the lectures … he felt the
course was essential to keep himself up to date … to provide him with material which he reproduced in the history lessons.’
All these advantages were claimed by the journalists in the present cases plus the claim that reading newspapers provided ideas and inspiration. This
advantage however is no different in quality from the other advantages claimed.
In Brown v Bullock (Inspector of Taxes) [1961] 3 All ER 129, [1961] 1 WLR 1095 a bank manager who was instructed by his employers to foster
local contacts and for that purpose to join a club was not allowed as an expense in the 682 performance of his duties as a bank manager the entrance
fee and annual subscriptions to the club which were paid by his employers. In approving the decision of Vaisey J in Lomax v Newton, Lord Evershed MR
said ([1961] 3 All ER 129 at 131, [1961] 1 WLR 1095 at 1100) that the language of the statute is of a somewhat rigid character and that the adverb
‘necessarily’ added to the phrase ‘[in the] performance of the duties’ clearly narrows very much the scope of any expenditure which can fairly be
deductible. Donovan LJ said ([1961] 3 All ER 129 at 133, [1961] 1 WLR 1095 at 1102):
‘The test is not whether the employer imposes the expense, but whether the duties do, in the sense that, irrespective of what the employer may
prescribe, the duties cannot be performed without incurring the particular outlay.’
It does not matter therefore whether in the present cases the journalists were contractually bound to their employers to expend money in the purchase
of other newspapers and magazines or whether they did so voluntarily. Whether or not a journalist thinks it is necessary to read one or more newspaper
and periodical his duty is in the production of his employer’s newspaper and he is not carrying out that duty when he is reading other newspapers.
Elwood (Inspector of Taxes) v Utitz (1964) 42 TC 482 was a case in which travelling expenses from one place of work to another were held to be
deductible in contrast to travel expenses from home to a single place of work. Owen v Pook (Inspector of Taxes) [1969] 2 All ER 1, [1970] AC 244 is a
similar case. The question in the present cases is whether the journalist was reading in order to qualify himself to work to the satisfaction of himself and
his employer or whether he was reading in the performance of his work. Taylor v Provan (Inspector of Taxes) [1974] 1 All ER 1201, [1975] AC 194 was
another case concerned with travelling expenses. Lord Salmon distinguished between expenses which were deductible because they were incurred ‘in the
performance of the duties’ and expenses which were not deductible because they were incurred ‘in order to enable the duties to be performed’ (see [1974]
1 All ER 1201 at 1223, [1975] AC 129 at 226–227). Applying this distinction a journalist does not read in the performance of his duties but in order to
enable his duties to be performed.
The reasons for the strictness of the rule governing deductible expenses are not hard to find. If a journalist or other employee were allowed to deduct
expenses incurred by him in his spare time in improving his usefulness to his employer, the imposition of income tax would be distorted and the amount
Preamble
of the expenses claimed by an individual would depend entirely on his own choice. In the present cases for example the Scottish appeals and the English
appeals are test cases. The numbers of members of the National Union of Journalists have in the past exceeded 30,000. No doubt every journalist is
prepared to give evidence sincerely and honestly that he considers it is necessary to purchase the newspapers and magazines which he chooses to read and
up to the amount for which he receives an allowance. If each spend £1000 a year the total deduction for 30,000 journalists will be £30m a year. There
may be a large number of journalists who would not spend this amount but the principle of the decision in the present cases does not apply only to
journalists; the ramifications of the decision in their favour would be enormous.
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As I have indicated, in the Scottish cases the Special Commissioners and a majority of the Inner House considered that the expenditure by a
journalist on newspapers and periodicals was not necessarily incurred in the performance of his duties. In the English cases, the General Commissioners,
after surveying the evidence, concluded that the expenditure was necessarily incurred in the performance of the duties. The Court of Appeal were
content to treat the conclusions of the General Commissioners as findings of fact. In the English cases the courts appear to have been powerfully
influenced by the belief, naturally held and strongly expressed by the journalists and supported by their employers, that their reading of newspapers was
necessary and was carried out in the performance of their duties. But it is for the court to determine on the facts and evidence whether those beliefs are
justified having regard to the wording of s 189(1) of the 1970 Act and to the authorities. Questions involved in the present cases are mixed questions of
law and fact.
No one doubts that a journalist may benefit from information and knowledge concerning past and present events and from former and contemporary
examples of style and presentation. He may with profit read the past journalistic works of William Howard Russell, Bernard Shaw, Neville Cardus, and
Henry Longhurst, amongst others. He may with profit read the contemporary leading articles of the Times or study the photographs in the Star or the
headlines in the Daily Mirror, or the layout of the Daily Express. Before a journalist begins his daily work he must form a view of what he ought to be
doing during the day. But he is not performing his duties when he prepares for work and there are a variety of ways in which he may choose to prepare
and inform himself. The evidence in the present appeals largely ignored the help to be derived from Reuters, Press Association and other news services
and also the immediate help of radio and television broadcast. A journalist is free to choose his preparatory studies. It is said that some journalists best
obtain ideas and keep up to date by wining and dining. The journalists in the present cases chose to spend several hours everyday reading a formidable
mass of repetitive newsprint dealing with the events of yesterday. In my opinion, they were not, in the course of that reading, engaged in the performance
of the duties for which they were paid.
The following facts were common to all the cases considered by the Scottish commissioners and the English commissioners. (1) The journalist was
employed on the terms of a written contract for a maximum of four days a week for a maximum number of hours per day. (2) The journalist selected,
bought and read a variety of newspapers and periodicals. He was not carrying out his contractual duties. For example Mr Simpson, to whom my noble
and learned friend Lord Browne-Wilkinson refers in his speech, was not sub-editing when he was reading newspapers at home after he had returned from
work. (3) The journalist was not renumerated for the time he spent in reading newspapers at home. (4) The journalist was not guilty of a breach of
contract if he did not read any newspapers at home or read some newspapers but not others. (5) In the course of performing their contractual duties the
journalist made use of information which he had obtained when he was not performing his contractual duties. For example, if Mr Simpson saw on the
television or heard on the radio or read in the newspaper that Mr Michael Jackson had been found in Bootle he would make up the pages for which he was
responsible so as to give prominence to that item of news.
684
In all the cases there was but one question of law, namely whether on the facts and on the true construction of s 189 of the 1970 Act the journalist
incurred expense in the performance of his duties when he selected, purchased and read newspapers and periodicals in his own time. If either set of
commissioners failed to answer that question of law correctly, the error of law must be corrected by the courts who are always entitled and bound to
correct errors of law. In my opinion the Scottish commissioners reached the right conclusion of law and the English commissioners did not.
My noble and learned friend says that the Scottish commissioners were right because they did not have the evidence of Mr Burden and the English
commissioners who reached the opposite conclusion were right because they did receive that evidence. The case stated by the English commissioners
contains this passage on which my noble and learned friend relies:
‘We accept the evidence of Mr Burden and the taxpayer that the reading of this material was a necessary part of the duties of sub-editing as
described above and was not merely required to qualify, or maintain the qualification of, the taxpayer to do the work.’
Mr Burden and the taxpayer expressed the opinion that reading was a necessary part of the duties of sub-editing. The English commissioners
appeared to have assumed and my noble and learned friend has assumed that this opinion is decisive of the question of law which is whether the reading
was in the performance of the duties. Mr Burden and the taxpayer were not qualified to express an opinion on a question of law. The English
commissioners were qualified to do so but are liable to be corrected by the court.
My noble and learned friend now suggests that the question of law shall be decided by the evidence of newspaper proprietors and journalists to be
given to a third set of commissioners whose decision will not be subject to correction by the courts. He also suggests that the commissioners should not
be asked to decide whether on the undisputed facts and on the true construction of s 189 of the 1970 Act journalists are acting in the performance of their
duties as reporters, authors, editors, photographers but should be asked to decide whether reading is objectively part of the core duties of their
employment. In my opinion the question of law involved in these cases cannot be decided by the non-statutory and in my view incomprehensible test of
core duties nor by the non-statutory dicta of a lower court dealing with different facts in Humbles v Brooks. My noble and learned friend’s suggestion
demonstrates a confusion of facts, opinion and law of a kind which was corrected by the House of Lords in Ensign Tankers (Leasing) Ltd v Stokes
(Inspector of Taxes) [1992] 2 All ER 275 at 291–292, [1992] 1 AC 655 at 677. Such confusion would cause chaos in the administration of revenue law.
In my opinion, from the wording of the section and from the authorities, a journalist who claims to deduct under s 189(1) of the 1970 Act his
expenditure on newspapers and periodicals fails. When he reads newspapers and periodicals he is not acting in the performance of his duties as a reporter,
author, editor, photographer or like occupation.
I would accordingly dismiss the Scottish appeals and uphold the appeals of the Crown in the English appeals.
685
LORD JAUNCEY OF TULLICHETTLE. My Lords, I have no doubt that for the reasons given by my noble and learned friend Lord Templeman, the
Scottish appeals should be dismissed. I have found the position in relation to the English appeals to be much more difficult. I must confess to having
been impressed by the conclusions drawn by my noble and learned friend, Lord Browne-Wilkinson, from findings 7(d) of the General Commissioners
when they accepted the evidence of management and journalists that the reading of material was a necessary part of the duties of sub-editing and was not
merely required to qualify or maintain the qualification of the journalist’s work. However, I am satisfied that the question of whether money is expended
‘wholly, exclusively, and necessarily in the performance of [a journalist’s] duties’ is not only a question of fact on which evidence can be conclusive, but
Preamble
involves a mixed question of fact and law. That being so, it follows that the views of management and employees cannot per se be determinative of the
matter and that the commissioners must form their own view in the light of the provisions of the statute.
For the reasons given by my noble and learned friend, I consider that the General Commissioners have erred in law and I agree that the English
appeals should be allowed.
LORD BROWNE-WILKINSON. My Lords, I am in entire agreement with the view of my noble and learned friend Lord Templeman that, in the real
world, the answer to the question whether expenditure incurred by journalists in buying newspapers is deductible for tax purposes cannot differ as
between any two or more journalists doing essentially the same job. Accordingly, in an ideal world, your Lordships ought to be able to resolve the
conflicting decisions in the cases of the Scottish journalists and the English journalists. My difficulty is that your Lordships are not operating in the real
world. To give a definitive answer to the question, it is necessary to know the true facts.
In the present cases, the two sets of commissioners, who are the sole arbiters of the facts, have reached different, and in one important respect
conflicting, findings of fact. Your Lordships’ only function is to decide whether or not on the facts found in each case the decision of the commissioners
in that case was in law correct. If, as in these cases, on the evidence before them the commissioners in the two cases have made differing findings of fact,
your Lordships may be required to hold that their conclusions in each set of appeals (though conflicting) are right in law. It is not legitimate for this
House, in seeking to reach a common sense outcome, to disregard or alter the findings of fact made by the commissioners or to characterise as a question
of law what is in reality a question of fact.
Under the Taxes Management Act 1970, the determination of tax appeals is committed to the General or Special Commissioners. Their decision is
final, save as provided by s 56 of that Act. Subsection (2) provides that either the taxpayer or the Revenue, if dissatisfied with the commissioners’
determination as being erroneous in point of law, can require a case to be stated. The case stated shall set forth the facts (see sub-s (4)). Subsection (6)
confers on the court its only jurisdiction viz to hear and determine any question or questions of law. Therefore, in any appeal by case stated the court’s
only jurisdiction is to determine, on the basis of the facts found in that case stated, whether any error of law is disclosed.
686
In many cases the distinction between questions of fact and law is difficult to draw. The classic statement of what amounts to an error of law (and
one adopted by all parties in argument) is that of Lord Radcliffe in Edwards (Inspector of Taxes) v Bairstow [1955] 3 All ER 48 at 57, [1956] AC 14 at
35–36:
‘I think that the true position of the court in all these cases can be shortly stated. If a party to a hearing before commissioners expresses
dissatisfaction with their determination as being erroneous in point of law, it is for them to state a Case, and in the body of it to set out the facts that
they have found as well as their determination. I do not think that inferences drawn from other facts are incapable of being themselves findings of
fact, although there is value in the distinction between primary facts and inferences drawn from them. When the Case comes before the court, it is
its duty to examine the determination having regard to its knowledge of the relevant law. If the Case contains anything ex facie which is bad law
and which bears on the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may
be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination
under appeal. In those circumstances, too, the court must intervene. It has no option but to assume that there has been some misconception of the
law, and that this has been responsible for the determination. So there, too, there has been error in point of law. I do not think that it much matters
whether this state of affairs is described as one in which there is no evidence to support the determination, or as one in which the evidence is
inconsistent with, and contradictory of, the determination, or as one in which the true and only reasonable conclusion contradicts the determination.
Rightly understood, each phrase propounds the same test. For my part, I prefer the last of the three …’
In these appeals none of the taxpayers submitted that there was any error of law on the face of the cases stated. The sole question therefore, in both
appeals, is whether the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the
determination under appeal or whether on the facts found, the true and only reasonable conclusion contradicts the determination.
In order to reach any view on that question the Scottish appeals and the English appeals have to be considered separately since the determination of
each body of commissioners is made on the basis of the evidence led before each body, the assessment of such evidence by each body and the final
conclusions of fact reached by each body. It is not legitimate to ask the question, ‘Could the English commissioners acting judicially and properly
instructed as to the relevant law have come to their conclusion on the basis of the facts found by the Scottish commissioners?’ Therefore I am unable to
follow the course adopted by my noble and learned friend Lord Templeman in conflating into one mass the separate findings of fact made by the two
bodies of commissioners.
Before turning to the facts, it is important to identify what, in law, were the relevant issues. It is one of the singular features of these appeals that at
no stage has there been any disagreement between the parties as to the principles of law applicable in applying s 189(1) of the Income and Corporation
Taxes Act 1970. Those principles were admirably summarised by Warner J in his 687 judgment in the English appeals ([1991] STC 661 at 674,
[1992] 1 WLR 201 at 204) a summary adopted as correct both by the Court of Appeal ([1993] 2 All ER 417 at 420, [1993] 1 WLR 1114 at 1117–1118)
and by the Crown in its printed case (at para 5.1):
‘It is notorious that that provision is rigid, narrow and to some extent unfair in its operation. In order to satisfy its requirements, an
office-holder or employee has to show four things. First, he has to show that he has incurred the expenses in question “in the performance of the
duties of the office or employment” … Second, an office-holder or employee has to show that the expenses he seeks to deduct are expenses that he
has been “necessarily obliged” to incur and defray in the performance of the duties of the office or employment. Third, he has to show that those
expenses have been “wholly” so incurred. The better view seems to be that that goes only to quantum. Last, he has to show that they have been
“exclusively” so incurred.
The argument has centred on the first two of those requirements. Again there has been no dispute as to the relevant law. First, it has to be shown
that the expense was incurred in order to discharge a duty of the employment. Whether or not a particular operation is a duty of the employment has to be
determined objectively, ie by answering the question, ‘Does the nature of the job require the doing of the act which gives rise to the expenditure?’ The
expense of doing an act is not deductible just because it is made a condition of the contract of employment that the act has to be done: see Brown v
Bullock (Inspector of Taxes) [1961] 3 All ER 129, [1961] 1 WLR 1095, where a bank manager was held not to be entitled to deduct the cost of being a
member of a club which his employers had instructed him to join.
Second, the act giving rise to the expenditure must be done in the actual performance of such duties: an act which is done merely to acquire the
necessary qualifications or the background knowledge necessary to do the job or to do it better is not sufficient. This requirement is illustrated by
Humbles (Inspector of Taxes) v Brooks (1962) 40 TC 500 where a teacher was held not entitled to deduct the cost of attending a course for the purpose of
Preamble
improving his background knowledge of the subject he was required to teach. Ungoed-Thomas J said (at 503–504):
‘[It was] contended that he was not employed to prepare lectures but to deliver them. This, to my mind, is an unreal distinction for present
purposes. I cannot recognise that a person who is employed to deliver lectures or to teach is not, when preparing the lectures or the talks which he
gives, doing what he is employed to do—that he is not acting in the course of the performance of his duties. Preparing lectures is, to my mind, a
necessary part of his duties. That leaves the question, was the Respondent in this case, when listening to the lecture at the adult college, preparing
his own lecture … First, he attended a course to improve his background knowledge of the subject which he had studied to G.C.E. “O” level only;
second, he gleaned useful information from the lectures at the course; third, he felt the course was essential to keep himself up to date; and, fourth,
to provide him with material which he reproduced in the history lessons. There is, in my view, a distinction between qualifying to teach and getting
background material—and even getting information and 688 material which he reproduced in his own lecture—on the one hand, and preparing
his own lecture for delivery on the other hand. The statement, in the passages in the Case Stated, that the lectures at the college provided the
Respondent with material which he reproduced gets nearest to the performance of his duties within the Section, but even if this element could be
treated in isolation, it goes no further than providing material—just as any background information would provide material—and is not, of itself,
part of the preparation of his own lecture. It is, to my mind, qualifying for lecturing, or putting himself in a position to prepare a lecture. It is not
the preparation of a lecture. In this sense, the distinction is between preparation for lecturing on the one hand and the preparation of a lecture on the
other hand. In my judgment, the Respondent, when he was attending a course and listening to a lecture, was not preparing his own lecture, and he
was therefore not acting in the performance of his duties …’
Accordingly, the relevant questions of fact which had to be determined by each set of commissioners in the present cases were whether, viewed
objectively, the nature of the job each journalist was employed to perform required him to read other newspapers and magazines and, if so, whether such
reading was done in actual performance of his duties or was merely preparatory and done in order to qualify him, by obtaining background information, to
do his job more efficiently.
The commissioners’ findings of fact in the two sets of appeals are set out in the reports of the decisions of the Court of Session ([1992] STC 406) and
of Warner J ([1991] STC 661, [1992] 1 WLR 201). It is unnecessary for me to set them out again since I can illustrate the grounds for my decision by
comparing the case of one Scottish sub-editor, Mr Simpson, with that of one English sub-editor, Mr Shuttleworth. In the case of the Scottish journalists,
the commissioners set out separately their findings of fact in relation to each taxpayer and then made a collective determination of all the appeals, drawing
no distinction between the various taxpayers. In the case of the English journalists, the commissioners made findings of fact and a determination in
relation to each taxpayer separately. But in each case their findings included findings corresponding to those in paras 7(a)(v), 7(d) and 8(a) relating to Mr
Shuttleworth. Before your Lordships all parties accepted that there was no ground for distinguishing between the individual Scottish journalists inter se
and the individual English journalists inter se. Therefore in my judgment the cases of Mr Simpson and Mr Shuttleworth can properly be taken as
determinative of all the appeals. I quote from the findings made in the respective cases stated.
Mr Simpson
‘V … (vii) As a general sub-editor Mr Simpson worked in a pool. His particular field of work covered news and feature items, but he also had
to deal with sport or anything else which the editor or the night editor might allocate to him. He was thought to be knowledgeable on motoring
matters. (viii) He had to know what was going on in the world because his task was to make up the pages for which he was responsible with stories
of interest to readers of the Glasgow Herald. They are, for the most part, people of above average intelligence. (ix) The paper had to be fresh
689 because its readers expected it to carry forward stories which they had heard or seen on the radio or television news programmes the
evening before. (x) Stories came in to the sub-editor throughout the day and he had to recognize which were new and which were stale, keeping a
close eye in particular on those submitted by outside contributors who might try to pass off a second-hand story as their own. He had to be careful
not to print stories lifted from other papers. (xi) As sub-editor he would cut and amalgamate two or more stories into a single article and devise a
headline. (xii) The Mr Simpson’s superiors expected him to read a number of other newspapers and magazines. If he had not done so it would
have become plain to them at the editorial “post-mortem” which took place each day, when the previous day’s papers were considered and
compared. In that event he would have expected to be reprimanded. (xiii) In his opinion reading other newspapers and magazines was an intrinsic
part of his job. (xiv) His day started at 8 am when he listened to the news on Radio 4. He then took his children to school and bought the papers at
the same time, deciding which to buy from looking at the display in the newsagent’s shop. (xv) He took the papers home and read them for an hour
or two before going to the office … (xviii) Mr Simpson had little time for reading or cutting papers in the office and the cutting service of the
office library was not sufficient for his needs—He took a lot of cuttings while reading at home and kept them until he deemed it no longer
necessary. (xix) While he was at work Mr Simpson relied heavily on his recollection on what he had read at home. All that reading helped with his
awareness of current affairs. (xx) He understood that reading at home was the common practice in the newspaper industry and he regarded it as
simply part of his job for which the company gave him money. It was inconceivable to him that he should fail to spend it in the purchase of papers
to read at home. (xxi) He considered himself to be working when he was reading and cutting newspapers at home.’ (See [1992] STC 406 at
416–417.)
The Special Commissioners made their determination in relation to all the Scottish journalists collectively. Having found that the expenditure was
wholly and exclusively incurred for the purposes of their employment they continued ([1992] STC 406 at 423):
‘To succeed, however, the taxpayers also have to satisfy the further requirements of the subsection, that they were “necessarily obliged” to incur
the expenditure “in the performance of” the duties of their employments, that is to say in the course of performing those duties. Those requirements
impose an objective test which is notoriously rigid and difficult to satisfy … We can accept on the evidence that reading and taking cuttings from
newspapers and magazines is a common practice among journalists. Whether it is “universal”, as [counsel for the taxpayers] would wish us to find,
we have no means of telling: but it may be so widespread that a journalist, however junior, is normally expected to adopt it. In the absence of any
special circumstances, however, it seems to us that the practice is to be regarded as part of a professional journalist’s way of life rather than an
incident in the duties of a particular employment in the newspaper industry. The terms of the journalists’ contracts in these cases are more
consistent with that view of the matter than with the 690 opposing view that reading is part of the employee’s duties. There is no requirement
that it should be done nor is any time made available for it. The practice is recognised and approved by the payment of the newspaper allowance
but the activity is clearly to be carried on out of working hours in the employee’s own time … Although we appreciate that the taxpayers
considered themselves to be working, as opposed to being at leisure, when they were reading and cutting newspapers at home it does not follow
necessarily that they were carrying out the duties of their employments and we can find no grounds for saying that they were. The only possible
conclusion on the evidence is, in our opinion, that the duties of each taxpayer’s employment started when he or she arrived at the office, or set off
Preamble
for an outside assignment if that was the first task of the day, and finished when he or she left the office or completed the final assignment of that
day. ’ (My emphasis.)
Having quoted the passage from Humbles v Brooks 40 TC 500 at 503 which I have cited the commissioners continued ([1992] STC 406 at 425):
‘In our judgment the expenditure in this case falls on the wrong side of the dividing line indicated by the judgment in Humbles v Brooks. By
reading newspapers and magazines the taxpayers, generally speaking at any rate, provided themselves with background material with which to
approach their respective tasks as reporter, features writer, sub-editor or photo journalist as the case might be. They were not at that time preparing
articles, photographs or reports for publication, but preparing themselves to carry out the duties of their employments.’
Mr Shuttleworth
Before setting out the commissioners’ findings, I must explain that in the English journalists’ case (unlike the Scottish journalists’ case) the taxpayers
called a witness from the management of the Daily Mail, Mr Burden, to seek to prove that the reading of newspapers was part of the duty of a journalist.
The commissioners found ([1991] STC 661 at 670–671):
‘7.(a) … (ii) As News Sub-Editor for particular pages of the newspaper he had to select and check the news reports, re-writing them as
necessary, determine the headlines and the page layout, choose pictures, select the type and consider whether any legal problems arose. For this
work, he was responsible to the Chief Sub-Editor. (iii) As Assistant Chief Sub-Editor he was in charge of a number of Sub-Editors and had to
check and correct as necessary their work … The paper was published on six days but the staff worked on four so that he often stood in for the
Chief Sub-Editor, when he was absent, in which case he would receive material from the “Back Bench”, the section that directs and controls all the
news coverage of the newspaper … He would then plan a page, select the appropriate Sub-Editor to deal with a particular story, giving him the
necessary advice as well as checking and correcting the page. He would sometimes also stand in for others such as the “Splash” Sub-Editor
(responsible for the front page) or the Assistant Night Editor, when he would have similar duties. (b) Properly to carry out his duties he needed to
have an up to date knowledge of all aspects of the news. In order to select copy for the next edition of the Daily Mail, he had to know what 691
other newspapers were doing about a particular news item, what stage various issues in the story had reached, judge every story in relation to
everything else going on, not repeat stories appearing in other newspapers the previous day and take the story forward (where it was a continuing
event) from what had appeared in the previous day’s newspapers, as well as in the Daily Mail … (d) We accept the evidence of Mr Burden and the
appellant that the reading of this material was a necessary part of the duties of sub-editing as described above and was not merely required to
qualify, or maintain the qualification of, the appellant to do the work [emphasis added]. (e) The newspapers and periodicals were generally read by
the appellant at home in the morning before he left for the office. On the days of non-attendance at the office he still had to read the newspapers
and periodicals as part of his normal duties but could spread his reading over the whole day. It was necessary for him to do this work outside the
office because—(i) he had to be equipped with the news before he started operations in the Daily Mail offices; (ii) his duties there gave him no time
to read the newspapers or periodicals; he was always working against the clock; (iii) the cuttings library at the Daily Mail offices was not equipped
to provide those daily reading facilities; and (iv) newspaper reading outside office hours was regarded by his employer and by the appellant as an
essential part of his duties. 8.(a) We conclude that the reading of the newspapers and periodicals outside the Daily Mail offices was in the
performance of the duties of the employment, notwithstanding that this was done at home and outside the hours of attendance of the Daily Mail
offices, and the money expended on them was in each case expended, wholly, exclusively and necessarily in the performance of the appellant’s
duties.’
Comparing these two sets of findings, the most obvious conflict is between the findings relating to the question whether or not it was part of the
duties of a sub-editor to read other newspapers. In the Scottish cases it was held not to be part of the duties of the employment but merely good
journalistic practice: in the English cases there was an express finding that such reading was a necessary part of the duties of sub-editing (para 7(d)). The
finding of the commissioners in the Scottish cases is, by itself, decisive of the Scottish cases: if the reading of papers was not part of the duties of the
taxpayer’s employment, the expense of buying such papers cannot have been incurred in the performance of the duties of the employment: there can
therefore be no question of the commissioners in the Scottish cases having reached a wrong determination in law on the facts found by them.
The determination by the English commissioners that reading the newspapers was a necessary part of the duties of a sub-editor was based on their
acceptance of the oral evidence given to them not only by the journalists but also by the management. It is not necessarily decisive by itself: the
possibility remains that, in doing such reading, the journalist is only doing something preparatory to the actual performance of his duties, qualifying
himself to carry out such performance. But in para 7(d) the commissioners expressly direct themselves to that question and find as fact that the reading
was not merely required to qualify, or maintain the qualification of the taxpayer to do the work. This is in direct contradistinction to the finding of the
commissioners in the Scottish cases that their case fell on the wrong side of 692 the dividing line indicated by the judgment in Humbles v Brooks and
the journalists were merely providing themselves with background material with which to approach their respective tasks. The finding by the
commissioners in the English cases is, in my judgment, a clear finding of fact that daily reading before arrival at the office was a necessary part of the
daily doing of the job of a sub-editor. This finding is amply supported by the findings of primary fact. The sub-editor had to be equipped with the news
before he started work when he arrived at the offices of the Daily Mail (para 7(e)(i)). In order to select stories for publication (para 7(a)(ii) and (iii)) he
had to know what other newspapers were doing about a particular news item and not repeat stories which had appeared in other newspapers (para 7(b), ie
the sub-editor did not only need to know what the news was: he had to know how rival newspapers were covering it. He was not acquiring background
knowledge but was discovering daily what was the news and how it should be processed.
On these findings of fact in the case of the English journalists, the commissioners could without any error of law reach the determination that the
expenditure was deductible. They could properly take the view that the case was not analogous to that of a lecturer equipping himself with background
information which might or might not prove useful in preparing a particular lecture but was closer to expenditure on specific research for a particular
lecture. On these findings, knowledge of each day’s news and the way it is being dealt with by other newspapers is the raw material from which that
day’s news is presented in that dayqs paper. Each day’s issue is a separate lecture; each day’s work is a preparation of that lecture and each day’s reading
of other newspapers is research for that day’s lecture. Certainly on the facts found, the knowledge acquired from daily reading of newspapers could not
properly be described as being merely preparatory or by way of background information.
For these reasons, I would hold that both the Court of Session and the Court of Appeal were correct in holding that, on the differing findings of fact
made by each body of commissioners, both determinations were correct in law and both appeals should be dismissed. I repeat that I would not regard this
result as satisfactory. The conclusion reached by the majority of your Lordships is more practical. I regret that I feel unable to join in it because in my
view the limits on the court’s jurisdiction in tax appeals precludes me.
Preamble
LORD MUSTILL. My Lords, I agree with your Lordships that for the reasons given by my noble and learned friend Lord Templeman the Scottish
appeals should be dismissed.
In company with my noble and learned friend Lord Jauncey I have found the position in relation to the English appeals to be much more difficult.
Had I been of the opinion that the two bodies of commissioners were concerned solely with applying clear and undisputed principles to the facts which
they had found I would not have regarded the striking feature that the two tribunals reached opposite conclusions on what is essentially the same point as
furnishing any ground for intervention by the court; for the risk of contradiction always exists where Parliament has chosen in the interests of finality to
create only a limited right of appeal. With much hesitation I have, however, come to the conclusion that finding 7(d) of the General Commissioners does
not bear the weight sought to be put on it and that the issue is one of mixed fact and law which the court is entitled to review. This 693 being so I
consider for the reasons stated by my noble and learned friend Lord Templeman that the English appeals should be allowed.
Appeals in Smith (Inspector of Taxes) v Abbott allowed. Appeals in Fitzpatrick v IRC (No 2) dismissed.
Siew Ling Choo Barrister.

[1994] 1 All ER 694
R v Cornwall County Council, ex parte Huntington and another

R v Devon County Council, ex parte Isaac and another
ADMINISTRATIVE: ENVIRONMENTAL

SIR STEPHEN BROWN P, SIMON BROWN AND PETER GIBSON LJJ
26 APRIL 1993
Judicial review – Availability of remedy – Exclusion by statute – Public right of way order – Validity of order not to be ‘questioned in any legal
proceedings whatsoever’ until order confirmed – Order not confirmed – Applicants applying for judicial review to quash order – Whether court having
jurisdiction to grant judicial review before order confirmed – Wildlife and Countryside Act 1981, Sch 15, para 12(3).
In two separate appeals the applicants sought to quash modification orders made pursuant to s 53(2)(b) of the Wildlife and Countryside Act 1981 to the
definitive maps and statements of public rights of way kept by two county councils. Section 53(2)(b) required county councils, as the surveying
authorities, to keep under continuous review definitive maps and statements defining the areas over which members of the public had rights of way.
When an authority discovered a right of way not previously shown on the map and statement it was required under s 53(3)(c)(i) to make, by way of a
modification order, such modifications to its map and statement as appeared requisite. In the first appeal the county council had made a public right of
way order pursuant to s 53(2)(b) in respect of a footpath over the applicants’ farm and in the second appeal the county council had made an order that a
track running through the applicants’ property was to be a byway open to all traffic. Under the procedure set out in Sch 15 to the 1981 Act an order did
not take effect until confirmed either by the authority or by the Secretary of State (para 2); if any objections were made to the making of the order, the
order had to be submitted by the authority to the Secretary of State for confirmation by him and either an inquiry or a hearing had to be held (para 7), and
the order could not confirmed until the objections and the report of the person appointed to hold the inquiry were considered. Under para 12a of Sch 15
any person aggrieved by an order which had taken effect and who desired to question its validity could within 42 days 694 from the date of
publication of the date of notice of confirmation make an application to the High Court, but para 12(3) provided that ‘Except as provided by [para 12], the
validity of an order shall not be questioned in any legal proceedings whatsoever’. In neither case had the modification order been confirmed. The
applicants applied for leave to apply for judicial review to quash the orders on the ground that the respective county councils had failed to comply with
the proper procedures before making the orders. In both cases leave was refused on the ground that the effect of para 12(3) was that the court had no
jurisdiction to grant judicial review of the orders until they had been confirmed. The applicants appealed to the Court of Appeal, where the issue before
the court was whether or not para 12(3) of Sch 15 operated as a jurisdictional bar to judicial review applications so that the court was precluded by para
12(3) from entertaining any application to quash a decision to make a modification order or the order itself until after the order had been confirmed.
________________________________________
a Paragraph 12 is set out at p 698 e to g, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – The intention of Parliament when it enacted an ouster clause such as that in para 12(3) of Sch 15 to the 1981 Act was that the remedy by way of
an application to the High Court under para 12 of Sch 15 should be the exclusive avenue of redress available to those aggrieved by a modification order,
whether confirmed or not. Accordingly, the court was precluded by para 12(3) from entertaining any application to quash a decision to make a
modification order or to quash the order itself until after the order had been confirmed and unless and until an order was confirmed there could be no legal
challenge. Since in neither case had an inquiry been held or the modification order been confirmed, it followed that the appeals would be dismissed (see p
697 d e, p 698 g, p 700 f g, p 701 f and p 702 a to c, post).
Smith v East Elloe RDC [1956] 1 All ER 855, Anisminic Ltd v Foreign Compensation Commission [1969] 1 All ER 208, R v Secretary of State for
the Environment, ex p Ostler [1976] 3 All ER 90 and R v Secretary of State for the Environment, ex p Kent [1990] JPL 124 applied.
R v Secretary of State for the Environment, ex p Stewart (1978) 37 P & CR 279, R v Camden London BC, ex p Comyn Ching & Co (London) Ltd
(1984) 47 P & CR 417, Lenlyn Ltd v Secretary of State for the Environment (1985) 50 P & CR 129 and Greater London Council v Secretary of State for
the Environment [1985] JPL 868 distinguished.
Decision of the Divisional Court in R v Cornwall CC, ex p Huntington [1992] 3 All ER 566 affirmed.
Preamble
Notes
For the duty to review periodically definitive maps of public paths, see 21 Halsbury’s Laws (4th edn) para 273.
For the procedure for making and confirming orders, see ibid paras 306–313, and for cases on the subject, see 26 Digest (Reissue) 607, 4210–4211.
For the modification of definitive maps of public paths, see Supplement to 21 Halsbury’s Laws (4th edn) para 274B.
For the Wildlife and Countryside Act 1981, s 53, Sch 15, para 12, see 20 Halsbury’s Statutes (4th edn) (1992 reissue) 520, 539.

Anisminic Ltd v Foreign Compensation Commission [1969] 1 All ER 208, [1969] 2 AC 147, [1969] 2 WLR 163, HL.
695
Greater London Council v Secretary of State for the Environment [1985] JPL 868.
Griffiths v Secretary of the State for the Environment [1983] 1 All ER 439, [1983] 2 AC 51, [1983] 2 WLR 172, HL.
Lenlyn Ltd v Secretary of State for the Environment (1985) 50 P & CR 129.
R v Camden London BC, ex p Comyn Ching & Co (London) Ltd (1984) 47 P & CR 417.
R v Secretary of State for the Environment, ex p Kent [1990] JPL 124, CA.
R v Secretary of State for the Environment, ex p Ostler [1976] 3 All ER 90, [1977] QB 122, [1976] 3 WLR 288, CA.
R v Secretary of State for the Environment, ex p Stewart (1978) 37 P & CR 279, DC.
Smith v East Elloe RDC [1956] 1 All ER 855, [1956] AC 736, [1956] 2 WLR 888, HL; varying [1955] 2 All ER 19, [1955] 1 WLR 380, CA.
Application for leave to apply for judicial review and appeal
R v Cornwall CC, ex p Huntington and anor

Michael John Huntington and Rachael Felicity Huntington applied to the Court of Appeal for leave to apply for judicial review following the decision of
the Divisional Court of the Queen’s Bench Division (Mann LJ and Brooke J) ([1992] 3 All ER 566) on 20 February 1992 setting aside leave given by
Otton J on 24 June 1991 to the applicants to apply for judicial review of the making by the Cornwall County Council of the County of Cornwall (A3078
Road to Footpath No 10 with Spur from Nanshutt Hall Farm to Footpath No 15 St Just-in-Roseland) Modification Order 1991 pursuant to s 53(2)(b) of
the Wildlife and Countryside Act 1981. The facts are set out in the judgment of Simon Brown LJ.
R v Devon CC, ex p Isaac and anor

Maurice John Isaac and Graham John Isaac appealed from the order of McCullough J on 27 February 1992 refusing their application for judicial review
by way of an order of certiorari to quash the decision of the public rights of way sub-committee of Devon County Council on 30 January 1990 whereby it
was decided that Woods Lane, Upexe, Exeter, Devon would thenceforth be a byway open to all traffic. The facts are set out in the judgment of Simon
Brown LJ.
The two matters were heard together.
Mr and Mrs Huntington appeared in person.

Richard Gordon (instructed by Sharpe Pritchard, agents for G K Burgess, Truro) for Cornwall County Council.
Maurice and Graham Isaac appeared in person.
Timothy Straker (instructed by P Jenkinson, Exeter) for Devon County Council.
SIMON BROWN LJ (giving the first judgment at the invitation of Sir Stephen Brown P). There are before the court two matters, which for convenience
I shall refer to respectively as ‘the Devon appeal’ and ‘the Cornwall application’, which raise an identical point: does para 12 of Sch 15 to the Wildlife
and Countryside Act 1981 operate as a jurisdictional bar to judicial review applications such as each of these pairs of applicants (as I shall call them)
seeks to advance? Each application is to quash a modification order made pursuant to s 53(2)(b) of the 1981 Act, namely a modification of the respective
county’s definitive map and statement of public rights of way, in each case in consequence of the occurrence of an event specified in s 53(3)(c)(i) of the
1981 Act, namely the discovery by the respective county council of evidence which it says shows a right of way not previously shown in the map or
statement—in 696 the Cornwall application a footpath (the county council’s order being made on 11 February 1991); in the Devon appeal, a byway
open to all traffic (the county council’s order being made on 10 April 1990). In each case the order was not to take effect until confirmed; in neither case
has it yet been confirmed.
The Cornwall application is a renewed application for leave to move for judicial review following a decision of the Divisional Court (Mann LJ and
Brooke J) ([1992] 3 All ER 566) on 20 February 1992 setting aside leave to move for judicial review earlier granted ex parte on the documents by Otton
J. The Devon appeal is brought from the decision of McCullough J given on 27 February 1992 upon the substantive hearing of a judicial review motion.
Both pairs of applicants were represented below by counsel and it is apparent that full arguments were developed. In this court neither pair has been
represented, but we have heard able, succinct and helpful submissions from them in person and we have also had the advantage of skeleton arguments and
short submissions from counsel for the respective respondent county councils.
In essence, for reasons upon which I shall shortly expand, I have concluded that both the Devon appeal and the Cornwall application must fail: first,
because this court is bound by authority which cannot properly be distinguished to arrive at the same decisions as the courts below; second, because in
any event it seems clear as a matter of construction that Parliament intended—and, indeed, to my mind intended for good reason—that the remedy by way
of statutory application provided by para 12 of Sch 15 (the preclusive clause here in question) should be the exclusive avenue of redress available to those
aggrieved by modification orders of this kind if and when such orders come to be confirmed.
The relevant statutory provisions were helpfully summarised in the judgments below. The following summary I take, largely verbatim, from
McCullough J’s judgment in the Devon appeal.
The National Parks and Access to the Countryside Act 1949 obliged each county council in England and Wales to prepare a definitive map and
statement showing all the footpaths, bridleways and roads used as public paths in their area over which members of the public had rights of way. In 1981
the relevant provisions of the 1949 Act were repealed and replaced by the Wildlife and Countryside Act 1981. Section 53 of this Act cast upon surveying
authorities (here the respondent county councils for their respective counties) various duties in relation to their definitive maps and statements. Section
53(2)(b) obliges each such authority to keep its map and statement under continuous review.
Preamble
When an authority discovers evidence which, when considered with all other relevant evidence available to it, shows that a right of way to which the
1981 Act applies which is not shown in their map and statement subsists or is reasonably alleged to subsist over land in their area, the authority must as
soon as reasonably practicable thereafter make, by order, such consequential qualifications to its map and statement as appear to it to be requisite (see s
53(2)(b) and (3)(c)(i)). Such an order is known as a modification order. Any person may apply to the authority for a modification order, in which event
‘the provisions of Schedule 14 shall have effect as to the making and determination’ of such an application (see s 53(5)).
Schedule 14 prescribes in detail the form in which such an application for a modification order is to be made; it makes provision for giving notice to
owners and occupiers; it obliges the authority to investigate the matters stated in the application and to consult with every local authority affected and
then to decide 697 whether or not to make the order sought. As soon as practicable after determining the application, the authority is to give notice of
its decision to the applicant and to the owners and occupiers affected.
By s 53(6) the provisions of Sch 15 ‘shall have effect as to the making, validity and date of coming into operation’ of orders such as those here in
question. Paragraph 2 of the schedule says that an order shall not take effect until it has been confirmed by either the authority or the Secretary of State.
Paragraph 3 of the schedule says that on making an order the authority must give notice of various matters.
Paragraph 3(1)(c) requires the notice to specify the time (not being less than 42 days thereafter) within which representations or objections with
respect to the order may be made. If no such representations or objections are made, the county council may confirm the orders (see para 6(1)), but if any
representation or objection is duly made and not withdrawn the county council must submit the order to the Secretary of State for confirmation by him.
The Secretary of State must either (a) cause a local inquiry to be held or (b) afford any person by whom a representation or objection has been duly made
and not withdrawn an opportunity of being heard by a person appointed by the Secretary of State for the purpose. The Secretary of State may not confirm
the order without first considering the representations and objections and the report of the person appointed to hold the inquiry, or hear representations or
objections (see para 7).
Finally, and crucially, para 12 of Sch 15. This reads:
‘(1) If any person is aggrieved by an order which has taken effect and desires to question its validity on the ground that it is not within the
powers of section 53 and 54 or that any of the requirements of this Schedule have not been complied with in relation to it, he may within 42 days
from the date of publication of the notice under paragraph 11 make an application to the High Court under this paragraph.
(2) On any such application the High Court may, if satisfied that the order is not within those powers or that the interests of the applicant have
been substantially prejudiced by a failure to comply with those requirements, quash the order, or any provision of the order, either generally or in so
far as it affects the interests of the applicant.
(3) Except as provided by this paragraph, the validity of an order shall not be questioned in any legal proceedings whatsoever.’
Paragraph 13(2) of Sch 15, be it noted, defines order to mean ‘an order to which the provisions of this Schedule apply’, so that para 12(3) clearly
applies to an order whether confirmed or not.
As stated, thus far neither modification order has been confirmed. Neither, therefore, has taken effect. Rather, in each case, in consequence of these
judicial review challenges, the Sch 15 procedure has been interrupted and in the event long delayed. Although in each case the appellant has made
representations and objections, the public local inquiry has yet to be held.
Since the point presently before the court is concerned solely with the court’s jurisdiction, it is unnecessary to indicate in any detail the basis of the
respective applicants’ proposed judicial review challenges. The following bald summary suffices. In the Cornwall application the applicant seeks to
advance a large number of complaints. Principally these concern, first, the contents of a joint report prepared for the respondents by their chief executive
and clerk and county surveyor and, second, the way the transportation services sub-committee (the sub-committee to which consideration of rights of way
was 698 delegated by the county council) was advised in the matter by its officers with regard, for instance, to how they should approach the evidence
concerning the relevant period of use.
In the Devon appeal the applicants complain, first, that the sub-committee charged with the decision never itself considered the evidence but instead
simply adopted the recommendation of the working party set up for the purpose, second, that neither the working party nor the sub-committee received
the advice required to enable it to reach a proper decision and, third, that the evidence in the case was not provided in sufficient time to allow them (the
applicants) a proper opportunity to respond to it when they met the working party. For the purposes of these appeals, I shall assume that these complaints
are soundly based or at least would be properly arguable had the court jurisdiction to entertain them.
I turn to the authorities. Those most directly in point are Smith v East Elloe RDC [1956] 1 All ER 855, [1956] AC 736, Anisminic Ltd v Foreign
Compensation Commission [1969] 1 All ER 208, [1969] 2 AC 147, R v Secretary of State for the Environment, ex p Ostler [1976] 3 All ER 90, [1977] QB
122 and R v Secretary of State for the Environment, ex p Kent [1990] JPL 124—the first two decisions of the House of Lords, the last two of this court.
The preclusive clauses in Smith v East Elloe RDC (paras 15 and 16 of Pt IV of Sch 1 to the Acquisition of Land (Authorisation Procedure) Act
1946), Ex p Ostler (paras 2 and 4 of Sch 2 to the Highways Act 1959) and Ex p Kent (ss 245(1)(b) and 242(1)(e) of the Town and Country Planning Act
1971) were in substantially similar terms to those of para 12 of Sch 15 to the 1981 Act. The Anisminic case concerned a materially different provision—s
4(4) of the Foreign Compensation Act 1950, which provided that ‘the determination by the Commission of any application made to them under this Act
shall not be called into question in any court of law’.
These decisions, and in particular the first three, were subjected to close analysis by Mann LJ in the Cornwall application and I can do no better than
quote with respectful approval this concluding passage from his judgment ([1992] 3 All ER 566 at 575):
‘In my judgment, the decision in Ex p Ostler presents the same insuperable obstacle to [the applicant] as it did to the applicant in Ex p Kent
[1990] JPL 124. The question as to the ouster clause in the 1981 Act is one of construction and so far as this court is concerned, it has been
authoritatively decided. The intention of Parliament when it uses an Anisminic clause is that questions as to validity are not excluded (see [1969] 1
All ER 208 at 244, [1969] 2 AC 147 at 208 per Lord Wilberforce). When paragraphs such as those considered in Ex p Ostler are used, then the
legislative intention is that questions as to invalidity may be raised on the specified grounds in the prescribed time and in the prescribed manner, but
that otherwise the jurisdiction of the court is excluded in the interest of certainty. This was the view of Lord Denning MR (with whom Shaw LJ
agreed) and that view is binding on this court. I would, however, have independently formed the same view for the legislative intention seems to
me to be plain from the language employed when the two sub-paragraphs of para 12 are taken together. [He was there referring to sub-paras (1) and
(3).] The language does not admit of differentiations between degrees (if such there be) or grounds of invalidity, nor does it admit of differing
699 constructions according as to whether the decision to make an order is judicial or administrative in character.’
Faced with the Divisional Court’s judgments in the Cornwall application (given only days previously), counsel for the applicant in the Devon appeal
sought to argue that the court had overlooked the distinction between the situation in the three earlier cases—Smith v East Elloe RDC, Ex p Ostler and Ex
p Kent—and the situation arising here, namely that in those three cases the applicants were beyond the statutory time limit in coming to court, whereas in
Preamble
the present cases, the arguments ran, the appellants do not seek to challenge any decision in respect of which there is a right of application. The right to
apply to the High Court is a right to challenge the validity of a confirmed order; the challenge proposed here is to the validity of an unconfirmed order.
Since, the submission ran, this cannot be done under the statutory right of application to the High Court it can, therefore, as in the Anisminic case, be done
by way of judicial review.
McCullough J rejected this argument. The three earlier cases, as he put it, made—
‘clear that what prevented the decisions under challenge from being questioned in any legal proceedings except those brought under the
provisions enabling an application to be made to this court within six weeks was the existence of the statutory scheme as a whole. It is the intention
of Parliament in all these provisions that the High Court should only become involved when all the administrative steps have been completed.’
Again, I agree. And, indeed, in my judgment it is more rather than less probable that Parliament should intend to preclude the court’s jurisdiction in
the present situation than where, as in the earlier cases, such jurisdiction is held precluded (in the interests of certainty and finality) even though
sometimes that has the unfortunate consequence of denying a person aggrieved any possibility of challenge at all, either because he does not discover the
grounds for challenging the decision until after the statutory period has elapsed (as in Smith v East Elloe RDC and Ex p Ostler) or, indeed, because he
does not even learn of the decision until after it is too late to challenge it (as in Ex p Kent and, a decision on a related issue, in Griffiths v Secretary of
State for the Environment [1983] 1 All ER 439, [1983] 2 AC 51).
True, as McCullough J recognised in the Devon appeal, it is arguably—
‘less than ideal that the opportunity to challenge the order on the basis of the county council’s default should only arise after the order has been
confirmed, thus risking the possibility that the time and money devoted to the intervening local inquiry will have been wasted.’
But, as he then pointed out, the answer to the argument is that this is what Parliament has ordained, and in any event, there are obvious countervailing
benefits. First amongst these is that the very fact that an application for judicial review cannot be made at this preliminary stage means that the inquiry
will not be delayed thereby. I agree and would furthermore point out that the Secretary of State may in any event refuse to confirm the order, thus making
unnecessary any legal challenge whatever.
I would approve also what Brooke J said to substantially the same effect in the Cornwall application ([1992] 3 All ER 566 at 576):
700
‘It is quite clear, in my judgment, that Parliament intended to prescribe a comprehensive programme of the events which should happen from
the time the relevant authority sets in motion the consultation process mentioned in para 1 of Sch 15, and that once the order is made the prescribed
procedure then follows, without any interruption for legal proceedings in which the validity of the order is questioned, until the stage is reached, if
at all, when notice of a decision is given pursuant to the procedure prescribed in para 11. It is then, and then only, that Parliament intends that a
person aggrieved by an order which has taken effect shall have the opportunity of questioning its validity in the High Court provided that he takes
the opportunity provided for him by para 12(1) of Sch 15 …’
In expressing the views that I have, I wish to make it plain that I have not overlooked a number of authorities helpfully brought to our attention by
Mr Gordon in his skeleton argument. These cases, on analysis, can all be seen to concern challenges which are excluded from the statutory review
procedure and which therefore were held amenable to the process of judicial review. Typically they are cases where what is challenged is not the
decision itself but rather (a) a failure by the statutory decision-maker to exercise his jurisdiction—in short a refusal to make a decision (see Lenlyn Ltd v
Secretary of State for the Environment (1985) 50 P & CR 129), (b) the reasoning underpinning the decision which is otherwise in the applicants’
favour—such reasoning itself being damaging to some further interest of the applicants (see Greater London Council v Secretary of State for the
Environment [1985] JPL 868) and (c) some antecedent step quite separate and distinct from any eventual decision reviewable under the statute (see R v
Camden London BC, ex p Comyn Ching & Co (London) Ltd (1984) 47 P & CR 417 and R v Secretary of State for the Environment, ex p Stewart (1979) 37
P & CR 279).
Essentially these applicants seek to bring themselves within this third category of case to which the jurisdictional bar does not apply. But in my
judgment they cannot do so. Ex p Stewart, decided under the provisions of the antecedent legislation, had earlier been relied upon to this end by Mr
Laurence QC, the applicants’ counsel (who had also acted in Ex p Stewart). As, however, Mr Laurence came to concede before the Divisional Court, the
decision sought to be impugned in Ex p Stewart proved on analysis not to have been subject to the statutory clause at all.
Here by contrast there can be no doubt that all the complaints which these applicants seek to ventilate can be advanced, if necessary, under the
statutory review procedure if and when these modification orders come to be confirmed by the Secretary of State.
The applicants’ central quarrel with their respective county council is, as they frankly recognise, upon the facts of the cases and clearly these facts
can and will be investigated in full at the public local inquiries yet to be held.
But in so far as they desire also to raise matters of legal complaint regarding the process whereby the county councils (by their respective
sub-committees) came to their decisions to make modification orders in the first place (necessarily provisional as these are until confirmation) the
applicants will be able to do so under the express provisions of para 12(1). Any failure, for instance, on the respondent’s part to comply with the
provisions of Sch 14 would prima facie offend against s 53(5): a confirmed order may well therefore be held invalid ‘on the ground that it is not within
the powers of section 53’.
In short, in my judgment, the applicants here will in fact suffer little, if any, disadvantage in delaying any challenge they seek to make until after the
701 Secretary of State decides whether or not to confirm their respective orders. Even, however, were it otherwise, I entertain not the slightest doubt
that that is what para 12 dictates: there can be no legal challenge unless and until an order is confirmed. The applicants then have 42 days in which to
invoke the court’s statutory review jurisdiction. In the result, I would dismiss both these matters, the appeal in the Devon case and the renewed
application for leave in the Cornwall case.
PETER GIBSON LJ. I agree.
SIR STEPHEN BROWN P. I also agree for the reasons given by Simon Brown LJ.
Appeals dismissed.

Preamble
[1994] 1 All ER 702
R v Chief Constable of the West Midlands Police, ex parte Wiley

R v Chief Constable of the Nottinghamshire Constabulary, ex parte Sunderland
CIVIL PROCEDURE: CRIMINAL; Police

NOURSE, STAUGHTON AND NOLAN LJJ
1, 2, 23 JULY 1993
Privilege – Public interest immunity – Production contrary to public interest – Use of privileged information in civil proceedings – Police complaints and
disciplinary files – Statements taken by police investigating complaints against police – Complainant bringing civil action against police – Police refusing
to give undertaking not to use in civil proceedings information obtained in course of complaints investigation – Whether police prevented from using in
civil proceedings information obtained in course of complaints investigation.
The two applicants, W and S, were arrested for separate offences and at their respective trials they were acquitted when the prosecution offered no
evidence against them. Both applicants made a complaint to the Police Complaints Authority. W also commenced and S was minded to commence an
action for damages against the chief constables of the forces responsible for their arrest. The Police Complaints Authority commenced investigations into
the applicants’ complaints but the applicants’ solicitors requested the chief constables to give an undertaking not to use documents arising out of the
investigations or to rely upon any information contained in those documents in the civil proceedings contemplated by the applicants. Both chief
constables refused to give such an undertaking. Each applicant declined to make any statement about his complaint to the investigating officer without
such an undertaking. The Police Complaints Authority discontinued its investigation 702 of W’s complaint but proceeded to investigate S’s
complaint. Both applicants applied for judicial review of the chief constables’ decisions not to give the undertaking and in addition the second applicant
sought a declaration and an injunction against the use by the chief constable of the documents generated in the complaint proceedings, or any information
contained in them, in his civil action against the chief constable. The judge granted the relief sought. The chief constables appealed to the Court of
Appeal, contending that although they were prevented by public interest immunity from using information in a complaints file to assert a positive case or
as the basis of cross-examination or a pleading there was no other restriction on the use of such information in civil proceedings because the public
interest immunity only prohibited the disclosure of such information, not its use, eg to obtain the names and addresses of witnesses otherwise unknown to
the police.
Held – Public interest immunity in police complaints proceedings extended to the use in civil proceedings of information generated in the complaint
proceedings as well as disclosure of documents since the immunity prohibited the use of the documents or information contained in the police files for
any purpose other than for that which they were obtained or made. Accordingly, they could not be used in civil proceedings for any purpose except to
enable a legal adviser to the police to advise on discovery. The documents which would or had come into existence for the purpose of the investigation of
the applicants’ complaints could therefore only be used for police disciplinary proceedings or for the prosecution of a crime and not for or against the
chief constables in civil proceedings. The appeals would accordingly be dismissed (see p 707 c d, p 709 b, p 714 e to g and p 716 c d h j, post).
Neilson v Laugharne [1981] 1 All ER 829, Makanjuola v Comr of Police of the Metropolis (1989) [1992] 3 All ER 617 and Halford v Sharples
[1992] 3 All ER 624 applied.
Notes
For the investigation of complaints against the police, see 36 Halsbury’s Laws (4th edn) para 275.
For withholding the production of documents on the ground of public interest immunity, see 13 Halsbury’s Laws (4th edn) para 86, and for cases on
the subject, see 18 Digest (2nd reissue) 203–219, 1822–1879.

Coventry Newspapers Ltd, Ex p [1993] 1 All ER 86, [1993] QB 278, [1992] 3 WLR 916, CA.
Crompton (Alfred) Amusements Machines Ltd v Customs and Excise Comrs (No 2) [1973] 2 All ER 1169, [1974] AC 405, [1973] 3 WLR 268, HL.
English & American Insurance Co Ltd v Herbert Smith [1988] FSR 232.
Halford v Sharples [1992] 3 All ER 624, [1992] 1 WLR 736, CA.
Hehir v Comr of Police of the Metropolis [1982] 2 All ER 335, [1982] 1 WLR 715, CA.
Makanjuola v Comr of Police of the Metropolis (1989) [1992] 3 All ER 617, CA.
Neilson v Laugharne [1981] 1 All ER 829, [1981] QB 736, [1981] 2 WLR 537, CA.
Peach v Comr of Police of the Metropolis [1986] 2 All ER 129, [1986] QB 1064, [1986] 2 WLR 1080, CA.
R v Bromell (13 May 1992, unreported), CA.
R v Comr of Police of the Metropolis, ex p Hart-Leverton (1990) Times, 8 February, DC.
703
R v Secretary of State for the Home Dept, ex p Anderson [1984] 1 All ER 920, [1984] QB 778, [1984] 2 WLR 725, DC.
Rogers v Secretary of State for the Home Dept [1972] 2 All ER 1057, [1973] AC 388, [1972] 3 WLR 279, HL.
Solicitors, Re a firm of [1992] 1 All ER 353, [1992] QB 959, [1992] 2 WLR 809, CA.
Case also cited

Duncan v Cammel Laird & Co Ltd [1942] 1 All ER 587, [1942] AC 624, HL.
Preamble
Appeals
R v Chief Constable of the West Midlands Police, ex p Wiley

The Chief Constable of the West Midlands Police appealed against the decision of Popplewell J on 16 December 1992 granting the respondent, Kelvin
Raymond Wiley, judicial review of the chief constable’s refusal on 20 March 1991 to give undertakings in relation to documents compiled in the course
of a police complaints investigation of the applicant’s complaint of 17 August 1989, by way of a declaration that the refusal was unlawful and an
injunction restraining the chief constable from using the documents or relying on any information obtained from them in civil proceedings brought by the
applicant. The facts are set out in the judgment of Staughton LJ.
R v Chief Constable of the Nottinghamshire Constabulary, ex p Sunderland

The Chief Constable of the Nottinghamshire Constabulary appealed against the decision of Popplewell J on 16 December 1992 granting the respondent,
Tony Sunderland, judicial review of the chief constable’s refusal to give an undertaking in relation to documents compiled in the course of a police
complaints investigation of the applicant’s complaint of 9 November 1991, by way of a declaration that the refusal was unlawful and an injunction
restraining the chief constable from using the documents or relying on any information obtained from them in proposed proceedings. The facts are set out
in the judgment of Staughton LJ.
Jeremy Gompertz QC and Simon Freeland (instructed by J Polychronakis, Birmingham, and C P McKay, West Bridgford) for the chief constables.
Frederic Reynold QC and Richard Clayton (instructed by White & Billingham, Wolverhampton) for the applicant Wiley.
Richard Clayton (instructed by Nelson Johnson & Hastings, Nottingham) for the applicant Sunderland.
David Pannick QC (instructed by the Treasury Solicitor) for the Police Complaints Authority.
Cur adv vult
STAUGHTON LJ (giving the first judgment at the invitation of Nourse LJ). On 8 May 1987 Mr Wiley was arrested in Wolverhampton and detained; on
the following day he is said to have made a confession in a police interview, and was charged with robbery and shotgun offences. Six months later, in
December 1987, he was released on bail. The prosecution subsequently offered no evidence at his trial, in January 1988. In August 1989 a complaint
against the 704 police was made on Mr Wiley’s behalf; and in 1990 he commenced an action for damages against the Chief Constable of the West
Midlands Police.
In outline the case of Mr Sunderland is similar. He was arrested in Nottingham on 9 November 1991, following a fight in the street during which he
struck a police officer in plain clothes. His case is that he was seriously assaulted at the police station. On returning from hospital, where his arm was
x-rayed and put in plaster, he made a complaint under the police complaints procedure. He appeared for trial at the Crown Court at Nottingham in May
1992. In the event that trial was not concluded, and a retrial was ordered. The prosecution then offered no evidence. Besides his complaint against the
police, Mr Sunderland too is minded to commence an action for damages, in his case against the Chief Constable of the Nottinghamshire Constabulary.
But as I understand it he has not yet done so.
The police complaints procedure, in the ordinary way, results in the accumulation of a file of documents. There has to be an investigation,
conducted by a senior officer of the same or another police force; statements are taken from witnesses, who would naturally include the person making the
complaint; those statements may refer to other documents, which are included in the file; and the investigating officer makes a report. When the
investigation is supervised by the Police Complaints Authority, as happened in these two cases, and even when it is not, statute requires that a copy of the
report be sent to the chief constable or the police authority, after the investigation has been concluded.
That gives rise to a problem if the complainant has also commenced a civil action for damages against the police, or is minded to do so. It is settled
law, at any rate in this court, that in civil proceedings public interest immunity applies to the documents in the file: Neilson v Laugharne [1981] 1 All ER
829, [1981] QB 736. But it does not follow automatically that any file with ‘Police Complaint’ written on the cover is wholly covered by that immunity.
First, the chief constable must decide, with the help of his legal adviser, what was the dominant purpose of the investigation: Peach v Comr of Police of
the Metropolis [1986] 2 All ER 129, [1986] QB 1064. It may turn out that this was not the inquiry into a complaint but something else. Secondly, there
may be documents in the file which came into existence before the complaint was made or independently of it; public interest immunity does not attach to
them.
Subject to those two points the chief constable is not obliged to disclose the file on discovery in a civil action, and indeed may not do so. Nor may
the documents be put before the court, or shown to a witness in court; and a witness may not be asked what the contents of any of the documents were.
About that there is no dispute.
What is contested is whether the chief constable may use the information contained in the documents in any other way to assist his case in civil
proceedings. For example, the documents may reveal the names of witnesses and what they would say, information not previously known to the chief
constable. Is he entitled to act upon that information by arranging for persons to be interviewed, and if appropriate called as witnesses? Or the documents
may reveal a line of defence, such as that the complainant had drunk 12 pints of beer at the time when he says that he was innocently driving his car and
was stopped and manhandled by the police. Is counsel for the chief constable entitled to ask the complainant in cross-examination whether that was the
case? The Code of Conduct of the Bar of England and Wales provides (para 610):
705
‘A practising barrister … (h) must not suggest that a witness or other person is guilty of crime fraud or misconduct … unless such allegations go
to a matter in issue (including the credibility of the witness) which is material to his lay client’s case and which appear to him to be supported by
reasonable grounds.’
The chief constables concede that the documents (i) cannot be used to assert a positive case, and (ii) cannot form the basis of cross-examination. But
it will be necessary to consider whether the concession is rightly made, and whether a line can logically be drawn at that point. The same applies to the
question whether information in the documents may be used for the purpose of drafting a pleading. On that topic the Code of Conduct provides (para
606):
Preamble
‘A practising barrister must not … draft any … pleading … containing (a) any statement of fact or contention (as the case may be) which is not
supported by his lay client or by his brief or instructions …’
This problem is apparently well known to those who are minded to complain against the police and also to commence civil actions, or at any rate to
their legal advisers. In consequence the chief constable in each of these cases was asked by the solicitors for Mr Wiley and Mr Sunderland to give an
undertaking not to use the documents or rely upon any information contained in them in the civil proceedings contemplated by their client. In each case
the chief constable refused to give that undertaking.
Thereafter the two cases diverged. Mr Wiley declined to make any statement about his complaint to the investigating officer without such an
undertaking. Apparently it was thereupon suggested to the Police Complaints Authority that the investigation could not proceed. The authority agreed
with that suggestion, and formally reached a decision dispensing with the requirement for an investigation. The result is that no police complaints file has
come into existence in Mr Wiley’s case. Nevertheless he has sought judicial review of the chief constable’s decision not to give the undertaking
requested. Before Popplewell J, who gave judgment on 16 December 1992, he succeeded. It was declared that the decision was unlawful.
Mr Sunderland similarly refused to make any statement to the officer investigating his complaint, since his request for an undertaking from the chief
constable had been refused. But in his case the investigation did proceed, and presumably a file containing some documents has come into existence. He
applied for judicial review of the chief constable’s decision; and sought a declaration and an injunction against the use of the documents, or any
information contained in them, in his proposed civil proceedings. He too succeeded before Popplewell J. A declaration and an injunction were granted.
Both chief constables now appeal.
There were two other applications for judicial review considered by Popplewell J at the same time. One was by Mr Wiley against the Police
Complaints Authority, in respect of its decision to dispense with an investigation of his complaint, following his refusal to make a statement in support of
it. The other was a similar application by a Mrs Johnson, who was complaining against Merseyside police. Both those applications failed, and there is no
appeal in respect of those decisions. But Mr Pannick QC appears, as he did below, for the Police Complaints Authority. He supports the case of Mr
Wiley and Mr Sunderland, and opposes the appeals of the chief constables.
706
The main issue

Until recent times public interest immunity, or Crown privilege as it used to be called, was concerned with the disclosure of documents or the
information contained in them; disclosure to persons not entitled to the documents or the information would not be enforced in legal process and was
prohibited. By contrast anyone lawfully in possession of the documents or information was entitled to use them for his own purpose.
In that respect public interest immunity was similar to legal professional privilege. Manifestly a litigant is entitled to use the advice of his lawyer,
and the lawyer is entitled to use information provided by his client. But there is this difference, that legal professional privilege can be waived, whereas
in general at any rate public interest immunity can not.
It is now submitted on behalf of Mr Wiley and Mr Sunderland, on the basis of cases recently decided in this court, that public interest immunity has a
different effect under the police complaints procedure: it prohibits use of the documents or the information contained in them for any purposes other than
those for which they were obtained or made. Thus they can be used for police disciplinary proceedings or for the prosecution of crime; but not for or
against the chief constable in civil proceedings.
Counsel have been unable to refer us to any case where public interest immunity has been held to have that effect outside the context of police
complaints. And there is a passage in the speech of Lord Cross of Chelsea in Alfred Crompton Amusements Machines Ltd v Customs and Excise Comrs
(No 2) [1973] 2 All ER 1169, [1974] AC 405 which supports the contrary view.
Practical considerations: (i) in favour of the new restriction

It is said that a chief constable would have a considerable advantage over his opponent in civil litigation if he were allowed to use (but not disclose)
knowledge of what is in the police file. Secondly, it is said that people who might make complaints are for that reason deterred from doing so. Or at any
rate having made a complaint they are unwilling to support it with a statement.
As to the first of those considerations, it is accepted that there is some advantage to the chief constable if he can use knowledge of what is in the file.
The advantage is difficult to quantify in general terms, and I am somewhat sceptical as to its extent. After all, the rules of civil procedure as to pleadings
and discovery are designed to inform each party of the case he has to meet. The main point, as was agreed in the course of the argument, is that the chief
constable will or may learn the names and addresses of witnesses previously known only to the plaintiff. (He can ascertain the names of some witnesses,
such as police officers and others, without using the file, if he simply follows the same route as that taken in the complaints investigation.) It is also said
that a consideration of the file will enable the chief constable to make an appropriate offer in settlement at an early stage, with a greater degree of
knowledge than may be possessed by his opponent.
As I have said it is conceded, in my opinion correctly, that the chief constable will in general have some advantage. But the degree of advantage is
difficult to quantify. Unless the decision of Popplewell J is right, that is the price to be paid by someone who wishes to pursue both a civil action and a
complaint against the police.
Secondly, there is the question whether potential complainants will be discouraged or deterred if they know that information which they give may be
707 used (but not disclosed) by the chief constable in defence of a civil action. They already have to face the prospect that the file may be used in
disciplinary or criminal proceedings. That in itself may deter some. Will this additional hazard deter others?
On that topic we have been referred to the Triennial Review of the Police Complaints Authority for 1988–91 (HC Paper (1990–91) no 352). After
referring to the law as it was thought to be before the decision of Popplewell J, it continues (in para 4.5):
‘In our view this gives the police an advantage over the plaintiff which is not insubstantial—and which results in plaintiff/complainants refusing
to co-operate with the complaints procedures until after their civil claim for damages has been heard and settled. This is a serious matter because it
may deprive the police of any reasonable chance to enforce discipline on an officer if, in fact, he has misconducted himself.’
Once it is accepted that a civil plaintiff will be at some disadvantage, whether great or small, the result envisaged by the Police Complaints Authority
will follow with increasing frequency. Solicitors and counsel will advise him not to pursue his complaint against the police, or else to seek the kind of
undertakings that were sought by Mr Wiley and Mr Sunderland. Indeed it seems that the cognoscenti among lawyers are already giving that advice. It is
no hardship for the plaintiff not to pursue his complaint against the police, since the Police Complaints Authority cannot (so far as we are aware) afford
any remedy that will benefit him. But it is a matter of public concern if potential complainants are deterred in that way.
Preamble
Practical considerations: (ii) against the new restriction

The major point under this head is that the chief constable will have to employ two separate lawyers, or teams of lawyers. Whether or not his legal
department is involved during the investigation of the complaint, he will need advice on discovery in the civil action, which will require consideration of
the complaint file. It is said that a separate lawyer will be required to deal with other aspects of the civil action. But some police forces employ only one
solicitor; and in any force the head of the legal department is responsible for supervising members of his staff.
Various solutions to the problem have been suggested. First, there could be an information barrier (also known as a Chinese wall) erected between
those who have to consider the file and those who are not allowed to use the information in it. But there is, on the authority of this court, doubt whether
save in a very special case an impregnable wall can ever be created, and the view that only in very special cases should an attempt be made to do so: Re a
firm of Solicitors [1992] 1 All ER 353 at 363, [1992] QB 959 at 971.
Secondly, Mr Pannick submitted that chief constables and those that they employ will act in good faith, and that no information barrier is necessary.
The same view was, I think, put forward by Mr Reynold for Mr Wiley and Mr Sunderland. But there may not always be such confidence in the integrity
of the police, particularly in a complaints context. It is easy to suppose that in other cases there will be loud assertions that justice must be seen to be
done, and that an impregnable information barrier is required.
Thirdly, police forces sometimes employ outside solicitors to defend legal actions. It is said that this can be done when the complaints procedure is
708 invoked at the same time as a civil action, although presumably the advice on discovery would still be handled by an in-house lawyer.
There was some discussion of the principle that everyone is entitled to uninhibited access to his legal adviser (cf R v Secretary of State for the Home
Dept, ex p Anderson [1984] 1 All ER 353, [1992] QB 778). I do not find that principle helpful. The chief constable is by statute required to receive the
report of the investigation. Manifestly he may show it to his lawyer for advice on discovery. If he is not entitled to use it in the civil action, he may still
show it to his lawyer, but the lawyer may not use it.
There is a precedent for the law requiring litigants or their legal advisers not to use information in their possession. That has happened in cases like
English & American Insurance Co Ltd v Herbert Smith [1988] FSR 232, where privileged information of one party innocently comes into the possession
of his opponent. But even then the order only restrained making overt use of the information, and not merely having it in mind. I would regard that as
not altogether a happy solution, but the best that could be found in the circumstances short of requiring a party to dismiss his lawyer and find another.
The other practical consideration relied on against imposing a restraint on the use of information in these cases is that it is wasteful. The chief
constable or his staff will have to investigate the facts all over again, with a view to assembling precisely the same material as he already has in the
complaint file. Police witnesses may perhaps not be surprised when they are asked the same questions and to identify the same documents a second time;
but civilian witnesses may find it irksome if not absurd.
I do not find a clear preponderance, one way or the other, between the practical considerations in favour of a restraint on the use of information and
those against it. The purity of the stream of justice must never, in theory, be stained by soil on the smallest slope at one end of the level playing field.
But in practice that can sometimes only be avoided by expense and inconvenience which are disproportionate to the objective sought.
The law
Alfred Crompton Amusements Machines Ltd v Customs and Excise Comrs (No 2) [1973] 2 All ER 1169, [1974] AC 405 was concerned with
information acquired by the Customs and Excise from other traders either voluntarily or in the exercise of compulsory powers. The Court of Appeal had
held that the information was privileged because it was given in confidence. That view was rejected by the House of Lords. Lord Cross of Chelsea said:
‘“Confidentiality” is not a separate head of privilege, but it may be a very material consideration to bear in mind when privilege is claimed on
the ground of public interest.’
Later he said, in upholding the claim for public interest immunity ([1973] 2 All ER 1169 at 1184, [1974] AC 405 at 434):
‘No doubt [the information] will form part of the brief delivered to counsel for the commissioners and may help him to probe the appellants’
evidence in cross-examination; but counsel will not be able to use it as evidence to controvert anything which the appellants’ witnesses may say.’
I cannot find any hint in the report, or in the printed cases that were lodged in the House of Lords, to show that the use that might be made of
information 709 subject to public interest immunity was in issue. And the faint recollection which I have, after twenty years, that the topic was
touched on in argument is of no value. But one is not to suppose that Lord Cross would have said what he did unless he was confident that it was right.
Indeed it reflected the orthodox view of privilege or immunity which I have already mentioned.
Next there is Neilson v Laugharne [1981] 1 All ER 829, [1981] QB 736. That case was concerned with discovery. So the reason of the decision
cannot be anything to do with the use of material in the complaint file by the chief constable or his advisers. But there are dicta which bear on the point,
not all in the same direction. Oliver LJ said ([1981] 1 All ER 829 at 838, [1981] QB 736 at 752):
‘Now although it cannot, as counsel for the plaintiff points out, be contended here that statements made to the investigating officer in pursuance
of his inquiries under s 49 of the Police Act 1964 are made under any assurance of confidentiality, it does seem to me that nevertheless the same
principle applies. The statements are volunteered for a particular purpose, namely, the statutory inquiry. No doubt the consequence is accepted, as
it must be, that the inquiry may lead to a prosecution or to a disciplinary inquiry in which the maker of the statement may be called to give evidence
of some or all of the matters contained in his statement and that the statement may, therefore, to this extent fall to be used if such proceedings
ensue. But I do not think that it follows from that that disclosure of the statements for the quite alien purpose of use in civil litigation would not
inhibit those whose co-operation is required if the inquiry is to be sensibly and usefully conducted. And it is this which, as it seems to me, is the
critical test.’
Later Oliver LJ said ([1981] 1 All ER 829 at 839, [1981] QB at 753–754):
‘Finally, there is the position of the complainant himself. Counsel for the plaintiff, in the course of his argument, stressed the unfairness of a
position in which, in effect, the defendant got a proof of the plaintiff’s evidence in advance whilst he was deprived of the opportunity of seeing the
defendant’s evidence. But this seems to me to be an argument in favour of, rather than against, the protection which is sought. There is no
compulsion on the complainant to co-operate in the inquiry. Having made his complaint, he may refuse to give a statement to the investigating
officer, and he is, I should have thought, very much more likely to do so if he thinks that any statement which he makes may be quoted against him
Preamble
in any civil proceedings which he has in contemplation. If, however, these statements are protected from disclosure in any proceedings, that
consequence will be avoided. If public policy prevents disclosure, it prevents it, in my judgment, in all circumstances except to establish innocence
in criminal proceedings. It is not like legal professional privilege, which is the personal right of the party entitled to it and can be waived (see
Rogers v Secretary of State for the Home Department [1972] 2 All ER 1057 at 1066, 1070, [1973] AC 388 at 407, 412 per Lord Simon and Lord
Salmon respectively). As a consequence, therefore, although no doubt the complainant’s statement may be included in counsel’s brief and may
form the basis of cross-examination, it cannot be used as evidence to controvert anything the complainant’s witnesses may say (see Alfred
Crompton Amusement Machines Ltd v Customs and Excise Comrs (No 2) [1973] 2 All ER 1169 at 1184, [1974] AC 405 at 434 per Lord Cross).
Thus, it seems to me 710 that here again the protection sought in this case would assist the proper carrying out of the statutory purpose if it were
allowed, and impede it if it were refused.’
On the one hand it can be said that the judgment is concerned with disclosure and not with use, and that it accepts the dictum of Lord Cross in the
Alfred Crompton case. But against that there is the reference to ‘the quite alien purpose of use in civil litigation’.
In Hehir v Comr of Police of the Metropolis [1982] 2 All ER 335, [1982] 1 WLR 715 the question was whether the plaintiff could be cross-examined
on his statement in the complaint investigation, for which immunity had been claimed by the defendant on discovery. It was held that immunity could not
be waived by him. But Lawton LJ said ([1982] 2 All ER 335 at 338, [1982] 1 WLR 715 at 719):
‘The defendant’s counsel has had the plaintiff’s statement in his brief because it is in the possession of the defendant.’
Later he quoted with apparent approval the second passage from the judgment of Oliver LJ which I have set out.
Makanjuola v Comr of Police of the Metropolis [1992] 3 All ER 617 was again concerned with discovery. The issues appear in the main as to have
been whether the plaintiff’s own statement and transcripts of disciplinary proceedings were in a different category from complaint documents generally,
and whether immunity could be waived by the maker of a statement. But there are important dicta in the judgment of Bingham LJ. Reciting the case
against disclosure, he said (at 622):
‘It was therefore desirable in the public interest that statements made to the appropriate authority investigating a complaint against a police
officer should not be liable to be produced or disclosed or referred to in any proceedings save disciplinary or criminal proceedings officially
brought against the police officer in question. To hold otherwise would frustrate the statutory purpose of an investigation under the Act.’
That reasoning may perhaps be confined to disclosure rather than use. But then there are these important passages (at 623):
‘The second suggested distinction is that, whereas in Neilson v Laugharne there had been no disciplinary hearing and no criminal prosecution,
here there have been two disciplinary hearings at each of which the complainant has attended, given evidence, been cross-examined and heard the
evidence of other witnesses. Accordingly, it is said, the statements have lost the confidentiality they had once had and there is no surviving public
interest to protect. I do not think this is a valid point of distinction either. The public interest which the court upheld in Neilson’s case was not
based on confidentiality (see [1981] 1 All ER 829 at 834–835, 838, [1981] QB 736 at 747, 751, per Lord Denning MR and Oliver LJ), but on the
need to reassure informants that statements would not be usable for any but s 49 purposes. This need remains as strong after disciplinary
proceedings as before, perhaps even stronger. Statements do not in my view lose the immunity upheld in Neilson’s case simply because
proceedings contemplated when the statements were made in fact occur … On these grounds I would allow the first defendant’s appeal and dismiss
the plaintiff’s cross-appeal. I would, however, add this. Where a litigant asserts that documents are 711 immune from production or disclosure
on public interest grounds he is not (if the claim is well founded) claiming a right but observing a duty. Public interest immunity is not a trump card
vouchsafed to certain privileged players to play when and as they wish. It is an exclusionary rule, imposed on parties in certain circumstances, even
where it is to their disadvantage in the litigation. This does not mean that in any case where a party holds a document in a class prima facie immune
he is bound to persist in an assertion of immunity even where it is held that, on any weighing of the public interest, in withholding the document
against the public interest in disclosure for the purpose of furthering the administration of justice, there is a clear balance in favour of the latter. But
it does, I think, mean: (1) that public interest immunity cannot in any ordinary sense be waived, since, although one can waive rights, one cannot
waive duties; (2) that, where a litigant holds documents in a class prima facie immune, he should (save perhaps in a very exceptional case) assert
that the documents are immune and decline to disclose them, since the ultimate judge of where the balance of public interest lies is not him but the
court; and (3) that, where a document is, or is held to be, in an immune class, it may not be used for any purpose whatever in the proceedings to
which the immunity applies, and certainly cannot (for instance) be used for the purposes of cross-examination.’
No reference was made in the judgments to the Alfred Crompton case. But here there is emerging a doctrine which prohibits not merely the
production of documents in civil proceedings, but also the use of information contained in those documents.
The process was carried a stage further in Halford v Sharples [1992] 3 All ER 624, [1992] 1 WLR 736. There an assistant chief constable applied for
discovery of police complaints and disciplinary files, which she herself had previously had in her charge. The application failed. It was evidently
accepted on behalf of the defendant that there would be restrictions on the use which he could make of the documents, if disclosure to the plaintiff was
refused on the ground of public interest immunity. Thus Sir Stephen Brown P said of counsel for the chief constable ([1992] 3 All ER 624 at 632, [1992]
1 WLR 736 at 745):
‘He acknowledged that in the case of at least some of the particulars furnished by the chief constable information taken directly from the
complaints and disciplinary files had been used. He acknowledged that this was improper and could not be relied upon in the course of the
substantive proceedings by the chief constable if the files were held to be the subject of public interest immunity. What was “sauce for the goose
was sauce for the gander.”’
Later ([1992] 3 All ER 624 at 633, [1992] WLR 736 at 746):
‘It has been accepted in argument by all parties that if the ruling of the Employment Appeal Tribunal is upheld, then it will also have an effect
upon the position of the chief constable in the sense that he will be unable to make use of the files for his own part. This would seem to mean that
he would have to amend his particulars to some extent, or that the applicant would be able to move to strike out a number of the particulars.
Despite the careful and persuasive argument advanced by Miss Lang, I consider that there is an overriding public interest in maintaining the
integrity of the 712 police complaints and disciplinary files. In my judgment this court is bound by the decisions in the Neilson and Makanjuola
cases. The particular position of the applicant Miss Halford as a member of the Merseyside Police Force does not alter the essential character of the
Preamble
complaints and disciplinary files. The reasoning of Oliver LJ in the Neilson case, to which I have referred, applies in full measure to these files.
They should not be opened and used in the course of the proceedings before the industrial tribunal. The effect of the decision will be binding upon
all parties. I would therefore dismiss the cross-appeal of the applicant.’
Butler-Sloss LJ said ([1992] 3 All ER 624 at 657, [1992] 1 WLR 736 at 771–772):
‘In R v Comr of Police of the Metropolis, ex p Hart-Leverton (1990) Times, 8 February, Nolan J accepted that “it has been settled in law” since
Neilson’s case that papers relating to the disciplinary hearing of the police officer involved, police reports, statements, documents and
correspondence for the purpose of the disciplinary inquiry were subject to public interest immunity (see also Hehir v Comr of Police of the
Metropolis [1982] 2 All ER 335 at 340, [1982] 1 WLR 715 at 721 per Lawton LJ). I agree, but in my view it goes further. If the principle
enunciated in the judgments of Oliver and Bingham LJJ is to be followed, all documents which depend upon, refer to, or relate to complaints and
discipline, whether reports, correspondence, memoranda or notes between officers, as well as statements or other evidence, have to be protected and
consequently excluded. To use or produce the file in civil litigation is to deviate from the purpose as explained by Oliver LJ.’
Later, after referring to the judgment of Bingham LJ in the Makanjuola case, she said ([1992] 3 All ER 624 at 659, [1992] 1 WLR 715 at 774):
‘The consequences of the rule, which appear from the above passage, do not appear to have been sufficiently considered in the present
voluminous and somewhat chaotic proceedings. The effect of class immunity is to close the file completely for the purposes of the external or alien
proceedings in the sense that none of the parties may rely on anything contained within it, and to prohibit the use of the documents by any party.’
Ralph Gibson LJ dissented.

It seems to me that whatever was said in that case as to the use of documents, as opposed to disclosure, was not part of the issue that had to be
decided—and indeed had been conceded on behalf of the chief constable. Even his pleading of particulars extracted from the complaint file was not the
subject of a formal ruling; as Butler-Sloss LJ said, it was not before the Court of Appeal.
We were also referred to a case in the Criminal Division of the Court of Appeal, Ex p Coventry Newspapers Ltd [1993] 1 All ER 86, [1993] QB 278.
Lord Taylor of Gosforth CJ ([1993] 1 All ER 86 at 93, [1993] QB 278 at 290) said that the public interest immunity of police complaints material—
‘is not (or at least not principally) confidentiality based. Rather ... it is intended to reassure informants that their statements will only be used
for the investigation of complaints and for such criminal or disciplinary proceedings as directly flow.’
Meanwhile there had occurred the only case which is directly on the point that arises in this appeal: R v Comr of Police of the Metropolis, ex p
Hart-Leverton 713 (1990) Times, 8 February. That was a decision of the Divisional Court, comprising Watkins LJ and Nolan J. It too arose out of
the refusal of the commissioner to give an undertaking that he would not use information contained in the complaint file to defend a civil action against
him.
The Halford case had not at that time been decided, and it seems likely that the argument was rather less elaborate than it has been before us. The
court held that the commissioner had not acted unlawfully, relying principally on what was said by Lord Cross in the Alfred Crompton case, and on the
practical difficulties which would otherwise arise for chief constables.
There is further support for the case of the chief constables in R v Bromell (13 May 1993, unreported).
Conclusion
As was said at an early stage of this judgment, it is necessary to consider whether concessions made on behalf of chief constables in these and earlier
cases were correct. It is conceded that information in a complaints file (i) cannot be used to assert a positive case, (ii) cannot form the basis of
cross-examination, and (iii) cannot be justification for a pleading (if that is different from (i) above). If public interest immunity prohibits use in civil
proceedings, those concessions are right but do not go far enough. If on the other hand the prohibition is only on disclosure, they are not justified—unless
it be thought in a particular case that a pleading or the form of a question implicitly amounts to disclosure. I mention this point because the respondents
say that there is no logic in the chief constables’ dividing line. I agree; one way or another, the dividing line must be somewhere else.
There is in my opinion no authority binding us to hold that public interest immunity in a police complaints case extends to use of information in civil
proceedings as well as disclosure of documents. If it does, that seems to me an extension of existing doctrine as to privilege and immunity in civil cases.
But I must recognise that eminent judges have adopted that view in plain terms. It would not in my judgment be right for this court to differ from them,
as I cannot be satisfied that they were wrong to develop the law in this way. So I would dismiss these appeals.
NOLAN LJ. I agree that these appeals must be dismissed.

The reason why public interest immunity from disclosure has been held to attach to documents relating to or resulting from an inquiry into
complaints against police officers is that the disclosure of the documents would be likely to impede the carrying out of such inquiries, and thus to impede
the carrying out of the statutory purpose for which the documents were brought into existence: see Neilson v Laugharne [1981] 1 All ER 829 at 838,
[1981] QB 736 at 752 per Oliver LJ. At the time of that decision it was evidently assumed that the carrying out of the statutory purpose would not be
impeded by a police authority making use of the documents when preparing and conducting its defence to civil proceedings brought by the complainant.
This, I think, is plainly implicit in Oliver LJ’s remark later in his judgment ([1981] 1 All ER 829 at 839, [1981] QB 752 at 753) that ‘no doubt the
complainant’s statement may be included in counsel’s brief and may form the basis of a cross-examination’. In the following year it was held in Hehir v
Comr of Police of the Metropolis [1982] 2 All ER 335, [1982] 1 WLR 715 that the plaintiff could not be cross-examined on the statement which he had
made for the purposes of the complaints inquiry, but it 714 was accepted that the defendant’s counsel would have the statement in his brief ‘because it
is in the possession of the defendant’: see Lawton LJ [1982] 2 All ER 335 at 338, [1982] 1 WLR 715 at 719. In Makanjuola v Comr of Police of the
Metropolis [1992] 3 All ER 617 (decided on 16 March 1989) where the plaintiff sought unsuccessfully to obtain disclosure of documents (including her
own statement) made in the course of a complaints inquiry, it was held that the documents—
‘may not be used for any purpose whatever in the proceedings to which the immunity applies, and certainly cannot (for instance) be used for the
purposes of cross-examination.’ (See [1992] 3 All ER 617 at 623 per Bingham LJ.)
Thus far, the authorities did not deal with the question to what extent a defendant police authority could properly make use outside court of
information resulting from the inquiry and contained in the documents, beyond apparently accepting that, for better or for worse, that information would
Preamble
be within the knowledge both of the defendant police authority and of its legal representatives. In R v Comr of Police of the Metropolis, ex p
Hart-Leverton (1990) Times, 8 February the defendant commissioner conceded, as have the defendant chief constables in the present case, that statements
taken in the course of a complaints inquiry could not be tendered in evidence, could not be used to assert a positive case and could not form the basis of
cross-examination, but refused to give wider undertakings in substantially the same terms as those sought by the applicants in the present case. The
Divisional Court upheld his refusal, for the reasons which I gave in a judgment with which Watkins LJ agreed. I said:
‘Neither the respondent nor his legal advisers can or should exclude from their minds in contesting the case the information derived from the
complaints inquiry. They are bound to keep it in mind and thus to use it in a sense, if only to ensure that excluded material is not put before the
court. By doing so, they may help or they may hinder the respondent’s case. The guiding principle is simply that they should not seek to introduce
the material directly or indirectly into the case.’
That is the line which the appellant chief constables seek to hold before us. In the present case, however, unlike the Hart-Leverton case, the
applications are made by applicants who have refused to take part in the complaints inquiry except on the basis that the undertakings are given, arguing
that to do so would place them at an unacceptable disadvantage in their civil litigation. In this they are supported by the Police Complaints Authority on
whose behalf Mr Pannick QC tells us that the use by chief constables of complaints investigation material in preparing their defence ‘has a very
detrimental effect on the important public interest of speedy and effective investigations into alleged police misconduct’, and quotes the passage from the
authority’s Triennial Review for 1988–91 (HC Paper (1990–91) no 352) which Staughton LJ has cited. This seems to me to make it plain beyond
argument that the line drawn in Hart-Leverton cannot be held. The assumption underlying Oliver LJ’s original dictum about the material to be included
in counsel’s brief cannot be sustained. Even the limited use of the complaints file which the chief constables seek to preserve is evidently tending to
defeat the purpose for which the immunity from disclosure was created, and cannot therefore be allowed to continue.
715
The precise manner in which it is to be prohibited presents much greater difficulties. As Mr Reynold QC, for Mr Wiley, observed, what they are
really asking for is a form of self-denying ordinance, but one which the chief constables and their legal representatives may be expected to obey. Mr
Gompertz QC, for the appellants, while drawing our attention to the expense and duplication of effort which will be required of police authorities as a
result of the judge’s decision does not argue that practical difficulties should be a decisive factor. These difficulties coupled with the difficulties faced by
applicants as a result of the decision in Neilson v Laugharne [1981] 1 All ER 829, [1981] QB 736 do, however, lead me to venture the suggestion that
more recent practical experience might justify a broader reconsideration of the assumptions upon which the decision was based. But that is not a matter
for this court.
NOURSE LJ. I agree with the judgments of Staughton and Nolan LJJ.
In this court we are bound by Neilson v Laugharne [1981] 1 All ER 829, [1981] QB 736. I agree with Nolan LJ that there are now good grounds for
the head of public interest immunity established by that decision to be considered at the highest level. But while it exists I would not make any
distinction between use of information contained in the documents and use of the documents themselves. No such distinction is made in the case of legal
professional privilege and the principle of the thing is not in my view affected by the consideration that the privilege can be waived whereas the immunity
cannot.
Although I am extremely doubtful whether it was open to Popplewell J, once he had decided, correctly, that the facts of these cases were
indistinguishable from those in R v Comr of Police of the Metropolis, ex p Hart-Leverton (1990) Times, 8 February to decline to follow that decision, I
gladly adopt the following passage in his judgment as a broad justification for the decision taken by this court:
‘The development of the law in relation to public interest immunity and the reasoning upon which it is based leads me clearly to the conclusion
that the documents which come into existence for the purpose of the complaints procedure and the information therefrom are not to be used in the
civil proceedings for any purpose whatever save for the purpose of enabling the legal adviser to advise on discovery. It is difficult to see what logic
there is which prevents the use of the complainant’s statement by way of cross-examination but nevertheless entitles the legal advisers to the chief
constable to use it for other purposes. There can, in my judgment, be no halfway house in this exercise. Either the chief constable is entitled to use
whatever information comes into his hands as a result of the complaints procedure for the purpose of civil litigation or he can use none of it. The
halfway house contended for by the chief constables has no logic.’
I too would dismiss these appeals.
Appeals dismissed. Leave to appeal to the House of Lords granted.
716
[1994] 1 All ER 717
Re Devon and Somerset Farmers Ltd

COMPANY; Insolvency: Other Company
CHANCERY DIVISION (COMPANIES COURT)

JUDGE HAGUE QC SITTING AS A JUDGE OF THE HIGH COURT
25, 26 MARCH, 4 MAY 1993
Preamble
Industrial and provident societies – Winding up – Voluntary winding up – Payment of preferential creditors – Receivers appointed under debenture
creating floating charge – Whether receivers obliged to pay preferential creditors before handing surplus assets to liquidator – Whether society a
‘company’ – Companies Act 1985, s 735(1)(4) – Insolvency Act 1986, ss 40, 251.
A bank appointed receivers under a debenture creating fixed and floating charges over the assets of a society registered under the Industrial and Provident
Societies Act 1965. Subsequently the society went into a creditors’ voluntary liquidation. After the receivers had discharged the debt owed to the bank,
the remaining surplus was insufficient to pay all the creditors in full. The receivers applied to the court for directions as to whether the society was a
‘company’ for the purposes of s 40a of the Insolvency Act 1986 and hence whether the receivers were under a statutory duty to pay preferential creditors
of the society, ascertained at the date of their appointment, before handing the surplus over to the liquidator. Under s 251b of the 1986 Act ‘company’
was, unless the context otherwise required, to be construed in accordance with the provisions of s 735c of the Companies Act 1985, which provided that
‘company’ meant a company formed and registered under the 1985 Act or under former Companies Acts, unless a contrary intention appeared.
________________________________________
a Section 40 is set out at p 721 e to f, post
b Section 251 is set out at p 721 j to p 722 a, post
c Section 735, so far as material, is set out at p 722 b, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – There was no express definition of the word ‘company’ for the purposes of s 40 of the 1986 Act and there was nothing in the context or legislative
purpose of that section which amounted to a ‘contrary intention’ under s 735 of the 1985 Act or which required ‘otherwise’ under s 251 of the 1986 Act,
so as to extend the meaning of ‘company’ in s 40 of the 1986 Act beyond companies established under the Companies Acts. Moreover, the legislative
history of s 40 suggested that the section was not intended to extend to industrial and provident societies. Accordingly, the society was not a ‘company’
for the purposes of s 40 and the receivers were entitled to distribute the surplus to the liquidator without regard to the provisions of s 40 (see p 721 j, p 722
c, p 724 e, p 726 h and p 727 c to e h, post).
Re International Bulk Commodities Ltd [1993] 1 All ER 361 distinguished.
Notes
For the winding up of industrial and provident societies, see 24 Halsbury’s Laws (4th edn) paras 166–178, and for cases on the subject, see 28(3) Digest
(2nd reissue) 20–24, 110–141.
For the Industrial and Provident Societies Act 1965, see 21 Halsbury’s Statutes (4th edn) (1990 reissue) 1090.
717
For the Companies Act 1985, s 735, see 8 Halsbury’s Statutes (4th edn) (1991 reissue) 597.
For the Insolvency Act 1986, ss 40, 251, see 4 Halsbury’s Statutes (4th edn) (1987 reissue) 759, 896.

Bishopsgate Investment Management Ltd (in prov liq) v Maxwell, Cooper v Maxwell, Mirror Group Newspapers plc v Maxwell [1992] 2 All ER 856,
[1993] Ch 1, [1992] 2 WLR 991, CA.
Dallhold Estates (UK) Pty Ltd, Re [1992] BCLC 621.
Farrell v Alexander [1976] 2 All ER 721, [1977] AC 59, [1976] 3 WLR 145, HL.
Felixstowe Dock and Railway Co v US Lines Inc [1988] 2 All ER 77, [1989] QB 360, [1989] 2 WLR 109.
International Bulk Commodities Ltd, Re [1993] 1 All ER 361, [1993] Ch 77, [1992] 3 WLR 238.
National Employers Mutual General Insurance Association Ltd v Jones [1988] 2 All ER 425, [1990] 1 AC 24, [1988] 2 WLR 952, HL.
Norse Self Build Association Ltd, Re [1985] BCLC 219.
Cases also cited

Law Society v United Service Bureau Ltd [1934] 1 KB 343, DC.
NV Slavenburg’s Bank v Intercontinental Natural Resources Ltd [1980] 1 All ER 955, [1980] 1 WLR 1076.
Pepper (Inspector of Taxes) v Hart [1993] 1 All ER 42, [1993] AC 593, HL.
Application
The applicants, David Hugh Anderson Peacock and Cedrick Marsden Clapp, the receivers of Devon and Somerset Farmers Ltd (the society), sought
directions as to whether they were under a duty under s 40 of the Insolvency Act 1986 to pay the preferential debts of the society out of assets in their
hands. Richard Patrick Neville, the liquidator of the society, was the respondent to the application. The facts are set out in the judgment.
John Nicholls (instructed by Cameron Markby Hewitt) for the receivers.

Stephen Rees Davies (instructed by Anstey Sargent & Probert, Exeter) for the liquidator.
Cur adv vult
4 May 1993. The following judgment was delivered.
JUDGE HAGUE QC. This application raises a difficult point of construction which arises under certain sections of the Insolvency Act 1986 and the
Companies Act 1985. The application is made by the receivers of Devon and Somerset Farmers Ltd (which I will refer to as ‘the society’), a society
originally formed and registered under the Industrial and Provident Societies Act 1893 and so deemed to be registered under s 4 of the Industrial and
Provident Societies Act 1965 which replaced it. The receivers were appointed under a debenture creating a floating charge granted by the society. The
question for my determination is whether they are under a statutory duty imposed by s 40 of the 1986 Act to pay the preferential debts of the society.
Preamble
718
Industrial and Provident Societies Acts

It is convenient at the outset to consider some of the main provisions of the 1965 Act and related Acts in a little detail. The 1965 Act, which
consolidated the 1893 Act and other previous Acts, permits a society to be registered under that Act if certain conditions are fulfilled, in particular (under
s 1(2)):
‘… (a) that the society is a bona fide co-operative society; or (b) that, in view of the fact that the business of the society is being, or is intended
to be, conducted for the benefit of the community, there are special reasons why the society should be registered under this Act rather than as a
company under the Companies Act 1985.’
A registered society has members, but s 3 provides:
‘A registered society shall by virtue of its registration be a body corporate by its registered name, by which it may sue and be sued, with
perpetual succession and a common seal and with limited liability …’
A registered society must have registered rules, which must make provision for the various matters listed in Sch 1, and such rules bind its members (see s
14). Any body corporate may hold shares in a registered society: see s 19(1). Section 39 provides for an annual return, including an auditor’s report, to
be made to the ‘appropriate registrar’, ie (in England and Wales) the registrar of friendly societies. Under s 43 any receiver or manager of a registered
society appointed under the powers contained in any instrument must give notice of his appointment and deliver periodic returns to the registrar. By ss 52
and 53 provision is made for a registered society to convert to a company under the Companies Acts and vice versa.
Section 55 of the 1965 Act, which replaced a similar provision in the 1893 Act, provides that a registered society may be dissolved—
‘(a) on its being wound up in pursuance of an order or resolution made as is directed in regard to companies by the Insolvency Act 1986, the
provisions whereof shall apply to that order or resolution as if the society were a company, but subject to the following modifications, that is to
say—(i) any reference in those provisions to the registrar within the meaning of that Act shall for the purposes of the society’s winding up be
construed as a reference to the appropriate registrar within the meaning of this Act …’
It was confirmed in Re Norse Self Build Association Ltd [1985] BCLC 219 that this section enables the court to wind up a registered society exactly
as if it were a company under the Companies Acts, ie under what is now Pt IV of the 1986 Act, and it is unnecessary to have resort to the power to wind
up unregistered companies in Pt V of that Act.
Under the Industrial and Provident Societies Act 1967 a registered society has power to create a fixed or floating charge over its assets, which does
not have to be registered as a bill of sale (as was the position prior to the passing of the 1967 Act). The instrument creating the charge must be recorded
with ‘the appropriate registrar’. By the Friendly and Industrial and Provident Societies Act 1968 further detailed requirements were made concerning a
registered society’s accounts, including group accounts, and the auditing of those accounts.
A registered society is thus in many ways similar to a company registered under the Companies Acts. It is a body corporate, its members have
limited 719 liability, the word ‘limited’ is the last word in the title of every society, there are comparable provisions as regards rules, accounts and the
registration of charges, and so on. But the 1965 Act and the subsequent Acts nevertheless provide a quite separate and distinct statutory framework.
Importantly for present purposes, there are separate and different provisions regarding floating charges and the appointment of receivers.
Devon and Somerset Farmers Ltd

This society, which formerly had other names, was originally registered in 1919. Under the powers conferred by the 1967 Act referred to above, it
created fixed and floating charges over its assets in favour of Lloyds Bank Ltd by a debenture dated 27 April 1981. The debenture was duly recorded
with the Registrar of Friendly Societies. It contained (in cl 7 thereof) the usual wide power for the bank to appoint receivers, with power to manage the
society’s business. That power was exercised by the bank on 17 July 1990 when it appointed Mr D H A Peacock and Mr C M Clapp, of Ernst & Young,
as joint receivers and managers. Subsequently, on 4 April 1991, the society was put into a creditors’ voluntary liquidation, and Mr R P Neville, of KPMG
Peat Marwick, was appointed liquidator.
The receivers have realised the society’s assets and now have in their hands a substantial surplus after discharging the debt owed to the bank. There
will however be insufficient funds to satisfy all the creditors of the society in full.
The question
The question which has arisen is whether the receivers are under a duty by reason of s 40 of the 1986 Act to pay preferential creditors of the society,
ascertained as at the date of their appointment (17 July 1990) as the ‘relevant date’ under s 387(4), to which I shall refer, before handing over the balance
to the liquidator. It was originally considered by the receivers and those advising them that they were under no such duty, and indeed the major preferred
creditors as at that date concurred in that. (On this basis, the consequence would be that ‘the relevant date’ for the ascertainment of the preferential debts
would, under s 387(3)(c), be the date of the resolution to wind up the society, 4 April 1991. If on the other hand ‘the relevant date’ is the date of
appointment of the receivers, the preferential debts would be quite different.) However, the matter has now been reconsidered by the receivers,
particularly in the light of the recent decision of Mummery J in Re International Bulk Commodities Ltd [1993] 1 All ER 361, [1993] Ch 77, and they have
sensibly sought the determination of the court on the matter.
The respondent to the application is the liquidator. Mr Stephen Rees Davies has appeared for him, and argued that s 40 of the 1986 Act does not
apply. Mr John Nicholls appeared for the receivers and argued that it does. I am grateful to both counsel for their careful and cogent arguments, which I
found most helpful.
Insolvency Act 1986

Mr Nicholls referred me to several provisions of the 1986 Act, and it is necessary to discuss some of them in a little detail. The 1986 Act is divided
into three groups of parts. The first group concerns company insolvency and winding up, and consists of the following parts: Pt I, voluntary
arrangements; Pt II, administration orders, a new concept first introduced by the Insolvency 720 Act 1985, which was replaced by the 1986 Act; Pt
III, receivership, which has separate chapters dealing with England and Wales and with Scotland; Pt IV, winding up of companies registered under the
Companies Acts; Pt V, winding up of unregistered companies; Pt VI, miscellaneous provisions; and Pt VII, definitions. The second group of parts relates
Preamble
to the insolvency of individuals. The third group contains matters relating to both company and individual insolvency, including (in Pt XII) provisions as
to preferential debts.
It is convenient to start with Pt XII. What are preferential debts are listed in Sch 6, nearly all of them being defined by reference to periods prior to
‘the relevant date’. That expression is defined by s 387(4), which provides:
‘In relation to a company in receivership (where section 40 or, as the case may be, section 59 applies), the relevant date is—(a) in England and
Wales, the date of the appointment of the receiver by debenture holders …’
Subsection (3) of s 387 deals with companies being wound up and, on the facts of this case, under para (c) ‘the relevant date’ is ‘the date of the
passing of the resolution for the winding up of the company’.
I turn to the critical provisions on which this case turns. Section 40, in Pt III, reads as follows:
‘(1) The following applies, in the case of a company, where a receiver is appointed on behalf of the holders of any debentures of the company
secured by a charge which, as created, was a floating charge.
(2) If the company is not at the time in course of being wound up, its preferential debts (within the meaning given to that expression by section
386 in Part XII) shall be paid out of the assets coming to the hands of the receiver in priority to any claims for principal or interest in respect of the
debentures.
(3) Payments made under this section shall be recouped, as far as may be, out of the assets of the company available for the payment of general
creditors.’
The crucial word in the above, in relation to this case, is ‘company’. If, but only if, the society is a ‘company’ for the purposes of s 40, the section will
apply.
I must also mention s 29(2), likewise in Pt III, which reads, so far as material, as follows:
‘In this Chapter “administrative receiver” means—(a) a receiver or manager of the whole (or substantially the whole) of a company’s property
appointed by or on behalf of the holders of any debentures of the company secured by a charge which, as created, was a floating charge, or by such
a charge and one or more other securities …’
The receivers in this case were appointed in respect of the whole of the society’s property. It is thus similarly clear that if, but only if, the society is a
‘company’ for the purposes of s 29(2) they are ‘administrative receivers’.
There is no express definition of the word ‘company’ for the purposes of s 40 or s 29(2), or Pt III as such. Section 251 is the definition section,
which is applicable to the whole of the first group of parts. It provides:
‘In this Group of Parts, except in so far as the context otherwise requires [there follow a number of definitions (including ‘administrative
receiver’, which merely refers to s 29(2)), but no definition of ‘company’] and any 721 expression for whose interpretation provision is made by
Part XXVI of the Companies Act, other than an expression defined above in this section, is to be construed in accordance with that provision.’
That takes one to Pt XXVI of the Companies Act 1985. The relevant section is s 735, which provides, so far as material, as follows:
‘(1) In this Act—(a) “company” means a company formed and registered under this Act, or an existing company …
(4) The definitions in this section apply unless the contrary intention appears.’
Apart from authority, I would not myself have considered that there was anything in the context of either Pt II of the 1986 Act (which includes in s 8
the power to make administration orders) or Pt III amounting to a ‘contrary intention’ (under s 735(4) above) or to ‘otherwise require’ (under s 251 of the
1986 Act), so as to extend the meaning of ‘company’ beyond the prima facie meaning of what can be conveniently called a Companies Act company. A
similar view was taken, in relation to the power to make an administration order contained in s 8 of the 1986 Act, by Hirst J in Felixstowe Dock and
Railway Co v US Lines Inc [1988] 2 All ER 77 at 91, [1989] QB 360 at 376, where he said:
‘It is not in dispute that … Pt II of the Insolvency Act 1986 does not give the English court jurisdiction to make an administration order in
respect of a foreign company.’
Likewise in Re Dallhold Estates (UK) Pty Ltd [1992] BCLC 621 at 623 Chadwick J said:
‘A company is defined for those purposes by s 735 of the Companies Act 1985, which is incorporated into the Insolvency Act 1986 by the
provisions of s 251 of that Act. The definition in s 735 of the Companies Act 1985 makes it clear that a company, for the purposes of those Acts,
and except where otherwise expressly defined, means a company formed and registered under the 1985 Act or former United Kingdom Acts; and
does not include a company incorporated overseas. Prima facie, therefore, there appears to be no power under s 8 of the 1986 Act to make an
administration order in respect of an overseas company.’
However, it is clear that the contrary was not argued in the Felixstowe case and it seems probable that the same applies to the Dallhold case. But in
Re International Bulk Commodities Ltd [1993] 1 All ER 361, [1993] Ch 77 Mummery J held that in Pt III of the 1986 Act at any rate, and in particular in
s 29(2), ‘company’ does include an unregistered company. Mr Nicholls naturally placed great reliance on the reasoning of Mummery J in that case, and I
must consider it in some detail.
Re International Bulk Commodities Ltd

This case concerned an oversea company which traded in the United Kingdom and which had granted a debenture in English form to a bank creating
fixed and floating charges over its assets. It was accepted that English law applied as regards the debenture. In due course the bank appointed joint
receivers under its power in the debenture, and the question arose whether they were ‘administrative receivers’ under s 29(2) of the 1986 Act with the
powers of 722 administrative receivers set out in Sch 1, or whether their powers were limited to those conferred by the debenture.
Mummery J discussed the background to the innovation of the concept of an administrative receiver and the beneficial consequences of that concept.
He said ([1993] 1 All ER 361 at 365, [1993] Ch 77 at 84):
Preamble
‘Administrative receivership has to be viewed in the context of the whole range of remedies now available in situations where a company is, or
is likely to become, unable to pay its debts. The changes made by the 1986 Act provide both greater flexibility and increased protection for those
affected by actual or potential insolvency situations.’
Mummery J then considered ss 29(2) and 251 of the 1986 Act and s 735 of the Companies Act 1985, set out above, and continued ([1993] 1 All ER 361 at
366–367, [1993] Ch 77 at 85–86):
‘The relevant question is therefore: is there any indication in the subject matter and statutory purpose of the provisions concerning
administrative receivers generally, or in the 1986 Act considered as a whole, from which it appears that Parliament intended that the word
“company” in the context of s 29(2)(a) should not be confined to its prima facie meaning of a company formed and registered under the Companies
Acts, but should also embrace unregistered companies liable to be wound up under Pt V of the 1986 Act? In my judgment, there are indications
that the provisions relating to administrative receivers generally apply both to companies formed and registered under the Companies Acts and to
unregistered companies liable to be wound up under Pt V. The starting point is that the legislative concept of administrative receiver, and the
statutory scheme of the provisions relating to his qualifications, functions, powers and duties, all rest on a contractual base, namely a receiver
appointed by or on behalf of debenture holders under a debenture secured by a floating charge. Every administrative receiver is born in this way.
As already noted, the underlying contractual regime is applicable both in the case of a debenture granted by a company formed and registered under
the Companies Acts, and in the case of a debenture granted by an unregistered company. The general purpose and scheme of the statutory
superstructure is to strengthen and build on the continuing contractual foundation for the greater benefit of all affected—the company, the
contributories, the creditors, both secured and unsecured, and the preferential creditors, as well as the public generally. The attainment of that
general purpose and the nature of the scheme are prima facie as appropriate to the case of an unregistered company as they are to the case of a
registered company. Why should the range of companies affected by the statutory scheme of administrative receivers not be coextensive with the
range of companies affected by the underlying contractual receivership regime? Why should a receiver appointed over the property of a registered
company and a receiver appointed over the property of an unregistered company under the same form of debenture and by the same debenture
holder not both fall within the definition of an administrative receiver? It makes no sense to confine the purpose and scheme of administrative
receivership to appointments of receivers made over the property of registered companies.’
723
A little later, after mentioning s 230(2) of the 1986 Act, which relates to the qualifications required by a person appointed an administrative receiver, and
s 388(4) set out above, Mummery J continued ([1993] 1 All ER 361 at 367–368, [1993] Ch 77 at 87):
‘In my judgment, the court should construe the relevant provisions, where the wording so permits, to promote and not to frustrate the evident
legislative purpose, in this case reinforcing the position of contractual receivers. The express statutory definition of “company” is only its prima
facie meaning, since it is expressly provided in s 735(4) of the Companies Act 1985 that the defined meaning may be displaced where a contrary
intention appears. For the reasons I have stated above, a contrary intention does appear from the subject and the purpose of the provisions. The
court should favour a construction which is consistent with and contributes to the smooth and efficient working of the contractual machinery
recognised and reinforced by the legislation.’
Mr Rees Davies submitted that Re International Bulk Commodities Ltd was wrongly decided, and that I should not follow it. He said that the
reasoning of Mummery J was based on a ‘why not’ approach, which was not sufficient, and that the decision took the modern ‘purposive’ approach too
far. He also pointed out that Mummery J was not referred to certain provisions of the Insolvency Act 1985, which was consolidated by the 1986 Act and
to which I will refer. I have felt the force of these submissions. For my part, I doubt if the subject and purpose of the provisions can be sufficient to
amount to a ‘contrary intention’ appearing: it seems to me that something more is required for that purpose. Parliament may have had reasons for
confining the new concept of administrative receivers to Companies Act companies (eg to see how it worked in practice before extending it to
unregistered companies). Moreover, in s 388(4) of the 1986 Act, which is concerned with the qualifications required for an insolvency practitioner,
‘company’ is defined for the purposes of the section as follows:
‘“company” means a company within the meaning given by section 735(1) of the Companies Act or a company which may be wound up under
Part V of this Act (unregistered companies) …’
If Parliament had intended that any of the sections in Pt II or Pt III of the 1986 Act should extend to unregistered companies, it is hard to understand why
a similar definition was not included. The contrast with s 251 of the 1986 Act and s 735 Companies Act 1985 is striking, and in my view significant.
Mr Nicholls submitted that, although not technically binding on me, Mummery J’s decision was a fully reasoned decision which I ought to follow. I
respectfully decline to do so. Although he referred in general terms to ‘unregistered companies’, Mummery J in that case was of course only concerned
with oversea companies. He did not hear argument on the rather different position as to industrial and provident societies and their own special
legislation, including the specific provisions which I have mentioned as to receivers and floating charges. His general references to ‘unregistered
companies’ were not necessary for his decision and were obiter. Moreover, he was only concerned with the powers of a receiver, and not with any
question of preferential debts. That being so, I do not consider it is necessary for me to come to any concluded view as to the correctness of Re
International Bulk 724 Commodities Ltd, which in my judgment is distinguishable and should be confined to the powers of receivers of oversea
companies appointed under debentures.
Legislative history
It is convenient at this point to refer to the legislative history of ss 29(2) and 40 of the 1986 Act, which Mr Rees Davies drew to my attention.
Section 29(2) first appeared, in identical terms, in s 45(2) of the Insolvency Act 1985. Section 108 of that Act, which was headed ‘Construction of Part
II’ (which included s 45), provided, so far as material, as follows:
‘(1) The provisions of this Part shall be construed as one with the 1985 Act [ie the Companies Act 1985, s 232] and … (b) so far as relating to
receivers or managers, with Part XIX of that Act … and references in that Act to itself and to any of those Parts of that Act shall be construed
accordingly …’
Preamble
Part XIX of the Companies Act 1985, comprising ss 488 to 500 (relating to receivers and managers), clearly did not apply to unregistered companies
in general and industrial and provident societies in particular.
Of more direct importance for present purposes is the history of s 40 of the 1986 Act. This is derived from s 196(1) of the Companies Act 1985,
which replaced s 94(1) of the Companies Act 1948. Prior to its amendment by the Insolvency Act 1985, s 94(1) of the 1948 Act read:
‘Where, in the case of a company registered in England, either a receiver is appointed on behalf of the holders of any debentures of the
company secured by a floating charge, or possession is taken by or on behalf of those debenture holders of any property comprised in or subject to
the charge, then, if the company is not at the time in the course of being wound up, [the preferential creditors shall be paid in priority to other
creditors and the debenture holders etc].’
It is clear from its wording that this section was limited to Companies Act companies. The amendments made by the Insolvency Act 1985 to s 196
of the Companies Act 1985 related only to the nature and extent of preferential debts. They did not alter the companies to which that section applied.
The section continued to apply only to Companies Act companies, and to cover the case of possession being taken by debenture holders as well as a
receiver being appointed.
It follows from the foregoing that, immediately before the 1986 Act came into force, neither the forerunner of s 29(2) nor s 196 of the Companies
Act 1985 applied to either unregistered companies or, in particular, to industrial and provident societies.
The 1986 Act was a consolidating Act. In Bishopsgate Investment Management Ltd v Maxwell [1992] 2 All ER 856 at 867–868, [1993] Ch 1 at
20–21 Dillon LJ described its effect as follows:
‘This Act is a major Act of Parliament which consolidated, with amendments, the law of personal and corporate insolvency. The amendments
are contained in the Insolvency Act 1985, whose legislative purpose was to enact the amendments so that they could be consolidated by the 1986
Act with what remained of the previous insolvency law.’
725
The Insolvency Act 1985 followed the Cork Report, ie the Report of the Review Committee on Insolvency Law and Practice (Cmnd 8558 (1982)),
and a government White Paper on the subject (Cmnd 9175 (1984)). I was told that neither the Cork Report nor the White Paper contains any reference to
industrial and provident societies or indeed to any other kind of unregistered company. I was also told that nothing of assistance can be derived from
Hansard.
By the 1986 Act, the part of s 196 of the Companies Act 1985 which related to the appointment of a receiver was removed from the section and
became s 40(1). But the rest of the section dealing with possession being taken by the debenture holders remained unaltered, and continues to apply only
to Companies Act companies. Thus there will be an anomaly if s 40 extends to unregistered companies. For a different regime as to preferential debts
will apply if a debenture holder decides to go into possession rather than appoint a receiver.
More importantly, the transfer of part of s 196 to the part of the consolidating 1986 Act cannot in my view have had the important amending
consequences for which Mr Nicholls contends. The only relevant new provisions are those contained in the definition section, s 251 of the 1986 Act
discussed above. In my judgment, these fall a long way short of being sufficient to effect such an amendment. I do not overlook the fact that the primary
task of the court is to construe the 1986 Act as it stands, notwithstanding that it is a consolidating Act: see Farrell v Alexander [1976] 2 All ER 721,
[1977] AC 59. But, where the construction is in doubt, in my view regard should be had to the legislative history: cf per Dillon LJ in the Bishopsgate
case [1992] 2 All ER 856 at 868, [1993] Ch 1 at 21, and the approach of the House of Lords (admittedly in a different context, but in relation to a
consolidating Act) in National Employers Mutual General Insurance Association Ltd v Jones [1988] 2 All ER 425, [1990] 1 AC 24. I respectfully think
that the legislative history of s 29(2) outlined above (to which Mummery J was not referred) casts doubt on the correctness of his decision in Re
International Bulk Commodities Ltd [1993] 1 All ER 361, [1993] Ch 77.
Mr Nicholls’ alternative submission

Mr Nicholls submitted that, even if the ratio decidendi of Re International Bulk Commodities Ltd is properly confined to oversea companies (as I
have held to be the case), it is still proper to include industrial and provident societies within the meaning of ‘company’ in s 40 of the 1986 Act. He drew
attention to three matters in support of this submission.
First, he said that the same important policy considerations as those discussed by Mummery J in that case (see [1993] 1 All ER 361 at 366–368,
[1993] Ch 77 at 85, 87) apply equally to industrial and provident societies. I have already indicated that I do not consider that these are sufficient to lead
to the conclusion that there is ‘contrary intention’ appearing to the prima facie limitation of the word ‘company’ to Companies Act companies.
Secondly, Mr Nicholls stressed that an industrial and provident society is an ‘unregistered company’ capable of being wound up under Pt V of the
1986 Act and also, under s 55 of the 1965 Act, can be wound up directly under Pt IV. The preferential debt provisions of s 175 apply to a winding up
under either Part (as to Pt V, see s 221). However, in my view that is of no assistance in determining what is ‘the relevant date’ under ss 387(4) and 40.
Thirdly, Mr Nicholls said that, unless s 40 applies, the interests of the persons who would be preferential creditors will be unprotected and there will
726 therefore be a positive inducement to them to wind up a society rather than put it into receivership. He also pointed to other anomalies, in that,
until there is a crystallisation on a society being wound up, the debts secured by a floating charge can be paid in priority to the preferential debts. These
anomalies, which in any event existed prior to the 1986 Act, are in my view insufficient to lead to the conclusion that there is a ‘contrary intention’
appearing. Moreover, they are in my view more than balanced by the anomalies mentioned below which will arise if s 40 does apply.
Conclusion
For the reasons which I have outlined above, in my judgment the word ‘company’ cannot be interpreted for the purposes of s 40 as including
industrial and provident societies. As such societies have their own legislation, including provisions regarding receivers, I find it impossible to find that
they are included within the definition of ‘company’ by reason of s 251 of the Insolvency Act 1986. I would have reached this conclusion independently
of the previous legislative history, but I think it is confirmed by that history. I agree with Mr Rees Davies that Parliament cannot have intended by the
relatively minor alterations in the definition sections of the 1986 Act to effect a substantial extension of the law relating to receivers so as to cover
industrial and provident societies. I also agree with Mr Rees Davies that Parliament cannot have intended to apply different schemes for the payment of
preferential creditors depending on whether the debenture holders appoint a receiver or take possession themselves. In the latter case there is no question
of s 196 of the Companies Act 1985 applying.
Mr Rees Davies also drew attention to certain further anomalies which would arise if ‘company’ in Pt III includes industrial and provident societies.
Preamble
It would mean that the receivers of such a society would have dual reporting and other obligations to the registrar of friendly societies and to the registrar
of companies. It would also mean that the provisions of that Part would apply without, apparently, the charge having to be registered under s 395 of the
Companies Act 1985.
I should mention that Mr Rees Davies also addressed an argument to me based on the legislation relating to floating charges created by Scottish
industrial and provident societies. In view of my conclusion set out above, I do not find it necessary to deal with that argument.
Order
I will therefore make declarations (1) that the society is not a ‘company’ for the purposes of s 40 of the Insolvency Act 1986 and (2) that the
applicants are entitled to distribute the assets of the society in their hands to the respondent liquidator of the society without regard to the provisions of
that section. I also consider it expedient to make representation orders that the applicants do represent the persons who would be preferential creditors of
the society on the footing that s 40 of the 1986 Act applied and that the respondent do represent all other creditors, including preferential creditors, in the
liquidation of the society. The order for costs will be the same as that made by the registrar.
Order accordingly.
Evelyn M C Budd Barrister.
727
[1994] 1 All ER 728
Allen v Redbridge London Borough Council

CONSUMER; Consumer protection

WATKINS LJ AND LEONARD J
22 JULY 1993
Consumer protection – Price marking – Obligation to indicate selling price – Manner of indication of selling price – Goods kept in locked glass cabinet –
Price labels not visible from outside cabinet – Assistance of shopkeeper or his staff required to enable prospective purchaser to see price – Prospective
purchaser – Whether prospective purchaser any person entering shop or only person having intention of purchasing goods – Whether price unambiguous,
clearly identifiable and legible by prospective purchaser – Prices Act 1974, s 7, Sch – Price Marking Order 1991, arts 3, 8.
The appellant owned a pharmacy which also sold perfumes and cosmetics most of which were kept in locked glass cabinets with their price labels being
displayed either on the back or underside of the individual items. Any person interested in the items could ascertain their price by asking the appellant or
a member of his staff to unlock the cabinet and remove the items for closer examination. The appellant was charged with failing to indicate the selling
prices of those goods in accordance with arts 3a and 8b of the Price Marking Order 1991, contrary to s 7 of and the schedule to the Prices Act 1974.
Article 3 of the 1991 order provided that any goods to be sold by retail were required to have the selling price thereof indicated in writing and art 8
provided that the indication of price had to be unambiguous, easily identifiable and clearly legible by a prospective purchaser and marked on the goods or
their container or on a ticket or notice in close proximity to the goods. The appellant was convicted on the basis that a ‘prospective purchaser’ included
someone who could ascertain the price of goods without seeking the assistance of the shopkeeper or his staff and that as the price labels could not be
viewed from the front of the cabinet they did not comply with art 8. The appellant appealed.
________________________________________
a Article 3, so far as material, is set out at p 732 a b, post
b Article 8, so far as material, is set out at p 732 c to e, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – The 1991 order did not lay down the precise method by which a shopkeeper had to bring the prices of his goods to the notice of the public, but left
it open to the shopkeeper how it should be done. Furthermore, art 8 of the order was not directed at any person who walked into a shop but was
specifically aimed at a prospective purchaser, ie someone who had a purchase in prospect or contemplation. Accordingly, it was sufficient for the
purposes of art 8 if there was clearly stated on or alongside the particular article a price indicator which unmistakably related to it and if the price could
not be seen from outside a locked cabinet it did not matter that the shopkeeper or one of his staff had to be asked to produce the article from the cabinet
for inspection. The shopkeeper was not required either to put a label on the front of the article or to put the article in a position where it could be handled
by a customer; it was enough if assistance from the shopkeeper or one of his staff allowed the customer a proper opportunity of seeing the price on the
article.
728
It followed that the appellant had not contravened arts 3 and 8 of the 1991 order. The appeal would therefore be allowed and the convictions quashed (see
p 734 e to g, p 735 b c e to j and p 736 b, post).
Dictum of Ormerod LJ in Drewery v Ware-Lane [1960] 3 All ER 529 at 532 applied.
Notes
Preamble
For the enforcement of price marking orders, see 41 Halsbury’s Laws (4th edn) para 626.
For the Prices Act 1974, s 7, Sch, see 47 Halsbury’s Statutes (4th edn) 240, 241.
For the Price Marking Order 1991, arts 3, 8, see 20 Halsbury’s Statutory Instruments (1993 reissue) 333, 337.

Drewery v Ware-Lane [1960] 3 All ER 529, [1960] 1 WLR 1204, CA.
Reed (Dennis) Ltd v Goody [1950] 1 All ER 919, [1950] 2 KB 277, CA.
Cases also cited

A-G v Beauchamp [1920] 1 KB 650.
Litster v Forth Dry Dock and Engineering Co Ltd [1989] 1 All ER 1134, [1990] 1 AC 546, HL.
National Dock Labour Board v British Steel Corp [1973] 1 All ER 305, [1973] 1 WLR 89, HL.
Webb v EMO Air Cargo (UK) Ltd [1992] 4 All ER 929, [1993] 1 WLR 49, HL.
Case stated
David Allen, trading as Allens Pharmacy, appealed by way of a case stated by the justices for the North East London commission area acting in and for
the petty sessional division of Redbridge in respect of their adjudication at the Barkingside Magistrates’ Court on 30 October 1992 whereby they
convicted him on two informations laid on behalf Redbridge London Borough Council charging him with failure to indicate the selling price of goods in
accordance with arts 3 and 8 of the Price Marking Order 1991, SI 1991/1382, contrary to s 7 of and the schedule to the Prices Act 1974. The facts are set
out in the judgment of Watkins LJ.
Michael Beloff QC and Jonathan Fisher (instructed by Charles Russell) for the appellant.
Leslie Joseph QC and James Tayler (instructed by G R Bassett, Ilford) for the respondent.
WATKINS LJ. This is an appeal by case stated from a decision of the justices for the North East London commission area, when sitting in the
Barkingside Magistrates’ Court. They had before them, on 14 July 1992, two informations which had been preferred against the appellant. They alleged:
(1) that on 24 April 1992 the appellant, trading as Allen’s Pharmacy at 19 Electric Parade, George Lane, London E18 2LY, failed to indicate selling price
of goods, namely ‘Xeryus’ aftershave 50 ml, in accordance with arts 3 and 8 of the Price Marking Order 1991, SI 1991/1382, and (2) that on the same
day, and at the same place, he failed to indicate the selling price of goods, namely Yves St Laurent ‘Opium’ perfumed deodorant spray 69 ml, in
accordance with the 729 same articles. Both offences alleged are said to be contrary to s 7 of and the schedule to the Prices Act 1974.
The justices found the following facts. The appellant is a pharmaceutical chemist. His business is known as Allen’s Pharmacy at the above address.
Apart from ordinarily supplying pharmaceutical articles and dispensing medicines at these premises, he sells other goods, including perfume and
cosmetics, of which he stocks a large range. Most, if not all of these, were kept in large locked glass cabinets. The price labels on these articles were
placed at the bottom or on the back of the boxes which contained them. A person interested in any of them could only ascertain the prices by of them
obtaining the assistance of Mr Allen, or a member of his staff, to unlock the appropriate cabinet and to remove the goods sought to be looked at for closer
examination.
The parties accepted that the material goods had upon them adhesive price labels, which were attached to the rear of each of their containers.
The justices say that it was contended before them, on behalf of the appellant, that there is no requirement for the price label to be placed in any
particular position within the meaning of art 8 of the 1991 order, that, once the goods had been removed from the cabinet by Mr Allen or one of his staff,
the price label attached to the container would be unambiguous, easily identifiable and clearly legible to the prospective purchaser within the meaning of
the 1991 order, and, finally, that a person becomes a prospective purchaser when he genuinely has the intention to purchase goods and obtains assistance
from the shop owner or his staff to remove them from the locked cabinet for examination.
The contrary was contended on behalf of the respondent. It was to this effect. Adhesive price labels which cannot be easily seen by a customer are
not an indication within the meaning of art 3(a) of the 1991 order, further, that adhesive price labels attached to the rear of goods which are locked in a
cabinet cannot be said to be easily identifiable by a prospective purchaser as referring to the goods in question and are not clearly legible by a prospective
purchaser within the meaning of art 8 of the 1991 order, and, finally, that a prospective purchaser is, within the meaning of the 1991 order and in the
circumstances of this case, a person who looks at goods in a display cabinet whilst considering the possible purchase of such goods.
One authority was referred to the justices. It is Drewery v Ware-Lane [1960] 3 All ER 529, [1960] 1 WLR 1204. They were also referred to Council
Directive (EEC) 79/581, as amended by Directives 88/314 and 315. They formed these opinions: (a) that the goods which were on display for sale were
labelled with price tickets, but not in such a manner that the price could be viewed from the front of the display cabinet and so could not be said to comply
with the statutory requirement contained in art 8(2)(b) of the 1991 order; (b) that a ‘prospective purchaser’ is somebody who goes into a shop, looks at
goods and is able to ascertain their price and is thus able to compare that price with that of similar goods on sale elsewhere without seeking the assistance
of the shop owner or a member of his staff. Accordingly, they found the appellant guilty of both offences. They discharged the appellant conditionally
for 12 months and made no order for costs.
They ask these questions of this court. (1) Whether a person can contravene arts 3 and 8 of the 1991 order where he marks the price on the container
of goods which cannot be examined without obtaining assistance 730 from the shop owner or a member of his staff in circumstances where, upon
examination of the goods, (i) the indication of price is unambiguous and easily identifiable as referring to the goods in question and (ii) the indication of
price is clearly legible to a person looking at the price labels. (2) Whether, under art 8(2), ‘a prospective purchaser’ means (a) a person who intends to
purchase or contemplates the purchase of particular goods in respect of which there is no price indication or adequate price indication and (b) a person
who enters the shop, irrespective of whether the person intends to purchase or contemplates the purchase of particular goods in respect of which there is
no price indication or adequate indication. (3) Whether the evidence justified the finding by the justices that the defendant was guilty of the offences in
the summonses.
This is a matter of importance not only to Mr Allen, but to all others such as Mr Allen who sell the same sort of goods as he does. It involves a point
of construction of the order which the justices had to apply to the facts which they found.
There is no difficulty whatsoever about the findings of fact. It seems to me that, on the evidence which came before the justices, they were findings
which they were fully entitled to make.
Mr Beloff QC, who appears for the appellant Mr Allen, does not attack those findings. His attack is directed to the construction point and, of course,
to the failure of the justices, as he contends, to construe the provisions properly and to thereafter apply the proper construction to the facts found.
On the other hand Mr Joseph QC, for the respondents, maintains that the justices did not fail to construe properly the relevant provisions and, based
Preamble
upon their findings of fact, they cannot be criticised for convicting the appellant. He, broadly speaking, asserts that whilst those provisions do not call
upon a retailer, such as Mr Allen, to put price labels always upon the front of goods on display for sale, there must be no impediment of any kind in the
way of a prospective purchaser when looking directly at goods on display to see instantly the price of them if it is on the front, or if it be on the side or
rear by turning the article round. Likewise, if the price is separate from the goods, but is so placed as to indicate that it can relate to nothing else but those
goods.
The provisions which are in point stem from the Prices Act 1974. In the title to that Act it is, inter alia, stated:
‘… to make provision for requiring prices to be indicated on or in relation to goods offered or exposed for sale by retail …’
Section 4, so far as is relevant, is headed ‘Price marking’:
‘(1) The Secretary of State may by order make provision for securing—(a) that prices are indicated on or in relation to goods which a person
indicates are or may be for sale by retail, whether or not the goods are in existence when he does so …
(2) Without prejudice to the generality of subsection (1) above, an order under this section … (a) may make provision as to the manner in which
any price … is to be indicated …’
Powers were given to the Secretary of State to make orders under this Act. By use of that power the 1991 order was made. It came into force on 1
September 1991. By art 3 it is provided:
731
‘(1) Where a person indicates that any goods (being goods other than motor fuel) are or may be for sale by retail, he shall indicate in writing the
selling price of those goods in accordance with the following provisions of this Order.
(2)(a) The selling price shall be indicated either—(i) in the case of goods sold from bulk, by reference either to a unit of measurement or to a
single item or to a specified quantity of the goods, or (ii) in the case of other goods, by reference to a single item or to a specified quantity of goods
…’
Article 8 is of obvious significance and importance. So far as is relevant it states:
‘(1) This article applies to goods other than motor fuel.

(2) The indication of price or the display of a statement referred to in this Order shall be—(a) unambiguous and easily identifiable by a
prospective purchaser as referring to the goods in question; and (b) clearly legible by a prospective purchaser …’
There are other provisions as follows:
‘(3) The indication of the selling price referred to in article 3(1) above shall—(a) where the goods are exposed for sale by retail, be marked in
any one or more of the following ways, namely—(i) on the goods or, if the goods are pre-packed, on the container; (ii) on a ticket or notice
displayed on or in close proximity to the goods to which it refers; (iii) grouped together with other prices on a list in close proximity to the goods to
which it refers …’
In sub-para (b), there is provision relating to situations where goods are not exposed for sale.
Allied to these provisions are certain directives which have come from the European Economic Community. I look, for present purposes only, at one
of those directives. It is that of 7 June 1988 (Directive 88/314) which is expressed to deal with consumer protection in the indication of prices of non-food
products.
In the body of the directive, preceding the articles, among other things, it states:
‘Whereas indication of the selling price and the unit price of non-food products makes it easier for consumers to compare prices at places of
sale; whereas it accordingly increases market transparency and ensures greater protection for consumers …’
There are other purposes which obviously moved the makers of this directive. Article 4 of it is in point. That states:
‘The selling price and the unit price must be unambiguous, easily identifiable and clearly legible. Each Member State may lay down the
specific rules for such indication of prices, e.g. by means of posters, labels on shelves or packaging.’
Mr Beloff referred, with his usual clarity of expression, to two authorities which relate to the relationship between the provisions in this directive and
our own domestic law as expressed in an order. I do not think it necessary, without showing, I hope, any disrespect to his argument, to embark upon a
732 dissertation as to a possible collision between European Community law and our own, for it seems to me, in the circumstances of this matter, that
there is none—none, at any rate, which affects the real issue which we have to determine.
He referred us also to assistance which is available with the expression ‘a prospective purchaser’. It comes from the case already mentioned and
which was before the justices, namely Drewery v Ware-Lane [1960] 3 All ER 529 at 532, [1960] 1 WLR 1204 at 1208, where Ormerod LJ stated:
‘As far as I know, there is no authority on what is meant by “a prospective purchaser”. Had the word “prospective” not been put in before
“purchaser”, it might very well be that, in view of the authorities, the plaintiffs might have been in some difficulty. It appears to me, however, that
the word “prospective” does not connote necessarily either the term “ready” or “willing” or “able”; it means a man who has the question of buying
this property in prospect or in contemplation and is prepared to make an offer with regard to it. This means that there must be a bona fide prospect.
In the ordinary way it would be accepted that such an offer would be bona fide and it would be for the defendant to prove, if he sought to set it up,
that the offer was not a bona fide offer. I think that the learned county court judge put the matter clearly in his judgment when he said: “Returning
to the letter of authority, it is to be noted that in cl. 4(a) the word ‘purchaser’ is qualified by the epithet ‘prospective’. In Dennis Reed, Ltd. v.
Goody ([1950] 1 All ER 919, [1950] 2 KB 277) it was held that the word ‘purchaser’, when used without any qualifying adjective, connotes one
who completes the purchase, but as HODSON, J., said ([1950] 1 All ER 919 at 927, [1950] 2 KB 277 at 292) ‘… the word may be qualified by
other words used in connexion with it …’ It seems to me that a ‘prospective purchaser’ is essentially different from ‘a purchaser’. A ‘prospective
Preamble
purchaser’ is one who has purchase in prospect or contemplation and he may never advance to the stage of becoming a purchaser.”’
We were also referred to a letter issued from the Department of Trade and Industry. It is dated 19 July 1993. It is directly in point in relation to the
construction issue which we have to determine. At para 15 of the letter the author, who is the head of Consumer Affairs Division 2, states:
‘The Directives do not state explicitly the circumstances in which the price must be legible. The question arises whether—if the consumer can
see and identify the goods—the minimum requirement is that the price must be legible from where he will normally view the goods, legible after
some action on his part, for example picking the item up or finding the relevant entry in the price list, or legible after seeking assistance. The
Department considers that the Directives yield no clear answers on this point.’
With that I entirely agree. Paragraph 16 reads:
‘Having regard both to the needs of the consumer and the logic of requiring price indications to be legible, it is considered that where a
consumer can see and identify the goods or there is some other indication that a particular item is available he should be able to establish the price
733 without asking assistance. We recognise however that this may go beyond what the Directives require, and we should particularly welcome
views.’
He has not had to wait long for them. Paragraph 17 states:
‘Where a consumer has to ask whether a particular item is available a written indication offers no great advantage over an oral one. But the
Department considers that there is no basis in the Directives for exempting such goods from the order. Traders will therefore be left to fulfil the
basic obligation to give a legible price indication for such goods in whatever way they see fit.’
Mr Beloff has referred us to a number of other orders affecting different goods which are commonly sold on a very large scale. He has referred to
provisions in the Price Marking (Food) Order 1978, SI 1978/738, the Price Marking (Food and Drink on Premises) Order 1979, SI 1979/361, the Price
Indications (Method of Payment) Regulations 1991, SI 1991/199 and the Price Marking (Petrol) Order 1980, SI 1980/1121. In all of those orders there is
precise provision made for the methods by which, and the places at which, a restaurateur, keepers of petrol stations and others are to bring to the notice of
the public the prices they are charging for their wares, or other goods.
Mr Beloff contends that these assist to show that Parliament had no intention, in relation to the 1991 order, to lay down in any way precisely the
method by which the keeper of a chemist’s shop, for instance, could bring to the notice of the public prices of his goods.
I find that contention entirely acceptable. I believe that those provisions do help to show that, to a very large extent, Parliament, in art 8, left to the
shopkeeper upon whom it is incumbent to conform in every particular with the article to decide how that should be done.
It is noteworthy, and it should be here stated, that no point is taken as to legibility and so on. Clearly the label, which was found upon the back of
the goods which attracted the attention of the officials of the prosecutor, was a label, such as is customarily seen all over the place these days stuck upon
goods, which indicated to a person looking at it (a) that it relates to the goods in question, indeed it was stuck to them, and (b) that it was clearly legible
and did not permit of allowing any mistake as to what it was related to and the price.
As to those circumstances there is no issue. Mr Joseph has made it absolutely plain that his submissions are mounted upon the basis that, without
any assistance from anyone else, a prospective purchaser simply must be able, on his own merely by standing in front of goods, whether they be in a
cabinet or not, to see what the price is. He does not go as far as to say that if the goods are not in a cabinet, art 8 is not complied with if the label is
elsewhere than upon the front of the goods. In other words he admits of the possibility of compliance with the article if the prospective purchaser turns
the goods round of his own accord to see where the price is on it. If it is there, and he cannot miss it, then Mr Joseph accepts that that is compliance with
the article and there is no offence.
But, he says, here the goods were in a locked cabinet. In order to see them the prospective purchaser would have to go to Mr Allen, or one of his
staff, and ask that person to unlock the cabinet, bring out the goods and show them to 734 the prospective purchaser. That intervention, and necessary
intervention, is, so Mr Joseph says, fatal to any pretended compliance with art 8. That, he says, is destructive of the submissions of Mr Beloff.
I find Mr Joseph’s submissions unacceptable. I feel driven to say, first of all, in relation to whom art 8 is directed, that it is not directed at just
anybody who walks into a shop. It is directed specifically at a prospective purchaser, a definition of whom by Ormerod LJ I have read and with which I
agree. So, it is to a special class of person that the order is directed, and for whose benefit it was enacted.
It seems to me that art 8 is fully conformed with provided that there is upon the goods clearly stated, either by stamp or label, or there is alongside
them, some indicator which unmistakably relates to the goods. If the price cannot be seen from without a cabinet which is unopened, then it matters not,
in my judgment, that the proprietor of the shop, or one of his staff, has to be asked to produce the goods for inspection from the cabinet. If the prospective
purchaser is then enabled, as the order says he must be, to see the price, it seems to me that art 8 is complied with absolutely.
That being my view, I turn to the questions which are asked by the justices. Putting aside the question of who is a prospective purchaser for the
moment, their opinion clearly was that the goods which were on display were labelled with price tickets, but not in such a manner that the price could be
viewed from the front of the display cabinet and so it could not be said there was compliance with the statutory requirement. That, it must follow, was,
according to my view of the construction of art 8, a misdirection of themselves and a vital one, seeing that the issue before us centres precisely upon what
the shopkeeper is called upon to do in order to conform with art 8. He is not called upon to (a) necessarily put a label upon the front of the goods, (b) put
the goods in a position where they can without assistance be handled by the prospective purchaser, and (c) it is enough if assistance from a member of the
staff or the proprietor of the shop allows the prospective purchaser a proper opportunity of seeing the price upon the article. As to their finding and
opinion of who is a prospective purchaser, it must follow, too, from what I have said, that I profoundly disagree with their interpretation. The
interpretation is that expounded by Ormerod LJ.
In my view arts 3 and 8 were not contravened by the way in which the appellant here offered for sale the goods in question, or by the manner in
which they were labelled and the way in which the price could be easily discovered with the assistance of a member of the staff in the shop.
The answer to the second question is that the definition of a prospective purchaser is not as stated in the opinion of the justices, but as stated in the
judgment of Ormerod LJ.
Finally, having regard to the answers to the first two questions, the answer to the third is obvious. The justices were not entitled to convict here
because although their findings of fact cannot be faulted, they applied to those facts a misdirection of themselves in law.
I would therefore allow this appeal and quash the conviction.
LEONARD J. On the facts found by the justices, which were not in dispute, I am of the view that the offences were not made out for the reasons given
by Watkins LJ, with which I agree.
Preamble
735
The essential aspects of the arrangements of the appellant’s premises were that a prospective purchaser would have access to an indication of the
price of the goods which was unambiguous, easily identifiable by him as referring to the goods in question, and clearly legible before making up his mind
whether to buy them.
Therefore I, too, would quash the convictions on those informations.
Appeal allowed. Convictions quashed. The court refused leave to appeal to the House of Lords and refused to certify, under s 1(2) of the Administration
of Justice Act 1960, that a point of law of general public importance was involved in the decision.

[1994] 1 All ER 736
Note
Marshall v Southampton and South West Hampshire Area Health Authority (No 2)
EUROPEAN COMMUNITY; Social policy: EMPLOYMENT; Discrimination
HOUSE OF LORDS
LORD BRIDGE OF HARWICH, LORD TEMPLEMAN, LORD GRIFFITHS, LORD GOFF OF CHIEVELY AND LORD JAUNCEY OF TULLICHETTLE
17 JUNE 1991, 2 FEBRUARY 1994
On consideration of the ruling given by the Court of Justice of the European Communities in its judgment dated 2 August 1993 in Marshall v
Southampton and South West Hampshire Area Health Authority (No 2) Case C-271/91 [1993] 4 All ER 586, [1994] QB 126 on reference thereto of
certain questions by the House of Lords by an order dated 14 October 1991 for a preliminary ruling pursuant to art 177 of the EEC Treaty, the House of
Lords, by an order dated 2 February 1994, set aside the order of the Court of Appeal (Dillon, Butler-Sloss and Staughton LJJ) ([1991] ICR 136) of 31 July
1990 and the order of the Employment Appeal Tribunal (Wood J, Mr R J Lewis and Mr R H Phipps) ([1990] ICR 6) of 18 September 1989 and restored
the decision of the industrial tribunal (Mr M A Rich chairman) held at Southampton and entered in the register on 21 June 1988.
736
[1994] 1 All ER 737
Re Maxwell Communications Corp plc (No 2)

COMPANY; Insolvency
CHANCERY DIVISION
VINELOTT J
18, 19, 26 MARCH 1993
Company law – Scheme of arrangement – Scheme of arrangement between company and creditors – Subordination agreement – Company guaranteeing
bonds of another company – Claims of bondholders subordinated under guarantee to claims of surety company’s own creditors – Whether subordination
agreement valid – Whether necessary to obtain consent of bondholders to scheme of arrangement.
In June 1989 a company, MFJ, issued convertible bonds which were guaranteed by another company, MCC, under a guarantee which provided that
MCC’s liability to the bondholders was subordinated to MCC’s liabilities to other unsecured creditors and that if MCC entered into a composition with its
creditors the unsubordinated creditors were entitled to have their claims satisfied in full before any payment was made to the holders of the MFJ bonds.
The guarantee further provided that payments under the guarantee were to be made to a Swiss bank, SBC, on behalf of the MFJ bondholders. The
guarantee and the subordination agreement were subject to Swiss law, which did not recognise trusts. Accordingly, the payments to SBC could not give
rise to a trust and it was also accepted that they did not constitute an assignment from the subordinated creditors to SBC. Both MFJ and MCC became
hopelessly insolvent and the administrators of MCC’s English assets and the examiner appointed to control MCC’s United States assets agreed a
distribution scheme whereby secured and preferential creditors in England and creditors with priority claims in the United States would be paid out of the
English or the United States assets as appropriate, the net balance would be pooled and remaining claims would be paid pari passu out of the pool. The
scheme relating to the English assets was made pursuant to s 425 of the Companies Act 1985. The question arose whether the subordination agreement
was valid, since if it was then, because both MCC and MFJ were insolvent, there was no question of MCC being able to satisfy any of its liabilities under
Preamble
the guarantee and therefore it would not be necessary to obtain the consent of the MFJ bondholders for the purpose of the s 425 arrangement since as
creditors whose claims were valueless they would have no interest in the arrangement.
Held – The subordination agreement was a valid contract since neither the rule making insolvency set-off mandatory nor the pari passu rule of
distribution made the agreement invalid. There was no rule of public policy, arising out of the rule invalidating an agreement between a debtor and a
creditor excluding the creditor’s right of set-off or the waiver by the creditor of his right of set-off, even after the commencement of the bankruptcy or
winding up, which similarly invalidated an agreement between a debtor and a creditor postponing or subordinating the claim of the creditor to the claims
of other unsecured creditors and precluded the waiver or subordination of the creditor’s claim after the commencement of a bankruptcy or winding up.
Since a creditor could waive his debt or decline to submit proof, there was no reason why he should not, prior to any insolvency proceedings, agree to
subordinate his claim to that of other creditors in the event of the debtor company’s insolvency. The pari passu rule 737 prevented a creditor from
arranging to obtain some advantage in the winding up of a company to which insolvency principles did not entitle him, but subordination in no way
undermined that principle. Accordingly, there was no principle of insolvency law which rendered invalid a subordination agreement. Therefore the
subordination agreement was valid and enforceable (see p 746 b to j, p 751 a b and p 755 a post).
Rolls Razor Ltd v Cox [1967] 1 All ER 397, National Westminster Bank Ltd v Halesowen Presswork and Assemblies Ltd [1972] 1 All ER 641 and Re
British and Commonwealth Holdings plc (No 3) [1992] BCLC 322 considered.
Notes
For schemes of arrangement, see 7(2) Halsbury’s Laws (4th edn reissue) paras 2135–2147, and for cases on the subject, see 10(2) Digest (2nd reissue)
290–308, 11637–11788.
For the Companies Act 1985, s 425, see 8 Halsbury’s Statutes (4th edn) (1991 reissue) 486.

Akt Kreuger & Toll, Re (1938) 96 F 2d 768, US Ct of Apps (2nd Cir).
Ashby v White (1703) 1 Bro Parl Cas 62, 1 ER 417, HL.
Ayr Harbour Trustees v Oswald (1883) 8 App Cas 623, HL.
Barnett , Ex p, re Deveze (1874) LR 9 Ch App 293, LJJ.
British and Commonwealth Holdings plc, Re (No 3) [1992] BCLC 322, [1992] 1 WLR 672.
British Eagle International Airlines Ltd v Cie Nationale Air France [1975] 2 All ER 390, [1975] 1 WLR 758, HL; rvsg in part [1974] 1 Lloyd’s Rep 429,
CA; affg [1973] 1 Lloyd’s Rep 414.
British Guiana Bank v Official Receiver (1911) 104 LT 754, PC.
Cooper v A & G Fashions (Pty) Ltd, ex p Millman 1991 (4) SA 204, CPD.
Credit Industrial Corp, Re (1966) 366 F 2d 402, US Ct of Apps (2nd Cir).
De Villiers, Ex p, re Carbon Developments (Pty) Ltd (in liq) 1993 (1) SA 493, SA SC App Div; rvsg 1992 (2) SA 95, Witwatersrand LD.
Deering v Hyndman (1886) 18 LR Ir 467, Ir CA; affg 18 LR Ir 323, Ir DC.
First National Bank of Hollywood v American Foam Rubber Corp (1976) 530 F 2d 450, US Ct of Apps (2nd Cir).
Holthausen, Ex p, re Scheibler (1874) LR 9 Ch App 722, LJJ.
Horne v Chester & Fein Property Developments Pty Ltd [1987] VR 913, Vict SC.
Lind v Lefdal’s Pianos Ltd (in liq) [1929] TPD 241, SA SC.
National Westminster Bank Ltd v Halesowen Presswork and Assemblies Ltd [1972] 1 All ER 641, [1972] AC 785, [1972] 2 WLR 455, HL; rvsg [1970] 3
All ER 473, [1971] 1 QB 1, [1970] 3 WLR 625, CA.
Rolls Razor Ltd v Cox [1967] 1 All ER 397, [1967] 1 QB 552, [1967] 2 WLR 241, CA.
Spurling v Bantoft [1891] 2 QB 384, DC.
Victoria Products Ltd v Tosh & Co Ltd (1940) 165 LT 78.
Cases also cited

Barlow Clowes Gilt Managers Ltd, Re [1991] 4 All ER 385, [1992] Ch 208.
Barrow Borough Transport Ltd, Re [1989] BCLC 653, [1990] Ch 227.
Bishopsgate Investment Management Ltd (in prov liq) v Maxwell, Cooper v Maxwell, Mirro Group Newspapers Ltd v Maxwell [1992] 2 All ER 856,
[1993] Ch 1, CA.
Bristol Airport plc v Powdrill [1990] 2 All ER 493, [1990] Ch 744, CA.
Charnley Davies Ltd, Re (No 2) [1990] BCLC 760.
738
Industrial Welding Co Pty Ltd, Re (1978) 3 ACLR 754, NSW SC.
James, Ex p, re Condon (1874) LR 9 Ch App 609, [1874–80] All ER Rep 388, LJJ.
Levitt (Jeffrey S) Ltd, Re [1992] 2 All ER 509, [1992] Ch 457.
Mackay, Ex p, ex p Brown, re Jeavons (1873) LR 8 Ch App 643, LJJ.
Marlborough Concrete Constructions Pty Ltd, Re [1977] Qd R 37, Qld SC.
Morris v Director of Serious Fraud Office [1993] BCLC 580.
NBT Builders Pty Ltd, Re (1984) 8 ACLR 724, Vict SC.
Orion Sound Ltd, Re [1979] 2 NZLR 574, NZ SC.
Portbase Clothing Ltd, Re [1993] 3 All ER 829, [1993] Ch 388.
Price Mitchell Pty Ltd, Re [1984] 2 NSWLR 273, NSW SC.
Rendell v Doors & Doors Ltd (in liq) [1975] 2 NZLR 191, NZ SC
St Ives Windings Ltd, Re [1987] 3 BCC 634.
Tea Corp Ltd, Re, Sorsbie v Tea Corp Ltd [1904] 1 Ch 12, CA.
Walker Construction Co Ltd (in liq), Re [1960] NZLR 523, NZ SC.
Webb v Whiffin (1872) LR 5 HL 711.
Application
Andrew Mark Holman, Colin Graham Bird, Jonathan Guy Anthony Phillips and Alan Rae Dalziel Jamieson, the joint administrators of Maxwell
Preamble
Communications Corp plc (MCC), applied to the court pursuant to s 14(3) of the Insolvency Act 1986 for directions on the question whether they and
MCC were entitled to exclude from a scheme of arrangement under s 425 of the Companies Act 1985 which they proposed to submit to the creditors, and,
if approved, for the sanction of the court, the holders of convertible subordinated bonds of Maxwell Finance Jersey Ltd (MFJ), which were guaranteed by
MCC. The question was whether liabilities to the bondholders under the guarantee were effectively subordinated to MCC’s liabilities to other unsecured
creditors. The respondent to the application was Swiss Bank Corp, representing the holders of 125m Swiss francs 5% convertible bonds 1989–94 issued
by Maxwell Finance Jersey Ltd. The facts are set out in the judgment.
John Cone (instructed by Norton Rose) for the administrators.

Charles Purle QC and Mark Phillips (instructed by Gouldens) for Swiss Bank Corp.
Cur adv vult
26 March 1993. The following judgment was delivered.
VINELOTT J. This is an application for directions by the administrators of Maxwell Communications Corp plc (MCC). The question on which
directions are sought is whether MCC is entitled to exclude from a scheme of arrangement under s 425 of the Companies Act 1985, which the
administrators propose to submit to the creditors, and if approved for the sanction of the court, the holders of convertible subordinated bonds of Maxwell
Finance Jersey Ltd (MFJ) which were guaranteed by MCC.
It is not in question that MFJ will be unable to meet its liabilities under the bonds and that the liabilities of MCC far exceed its assets, so that if, as
the title to the bonds suggests, liability to the bondholders was subordinated to MCC’s liabilities to other unsecured creditors the bondholders will receive
nothing. The question is whether liabilities to the bondholders under the guarantee were effectively subordinated to MCC’s liabilities to other unsecured
creditors.
A similar situation arose in Re British and Commonwealth Holdings plc (No 3) [1992] BCLC 322, [1992] 1 WLR 672. In that case the company had
issued 739 convertible subordinated loan stock and the trust deed governing the loan stock provided that the claims of holders of the stock were ‘in
the event of the winding up of the company subordinated in right of payment to the claims of all other creditors of the company’. The administrators
estimated that the debts owing to other creditors who benefited under the scheme (the scheme creditors) amounted to £1,200m and that the deficiency of
the assets available to meet those debts was £800m. The question was whether the administrators could convene a meeting of the scheme creditors and
exclude the trustee of the subordinated loan stock (who did not admit that in a winding up there would inevitably be a deficiency) and whether the court
could then sanction the scheme, notwithstanding the opposition of the trustee of the loan stock.
I took the view that to the extent that the assets of the company were insufficient to meet the liabilities to unsecured creditors, other than the holders
of the loan stock, the holders of the loan stock had no interest in the assets of the company and no right to vote at a meeting of unsecured creditors, that, in
the very unlikely, indeed, merely theoretical possibility, that the realisation of the company’s assets would suffice to meet the claims of the scheme
creditors, the rights of the holders of the unsecured creditors would be unaffected by the scheme, and that in these circumstances the liquidator could
properly call a meeting of the scheme creditors alone, and if the scheme of arrangement was approved, apply to the court to sanction the scheme.
Mr Purle QC, who appeared for Swiss Bank Corp (SBC), a representative of the bondholders, did not challenge the correctness of my decision on the
facts of that case. However, there is one vital distinction. In Re British and Commonwealth Holdings plc the subordination of the subordinated loan stock
did not rest solely on the terms of a contract between the company and the trustee of the subordinated loan stock. The trust deed governing the issue of
the subordinated loan stock provided that any moneys payable to the trustee would be held in trust to apply the same in payment of its own expenses and
remuneration and then towards payment of the claims of other creditors submitted to proof in the winding up.
That machinery, which is a very common means of ensuring that debt is effectively subordinated, was not available in the instant case because the
guarantee is governed by Swiss law, which does not recognise trusts. Under Swiss law a provision for the subordination of debt is recognised and
effective, but to the extent that English assets of MCC fall to be dealt with in an insolvent winding up, the distribution of the assets will be governed by
English law. In these circumstances I must now decide whether a contractual provision for the subordination of a debt unsupported by the trust
mechanism used in Re British and Commonwealth Holdings plc is effective under English law.
Before turning to that question I should, I think, set out the relevant facts in greater detail. In June 1989 MFJ issued 5% convertible bonds 1989–94
(the MFJ bonds) in the nominal amount of 125m Swiss francs. Clause 4 of the MFJ bonds provided:
‘The due and punctual payment by [MFJ] of the nominal value (or, in the case of an Event of Default only, of the Paid Up Value) of the Bonds
and interest on the Paid Up Value of the Bonds … is unconditionally and irrevocably guaranteed on a subordinated basis, in accordance with article
111 of the Swiss Federal Code of Obligations by Maxwell Communications Corporation.’
740
Under the guarantee MCC undertook to pay on first demand by SBC in summary, in the event of default, the paid-up value of the outstanding bonds
with interest. It was provided:
‘The guarantee of payment of the nominal value (or in the case of an Event of Default only of the Paid Up Value) and interest with regard to the
Bonds and of Paid Up Value of the Preference Shares under this Guarantee, constitutes an unsecured and subordinated obligation of the Guarantor
in that in case of any distribution of assets by the Guarantor, whether in cash or otherwise, in liquidation or bankruptcy of the Guarantor, during a
period in which a suspension of payment is granted to the Guarantor or in case the Guarantor negotiates with all its creditors with a view to a
general settlement, creditors of unsubordinated indebtedness of the Guarantor should be entitled to be paid in full before any payment shall be made
on account of payments under the Bonds of Preference Shares but that payments to Bondholders, Couponholders and Preference Shareholders shall
be made before any payment shall be made in such cases to the holder of any class of stock in the Guarantor.’
The rights of MCC as guarantor to indemnity by MFJ were in turn subordinated to the rights of the bondholders to recovery in full against MFJ.
Lastly, it was provided that payments under the guarantee would be made to SBC on behalf of the bondholders and that the form and contents of the
guarantee would be governed by Swiss law. The SBC have been appointed to represent the bondholders in this application.
There is no dispute between the experts in Swiss law instructed by the administrators and by the SBC respectively. The guarantee constitutes an
indemnity independent of the validity and enforceability of the bonds, and creates a direct undertaking to pay on demand by SBC on confirmation that
MFJ has not met its obligations under the bonds. The provision subordinating the liability of MCC is valid and effective. Under Swiss law a creditor can
waive his right to equal treatment with the other creditors in the insolvency of a debtor. However, no trust of any moneys received by SBC in the winding
Preamble
up of MCC can be implied. Swiss law does not recognise trusts and the agreement for subordination cannot be given effect as an implied agreement by
SBC to assign any moneys taken in the winding up of MCC to the other unsubordinated creditors.
MCC, as is well known, is hopelessly insolvent and so is MFJ. Administrators have been appointed in England, and in the United States the Chapter
11 procedure has been invoked. The administrators and the examiner appointed in the Chapter 11 proceedings have agreed a scheme of arrangement and
a plan of reorganisation to put before the English and United States creditors which is designed to harmonise the United States and English procedures for
the distribution of MCC’s assets. In very broad outline, secured and preferential creditors in England and creditors with priority claims in the United
States, will be paid out of the English or the United States assets as may be appropriate. The net balance will be pooled; claims will be notified to the
administrators or the United States court in accordance with the procedure appropriate to the jurisdiction where the claim falls to be made, but these
claims will be paid pari passu out of the pool.
Contractual subordination is recognised and given effect under the United States code. The scheme of arrangement and the plan for reorganisation
have been prepared on the assumption that the contractual subordination of the rights 741 of bondholders under the guarantee (which is the only
subordinated debt of MCC) is also recognised in English law and would be applied in the winding up of MCC. There would be grave and possibly
insuperable difficulties in negotiating an overall distribution to English and United States creditors out of the pooled assets if this assumption were
ill-founded.
The case for SBC is founded on the decision of the Court of Appeal and the House of Lords in National Westminster Bank Ltd v Halesowen
Presswork and Assemblies Ltd [1972] 1 All ER 641, [1972] AC 785. The majority of their Lordships (Lord Cross alone dissenting) agreed with the view
expressed by the Court of Appeal in that case ([1970] 3 All ER 473, [1971] 1 QB 1) and in the earlier decision of the Court of Appeal in Rolls Razor Ltd v
Cox [1967] 1 All ER 397, [1967] 1 QB 552 that the provisions for mutual set-off in s 31 of the Bankruptcy Act 1914 could not be excluded by agreement
between a debtor and the creditors. Accordingly, a creditor could not validly make it a term of his contract with a debtor that he would not be entitled to
set off a debt due to him against a debt due from him to the debtor, and could not waive his right to set-off after the commencement of the bankruptcy or
winding up.
Section 31 of the Bankruptcy Act 1914 was expressed in mandatory terms. It was introduced into the winding up of an insolvent company by s 317
of the Companies Act 1948 which provided that in the winding up of an insolvent company the same rules should prevail with regard to the respective
rights of secured and unsecured creditors and to debts payable as were in force under the law of bankruptcy.
Section 33 of the 1914 Act set out the order of priority of payments out of the property of a bankrupt. The several subsections of s 33 were all
expressed in mandatory terms. Subsection (7) provided: ‘Subject to the provisions of this Act, all debts proved in the bankruptcy shall be paid pari
passu.’ The case for SBC is that the decision of the Court of Appeal in the Halesowen case and in Rolls Razor Ltd v Cox and of the House of Lords in the
Halesowen case (if the point was decided by the House of Lords) that the provisions for set-off of mutual debts in s 31 cannot be excluded by agreement
between a debtor and the creditor, rested upon the mandatory language used in s 31, and that the same principle must apply to the order of priority of
debts and to the application pari passu of any balance after meeting debts ranking in priority to unsecured non-preferential debts.
Under the new legislation the administration of a property of an insolvent company is not dealt with by reference to the bankruptcy legislation, but is
the subject of a separate code. However, there is no material distinction between the new code and the earlier legislation which it replaces. Section 107
of the Insolvency Act 1986 (which is in substantially the same terms as s 302 of the Companies Act 1948) provides that in a voluntary winding up, subject
to the provisions of the Act as to preferential payments ‘the company’s property … shall … be applied in satisfaction of the company’s liabilities pari
passu …’ The distribution of a company’s property in a compulsory winding up is not dealt with in the 1986 Act itself but in the Insolvency Rules 1986,
SI 1986/1925, made under s 114 of that Act. Rule 4.181, which is headed ‘Debts of insolvent company to rank equally’, provides:
‘(1) Debts other than preferential debts rank equally between themselves in the winding up and, after preferential debts, shall be paid in full
unless the assets are insufficient for meeting them, in which case they abate in equal proportions between themselves …’
742
The provisions for set-off, which were formerly contained in s 31 of the 1914 Act, so far as applicable to insolvent companies are now also to be found in
the 1986 rules (see r 4.90).
In Rolls Razor Ltd v Cox [1967] 1 All ER 397, [1967] 1 QB 552 the defendant was a door-to-door salesman employed by the plaintiff company. He
sold washing machines and was provided with a van. He was remunerated by a commission but was required to pay his receipts to the company at stated
intervals without retaining his commission. On repaying his commission the company was entitled to keep back a retention fund up to a stated limit
which was to be available to meet claims against the salesman and would be paid to him only after the determination of the agreement.
The company became insolvent and the question was whether the defendant could set off moneys received by him on the sale of the company’s
goods and the value of goods remaining in his possession against the retention fund. It was held in the Court of Appeal that s 31 applied and permitted
the set-off of the sums received by the salesman and, by a majority, that it permitted the set-off also of the value of the retained goods. It was, therefore,
unnecessary for the Court of Appeal to decide whether s 31 could have been excluded by agreement; the agreement did not purport so to provide.
However, Lord Denning MR rejected the claim that the agreement excluded the right of set-off ([1967] 1 All ER 397 at 403–404, [1967] 1 QB 552 at
570):
‘… for the simple reason that the parties cannot contract out of the statute. Where there are mutual dealings, the statute says that “the balance of
the account, and no more, shall be claimed or paid on either side”. That is an absolute statutory rule which must be observed (see Re Deveze, Ex p.
Barnett (1874) LR 9 Ch App 293 at 295) per LORD SELBORNE, L.C.).’
Danckwerts LJ said ([1967] 1 All ER 397 at 405, [1967] 1 QB 552 at 573):
‘A question was raised whether the statutory set-off could be excluded by the terms of the agreement between the parties. The authorities are
meagre on this point and not very clear, but in my opinion the statutory set-off, being a matter of statute, cannot be excluded.’
The Court of Appeal was not referred to the decision of the Irish Court of Appeal in Deering v Hyndman (1886) 18 LR Ir 467, the only case in which this
point fell to be decided and in which the Irish Court of Appeal had upheld unanimously the Irish Divisional Court decision (see 18 LR Ir 323) that a
creditor could waive a right of set-off given by the Irish bankruptcy laws. The observation by Lord Selborne LC relied on by Lord Denning MR was
obiter.
In the Halesowen case [1972] 1 All ER 641, [1972] AC 785 the Halesowen company had a loan account which was overdrawn at National
Westminster Bank and a trading account in credit at Lloyds Bank. On 4 April 1968 it was agreed that the trading account would be transferred to an
account at the same branch of the National Westminster Bank, where the loan account was held. The loan account (the no 1 account) would be frozen and
Preamble
the current account (the no 2 account) operated only when it was in credit. That agreement was to continue, in the absence of a material change of
circumstances, for four months.
On 20 May the company gave notice convening a meeting of creditors at 2.30 pm on 12 June to consider a winding-up resolution. The bank took no
steps to terminate the agreement. On 12 June a cheque was paid into the no 2 account. Later on the same day the creditors’ meeting confirmed a
resolution for the winding up of the company. The case for the bank, which succeeded at first 743 instance, was that the bank was entitled
independently of s 31, which was not relied upon, to consolidate the two accounts.
In the Court of Appeal the bank also relied on s 31. It was held by the Court of Appeal that the right of the bank to combine the accounts without
notice to the customer was excluded by the agreement and by a majority (Buckley LJ dissenting) that the dealings on the two accounts were not mutual
dealings within s 31. It was again unnecessary for the Court of Appeal, in the light of its decision, to consider whether s 31 could have been excluded by
agreement. However, Lord Denning MR said ([1970] 3 All ER 473 at 479, [1971] 1 QB 1 at 36):
‘I must mention finally the section as to mutual credit and set-off which is contained in s 31 of the Bankruptcy Act 1914, and is applied to
companies’ winding-up by s 317 of the Companies Act 1948. It has been held in this court that the parties cannot contract out of this section: see
Rolls Razor Ltd v Cox [1967] 1 All ER 397 [1967] 1 QB 552.’
Section 31 is not mentioned by Winn LJ. Buckley LJ, after referring to observations in the Supreme Court of British Guiana and in the Privy Council as
to whether a right of set-off under similar provisions in the local law could be excluded, added ([1970] 3 All ER 473 at 490, [1971] 1 QB 1 at 48):
‘It has since been held in this country in Rolls Razor Ltd v Cox that the operation of s 31 of the Bankruptcy Act 1914 cannot be excluded by
agreement between the parties. The ground of the Privy Council decision in British Guiana Bank v Official Receiver (1911) 104 LT 754 is
accordingly not available in this court.’
In the House of Lords the decision of the Court of Appeal that the dealings on the two accounts were not mutual dealings within s 31 was reversed.
It was also held that the agreement did not in its terms purport to exclude s 31. Thus, it was again unnecessary for the House of Lords to consider whether
s 31 could have been excluded by more apt words. However, the question was fully argued, and all the members of the Appellate Committee who heard
the appeal expressed their opinion on it.
Lord Cross, after a very full and lucid analysis of the earlier decisions, concluded ([1972] 1 All ER 641 at 660, [1972] AC 785 at 818):
‘… I can see no reason in principle why the section should not be excluded by agreement; I do not think that Lord Selborne intended to indicate
that he thought that it could not be excluded by agreement; and I prefer the decision in Deering v Hyndman to that in the Rolls Razor case.
Therefore if, contrary to my opinion, the agreement in this case did not determine on the winding up and was intended to exclude the operation of s
31 I would think that the company were entitled to succeed.’
However, Viscount Dilhorne, after reviewing the authorities, concluded ([1972] 1 All ER 641 at 649, [1972] AC 785 at 805):
‘… the terms of s 31 and of the sections that follow it show that “shall” was used in all those sections in its directory and mandatory sense,
prescribing the course to be followed in the administration of the bankrupt’s property.’
Lord Kilbrandon agreed ([1972] 1 All ER 641 at 665, [1972] AC 785 at 824):
‘In my opinion, accordingly, the rule now is that the terms of s 31 are mandatory in the sense that not only do they lay down statutory directives
744 for the administration of claims in bankruptcy, but they also make it impossible for persons effectively to contract, either before or after an
act of bankruptcy has occurred, with a view to the bankruptcy being administered otherwise in accordance with the statutory directives. In other
words, as Lord Denning MR said in Rolls Razor v Cox [1967] 1 All ER 397 at 403, [1967] 1 QB 552 at 570, “the parties cannot contract out of the
statute”. I must admit to having been impressed by the argument that such a rule—enunciated as it was for the first time in 1967, otherwise than by
obiter dicta, albeit some of great weight—may be expected to form a serious embarrassment to those wishing to adopt the beneficial course of
agreeing to moratoria for the assistance of business in financial difficulties. But if that be so, it seems to call for the intervention of the legislature.
It is, in any event, generally agreed that a restatement of law of bankruptcy, both for England and for Scotland, is overdue.’
Lord Simon dealt with the position more fully and I should, I think, read that passage in his judgment in full ([1972] 1 All ER 641 at 652, [1972] AC
785 at 808–809):
‘I turn finally, then, to the question whether s 31 can be excluded by agreement. On this matter I concur in the reasoning and conclusions of my
noble and learned friends, Viscount Dilhorne and Lord Kilbrandon. The maxim “Quilibet potest renunciare juri pro se introducto” (Broom’s Legal
Maxims (10th edn, 1929), p 477 begs the question whether the statutory provision in s 31 was introduced for the benefit of any particular person or
body of persons or was prescribing a course of procedure to be followed in the administration of a bankrupt’s property. I appreciate that the
imposition of a duty on a public officer does not necessarily preclude a private right arising therefrom: Ashby v White (1703) 1 Bro Parl Cas 6, 1 ER
417. But in Broom the maxim is, for good reason, translated “Anyone may at his pleasure, renounce the benefit of a stipulation or other right
introduced entirely in his own favour”. [Lord Simon’s emphasis.] It is also significant that, in the discussion of this maxim, s 31 of the Bankruptcy
Act 1914 is nowhere mentioned. Having regard both to the terminology of s 31 and to its statutory context, it seems to me to be impossible so to
construe the wording of the section as introducing a right entirely in favour of anyone. The change in terminology between the Bankruptcy Act
1849, s 171, and the Bankruptcy Act 1869, s 39 (“may” to “shall”) must have been, at the least, to avert doubts. This part of the Act is laying down
a code of procedure whereby bankrupts’ estates (and, by reference, insolvent companies) are to be administered in a proper and orderly way; this is
a matter in which the commercial community generally has an interest, and the maxim has no application in a matter where the public have an
interest (see Broom p 481, citing Ayr Harbour Trustees v Oswald (1883) 8 App Cas 623 and Spurling v Bantoft [1891] 2 QB 384). There is a clear
preponderance of authority against there being a right to contract out of the section; and I agree with the analysis of the case law made by my noble
and learned friend, Viscount Dilhorne. It was argued for the respondent company that, if there could be no contracting out of s 31, a very usual type
of compromise between the creditors, in their common interest to keep an insolvent afloat, would be impossible. To this there are, I think, two
answers: first, there would be nothing to prevent any such agreement after an act of bankruptcy had been committed; and, secondly, so far as
companies are concerned, s 206 of the 745 Companies Act 1948 gives power, subject to the sanction of the court, for a compromise to be made
in certain circumstances with creditors which will be binding on all the creditors (or all creditors of the class involved). But the mere fact that this
Preamble
argument could be advanced at all in view of the conflict of dicta and what I cannot but regard as a clear preponderance of authority emphasises the
desirability that the promised legislation in this field should not be unduly delayed.’
As I see it, the decision of the majority in the House of Lords did not rest solely on the mandatory language used in s 31 alone, but on the mandatory
language used coupled with the proposition that the liquidator and the general body of creditors might have an interest in ensuring that debts due to and
from a creditor arising from mutual dealings are set off. This is quite explicit in the speech of Lord Simon, who considered and rejected the claim that the
section could be construed ‘as introducing a right entirely in favour of anyone’.
That proposition, it seems to me, must rest upon the inconvenience and potential unfairness to the trustee or liquidator and so to other creditors that
might arise if a creditor was entitled either to exercise or, at his option, not to exercise the right of set-off. For otherwise, the creditor might prove in the
bankruptcy or winding up leaving it to the trustee or liquidator to recover the debt due to the estate in proceedings which might be protracted and
expensive, and which might not result in the recovery of the full amount due. In the meantime the distribution of the insolvent estate might be held up
and a question might arise whether a creditor who had waived his right of set-off would be entitled to a dividend while proceedings to recover the debt
due from him were still on foot. An agreement between the debtor and the creditor excluding the creditor’s right of set-off, or the waiver by the creditor
of his right of set-off, even after the commencement of the bankruptcy or winding up, might thus equally hinder the rapid, efficient and economical
process of bankruptcy.
The question is whether this underlying consideration of public policy should similarly invalidate an agreement between a debtor and a creditor
postponing or subordinating the claim of the creditor to the claims of other unsecured creditors and preclude the waiver or subordination of the creditor’s
claim after the commencement of a bankruptcy or winding up. I do not think that it does. It seems to me plain that after the commencement of a
bankruptcy or a winding up a creditor must be entitled to waive his debt just as he is entitled to decline to submit a proof. There might, in any given case,
be a question whether a waiver was binding on him but that is irrelevant for this purpose. If the creditor can waive his right altogether I can see no reason
why he should not waive his right to prove, save to the extent of any assets remaining after the debts of other unsecured creditors have been paid in full,
or, if he is a preferential creditor, to agree that his debt will rank equally with unsecured non-preferential debts.
So also, if the creditor can waive his right to prove or agree the postponement of his debt after the commencement of the bankruptcy or winding up, I
can see no reason why he should not agree with the debtor that his debt will not be payable or will be postponed or subordinated in the event of a
bankruptcy or winding up. The reason for giving effect to an agreement in these terms seems to me to be if anything stronger than that for allowing the
creditor to waive, or postpone, or subordinate his debt after the commencement of a bankruptcy or winding up; for other creditors might have given credit
on the assumption that the agreement would be binding.
746
Mr Purle submitted that the reason for excluding such an agreement is that the liquidator ought not to be required or entitled to look behind a proof to
determine whether a creditor submitting a proof was entitled to payment pari passu with other unsecured creditors. I find this reason unconvincing.
There are situations under the 1986 Act in which an unsecured debt is postponed to other unsecured debt. Under s 74(2)(f) (which re-enacts s 212(1)(g)
of the 1948 Act) sums payable to a member are not to be deemed to be a debt payable to that member in a case of competition between himself and any
other creditor not a member. Under s 215(4) where the court makes a declaration of fraudulent or wrongful trading under ss 213 or 214 in relation to a
creditor, the court may direct that the debt shall rank in priority after all other debts owed by the company and after interest on those debts. In these cases
the liquidator has to give effect to a subordination created by statute. However, I can see no reason why the liquidator should have any greater difficulty
in giving effect to a contractual subordination. If it is plain that the assets will be insufficient to meet the claims of unsecured creditors, whose claims are
not subordinated, the proof of the subordinated creditor (which is no more than a document asserting a claim: see r 7.73(3)) can be rejected; if admitted
before it becomes plain that the assets will not suffice to meet the claims of other creditors, then when the position is crystallised the proof can be
expunged or varied (see rr 4.85 and 4.86.)
Mr Purle also relied on certain observations made by Templeman J at first instance (see [1973] 1 Lloyd’s Rep 414) and by Lord Simon in the House
of Lords in British Eagle International Airlines Ltd v Cie Nationale Air France [1975] 2 All ER 390, [1975] 1 WLR 758. That case concerned a very
complex arrangement for the clearance of debt between airlines which were members of the International Air Transport Association (IATA). These
agreements and the issue between British Eagle and Air France are succinctly and, I think, sufficiently set out by Russell LJ, who gave the judgment of
the Court of Appeal, in a passage which I will read in full (see [1974] 1 Lloyd’s Rep 429 at 430–431):
‘Stated shortly, the position was this. Most major airlines are members of IATA. For the general convenience of world-wide air passengers and
consignors of cargo, it is the practice of airline “A” to issue, for example, to an air passenger a ticket through to his destination, though airline “A”
does not supply flights the whole way. The passenger would need to change at some stage to airline “B” for the rest of the journey. Airline “A”
would receive payment for the whole flight from the passenger in the currency of the country of departure. This system would involve a
proportionate payment by airline “A” to airline “B” on the basis that the latter had rendered services to the former. That is a very simple example
of the rendering of services by one airline to another, and there were many different circumstances in which such services would be rendered
between airlines, giving rise to a complicated network of debits and credits, with added complications in currency matters. It would obviously be of
major convenience if a clearing house was set up by the major airlines and IATA whereby each airline could avoid settling with each of the 70 or
more other airlines separately the balance in terms of debit and credit in respect of services rendered between it and the other airline. This is what
was done by agreement between IATA and all airline members of IATA wishing to participate in the clearing house. The clearing house was not
itself a corporate or other body; it was an activity conducted by IATA—a Canadian corporate body, pursuant to the agreement to which all
“clearing house” members of IATA and IATA itself were parties. Expressed in its simplest 747 terms, the system was that in respect of every
calendar month there was a clearance: sums for services inter se rendered to and by clearing house members based upon returns of the month to the
clearing house were brought into calculation: in the result some airlines were in respect of the month in overall debit on clearance and others in
overall credit on clearance: the former would pay the respective amounts of their overall debits to the clearing house (IATA) and the clearing house
would pay to the latter the respective amounts of their overall credits on clearance. On Nov. 6, 1968, British Eagle (an English limited company)
ceased to operate, and on Nov. 8 resolved upon a creditors’ voluntary winding up. At this time British Eagle had rendered services to the defendant
Air France since the end of August, 1968 (cross services in respect of which month had been fully settled all round through the clearing house) to a
value substantially in excess of services rendered to British Eagle by Air France in respect of the same period. But in respect of the same period
other members had rendered net services to British Eagle to a value greatly in excess of the last-mentioned value, and if all inter-airline services for
the period up to Nov. 6, 1968, are processed through the clearing house, British Eagle will be shown to be net debtors on clearance in a substantial
sum. In this action the liquidator of British Eagle sues Air France in the name of British Eagle for a sum of money on the footing of debt for net
services rendered by British Eagle to Air France after setting off contra services by Air France to British Eagle. He contends that he is entitled to
sue for that sum as a debt from Air France disregarding the clearing house agreement. The operation of the clearing house agreement if carried
through will, he asserts, result in the sum claimed not being available to the general body of British Eagle’s creditors, but on the contrary being
Preamble
made available to a limited body of creditors for net services rendered to British Eagle. This is correct. It is to be observed that it is a matter of
indifference to Air France whether they pay the sum to the liquidator or (so to speak) bring it into the clearing house pool in reduction of Air
France’s debtor-on-clearance position: in fact it is held by IATA on suspense: if the liquidator succeeds, the clearance will be adjusted so that Air
France does not pay twice, and all airlines which have a net credit against British Eagle will prove for their respective net credits as unsecured
creditors: if the liquidator fails, IATA will prove for the net sum for which British Eagle is debtor on clearance, any deficiency in a 100 per cent.
dividend falling proportionately upon those airlines whose services to British Eagle in the period exceeded in value British Eagle’s contra services
to them respectively. Air France is therefore fighting not so much its own battle as a battle on behalf of IATA and those airlines who are in net
services credit vis-à-vis British Eagle.’
Russell LJ agreed (at 433) with Templeman J:
‘… British Eagle having contracted with every other member of the clearing house and with IATA not to enforce its net claim for services
against, for example, Air France otherwise than through the clearing house, it could not while a member do so.’
On that footing the clearing house arrangement clearly did not contravene any principle of insolvency law. As Russell LJ observed (at 434):
748
‘Those laws require that the property of an insolvent company shall be distributed pro rata among its unsecured creditors: but the question here
is whether the claim asserted against Air France is property of British Eagle.’
In the House of Lords Lord Morris and Lord Simon both agreed with this analysis of the arrangements. Lord Cross, with whom Lord Diplock and
Lord Edmund-Davies agreed, having set out the relevant terms of the clearing house arrangement and having analysed the balance of debt as between
British Eagle and Air France, said ([1975] 2 All ER 390 at 409, [1975] 1 WLR 758 at 778):
‘On this aspect of the case we heard much argument as to whether the right of British Eagle to have any given claim against Air France settled
through the clearing house system could properly be called a debt due by Air France to British Eagle notwithstanding that British Eagle could not
bring legal proceedings against Air France to enforce payment of the sums due from it. I have no doubt that in common parlance the right would be
called a debt and the framers of the regulations—some of whom were presumably lawyers—had no hesitation in describing the rights in question as
“debts” in reg 18(c). It is to my mind undesirable that the law should give a more limited meaning to a word than the ordinary man would do unless
there is a good ground for doing so; and personally I can see no reason why the law should refuse to describe the legal right of British Eagle to be
paid the sums in question by Air France as “debts” because the contract under which the right to be paid arose did not permit British Eagle to sue
Air France for payment but provided for payment exclusively through the medium of the clearing house. But this question—as I see it—is simply a
dispute as to the proper use of words which had no bearing on the decision of the case, and for my part I am prepared to assume in favour of Air
France that the legal rights against Air France which British Eagle acquired when it rendered the services in question were not strictly speaking
“debts’ owing by Air France but were innominate choses in action having some, but not all, the characteristics of “debts”.’
On that analysis the claim by the clearing house creditors was clearly a claim to be entitled to be preferred to other unsecured creditors on the
basis—
‘that they [had] achieved by the medium of the “clearing house” agreement a position analogous to that of secured creditors without the need for
the creation and registration of charges on the book debts in question.’
That claim was clearly ‘repugnant to our insolvency legislation’ (see [1975] 2 All ER 390 at 410–411, [1975] 1 WLR 758 at 780).
It seems to me, therefore, that the only real issues in the British Eagle case related to the construction and the proper analysis of the rights and
obligations conferred and imposed by the clearance agreement. There was no issue as to the principles of insolvency law to be applied.
Section 31 and the decision in the Halesowen case were not referred to in the Court of Appeal. They are not referred to in the speech of Lord Morris
in the House of Lords. Lord Cross, having observed that the liquidator rightly applied s 31 in relation to his claim against Air France, added ([1975] 2 All
ER 390 at 411, [1975] 1 WLR 758 at 781):
‘But so far as I can see the section has no bearing on anything that we have to decide in this appeal. It is therefore unnecessary for us to say
anything 749 about the recent case in this House of National Westminster Bank Ltd v Halesowen Presswork and Assemblies Ltd [1972] 1 All
ER 641, [1972] AC 785.’
Lord Simon stated his conclusion ([1975] 2 All ER 390 at 403, [1975] 1 WLR 758 at 771):
‘… no party to the interline agreement had any right to claim direct payment for interline service: its right thereafter was to have the value of
such service respectively credited and debited in the monthly IATA clearing house settlement account.’
He added:
‘I agree that National Westminster Bank Ltd v Halesowen Presswork and Assemblies Ltd applies by analogy to s 302 of the Companies Act
1948, so that one cannot contract out of its terms. But, in view of para (2) of art VI of the interline agreement (and the consequent provisions of the
IATA Regulations and Manual of Procedure), the “property” of British Eagle (for the purpose of s 302) did not include any direct claim against Air
France for the value of interline services performed by British Eagle for Air France but merely the right to have the value of such services brought
into the monthly settlement account.’
This observation reflects an observation of Templeman J at first instance ([1973] 1 Lloyd’s Rep 414 at 434). Having stated the submission of counsel for
the liquidators of British Eagle, Mr Heyman QC, as regards s 302 to be that ‘you cannot contract out of the requirement that the property of a company
must be used to pay its creditors pari passu any more than you can contract out of sect. 31, which says you must have a set-off when there are mutual
dealings’, he added:
Preamble
‘… in my judgment, Mr. Heyman is quite right. If there was a debt, that is to say a debt owed by Air France to British Eagle, which at the date
of liquidation was vested in British Eagle, or was vested in IATA as an agent for British Eagle, with instructions to pay off the creditors in the
clearing house, but no other creditors, or if that debt had been assigned to IATA, which had exactly the same instructions, namely to pay off the
creditors of the clearing house but no other creditors, then in my judgment that debt would be the property of the company British Eagle. The result
of it being vested in a company, say what you will about the rights of agents and the rights of assignees, would be to infringe sect. 302 of the
Companies Act, 1948, and that cannot be allowed. In my judgment, Mr. Heyman is right when he says if you look closely at the Halesowen case
the parallel is exact. But, of course, that all turns on whether there was a debt vested in British Eagle on the date of liquidation …’
These observations were clearly obiter and were made in the context of a case in which if the clearance arrangements had had the effect contended
for by Air France they would clearly have put a member of the clearance arrangements in a position which would have been better than the position of
other unsecured creditors. The arrangements would therefore unquestionably have infringed a fundamental principle of bankruptcy law, which is
reflected in but not derived from s 302 or its predecessor, that a creditor cannot validly contract with his debtor that he will enjoy some advantage in a
bankruptcy or winding up which is denied to other creditors.
750
In my judgment I am not compelled by the decisions of the House of Lords in the Halesowen case [1972] 1 All ER 641, [1972] AC 785 and the
British Eagle case [1975] 2 All ER 390, [1975] 1 WLR 758 or by the decisions of the Court of Appeal in those cases, or in Rolls Razor Ltd v Cox [1967] 1
All ER 397, [1967] 1 QB 552 to conclude that a contract between a company and a creditor, providing for the debt due to the creditor to be subordinated
in the insolvent winding up of the company to other unsecured debt, is rendered void by the insolvency legislation. A contrary decision would have
wide-reaching repercussions. It is not infrequently the case that a company can only continue to trade and incur credit with the financial support of a
parent or associated company, or a bank which is willing to subordinate its debt to the debts owed to the other unsecured creditors. Subordinated debt is
in many contexts treated for accountancy purposes as if it were part of the company’s capital. So in this case the group balance sheet of MCC included
the liability under MCC’s guarantee of the bonds under the heading ‘Minority Shareholders interest’. Under the Securities and Futures Authority Rules
subordinated loans may be included amongst a company’s financial resources as ‘Eligible Capital Substitutes’. Of course, a loan can be effectively
subordinated if the creditor constitutes himself a trustee for other unsecured creditors as in Re British and Commonwealth Holdings plc (No 3) [1992]
BCLC 322, [1992] 1 WLR 672; or he may contract to assign the benefit of his debt to other unsecured creditors without in either case affecting the
ordinary process of proof in the liquidation or the application of the company’s assets pari passu amongst creditors whose proofs have been submitted.
However, I think Mr Cone was right when he submitted that to recognise subordination by these means and not by a direct contract between the company
and the creditor, would represent a triumph of form over substance.
I was referred by Mr Cone to a number of cases in other jurisdictions in which the insolvency laws are derived from, or similar to, English law in
which a contractual subordination has been held to be valid.
In Ex p De Villiers, re Carbon Developments (Pty) Ltd 1992 (2) SA 95 Stegmann J refused the liquidator of the company leave to convene meetings
of creditors and members to consider an offer of compromise (in effect a scheme of arrangement) on the ground that the company had been trading while
it was insolvent and that the liquidator had failed to furnish the creditors with sufficient information as to the potential liability of the directors for
fraudulent trading. His conclusion, that there was a possible claim against the directors which would be precluded if the compromise were sanctioned,
and which ought to have been investigated was founded on the view that in deciding whether directors were liable for allowing the company to trade
while insolvent, the liquidator would not be entitled to have any regard to the terms of a subordination agreement because to do so would entail a
rearrangement of the statutory ranking of claims.
That view was rejected by the Court of Appeal of South Africa (Corbett CJ, Van Heerden, Goldstone JJA, Nicholas and Harms AJJA). Goldstone
JA, giving the judgment of the Court of Appeal, described a subordination agreement in these terms (1993 (1) SA 493 at 504–505):
‘The essence of a subordination agreement, generally speaking, is that the enforceability of a debt, by agreement with the creditor to whom it is
owed, is made dependent upon the solvency of the debtor and the prior payment of its debts to other creditors. Subordination agreements may take
many forms. They may be bilateral, ie between the debtor and the creditor. They may be multilateral and include other creditors as parties. They
may be in the form of a stipulatio alteri, ie for the benefit of other and future creditors 751 and open to acceptance by them. The subordination
agreement may be a term of the loan or it may be a collateral agreement entered into some time after the making of the loan. Save possibly in
exceptional cases, the terms of a subordination agreement will have the following legal effect: the debt comes into existence or continues to exist
(as the case may be), but its enforceability is made subject to the fulfilment of a condition. Usually the condition is that the debt may be enforced
by the creditor only if and when the value of the debtor’s assets exceeds his liabilities, excluding the subordinated debt. The practical effect of such
a condition, particularly where, for example, the excess is less than the full amount of the subordinated debt, would depend upon the terms of the
specific agreement under consideration and need not now be considered. In the event of the insolvency of the debtor [that is the equivalent I think
of vesting in the trustee], sequestration would normally mean that the condition upon which the enforceability of the debt depends will have become
incapable of fulfilment. The legal result of this would be that the debt dies a natural death. [He then referred to some authorities and continued.]
The result would be that the erstwhile creditor would have no claim which could be proved in insolvency. To the extent that it may have been
suggested in Cooper v A & G Fashions (Pty) Ltd: Ex parte Millman NO (1991 (4) SA 204 at 207–208) that on insolvency a value should be placed
upon such a debt, this is not correct. The debt would not normally survive sequestration. A contingent liability can only be valued and proved in
insolvency where at the time the condition upon which the liability depends is still capable of fulfilment.’
Then having observed that in deciding whether the conduct of the directors in allowing the company to incur debt was fraudulent or reckless he added (at
505):
‘In that context, the existence and terms of a subordination agreement would be material and relevant in deciding whether the persons
conducting such business incurred the debts with the reasonable expectation of their being paid in the ordinary course. The fact that a major
creditor has subordinated its claim and to that extent created a moratorium for the benefit of other creditors is obviously relevant in determining the
subjective state of mind of the debtor or those conducting its business.’
He distinguished an earlier decision in Lind v Lefdal’s Pianos Ltd (in liq) 1929 TPD 241 (which had been relied upon by Stegmann J) on the ground that:
‘There certain creditors attempted to rearrange the order in which they would be paid by the liquidator. In the case of debt subordination, the
Preamble
creditor has no claim unless other creditors receive payment in full. There is no question of a rearrangement of the claims of creditors who are to be
paid out of the unencumbered assets of the company. The position would be no different in principle from the case of a debtor who, for whatever
reason, decided not to prove a claim with the liquidator. Indeed, where there is a probability of a contribution being levied upon creditors, it is a
common occurrence for creditors to refrain from proving a claim.’
He then referred to the British Eagle case [1975] 2 All ER 390, [1975] 1 WLR 758 as being similarly distinguishable.
I have some doubt whether in English law a subordinated debt is accurately described as a contingent liability and the analysis of the learned Justice
of Appeal of the nature of subordinated debt indicates that there may be some differences 752 between the law of England and the law of South
Africa. In English law subordinated debt would not, I think, be accurately described as a ‘contingent liability’ even if the debt is expressed to be payable
only in the event of a winding up and to be subordinated to other unsecured debts in a winding up. It may still be paid in full or in part. The position is a
fortiori if, as is more usually the case, the debt may become payable while the company is a going concern but is subordinated to other unsecured debts in
a winding up. A debt cannot be said to be a contingent debt merely because in a winding up it may rank behind other debts and because the assets of the
company may not suffice to pay the other debts in full.
However, nothing turns on the question whether a subordinated debt is aptly described as a contingent claim. The essential feature pointed to by
Goldstone JA is that it is a debt payable only to the extent that there is a surplus after meeting the claims of other unsubordinated creditors.
This question has also been considered in a number of cases in New Zealand and in the states of Australia. It is only necessary to refer to the most
recent of them, Horne v Chester & Fein Property Developments Pty Ltd [1987] VR 913, in which Southwell J reviewed the earlier cases. In that case C
and S, who had contracted to purchase restaurant premises, entered into an agreement with F under which a unit trust was established for the purpose of
conducting the restaurant business. G was incorporated on 8 July 1982 for the purpose of becoming the trustee of the unit trust. Each of C, S and F held
25 units. It was provided by cl 4 of the unit holders agreement that all moneys advanced by C, S and F to G should be accepted by it as loans and should
rank equally in priority as to the payment by G, but this was qualified by a proviso that if any of C, S and F made an additional loan to G exceeding his
due proportion of the loans made by all of them the additional loan would be repaid before any other repayment to other unit holders.
It was common ground that C and S had made additional loans to G within the proviso. After summarising the facts in the Halesowen case
Southwell J said (at 917):
‘In the speech of Viscount Dilhorne, there is a discussion of a number of authorities, of which “the weight of opinion expressed … appears to
me to be in favour of the conclusion that it is not possible to contract out of s. 31”. However, there, and, so far as I have seen, in most other
relevant cases, the term “contract out” is used in circumstances where the contract relied upon is one the performance of which upon later
insolvency, would adversely affect other creditors who were not parties to the contract. Viscount Dilhorne referred with approval ([1972] 1 All ER
641 at 648, [1972] AC 785 at 804–805) to dicta of Hallett J. in Victoria Products Ltd. v. Tosh and Co. Ltd. ((1940) 165 LT 78) where his Honour
said that: “an attempt to leave outside that process some particular item is one which should be regarded as against the policy of the insolvency
laws”. Repeatedly, over the years, “the policy of the insolvency laws” has formed the basis of decision. That policy, as it appears to me, was never
intended to alter the rights and obligations of parties freely entering into a contract, unless the performance of a contract would upon insolvency
adversely affect the right of strangers to the contract. Authority for that proposition is to be found in Ex parte Holthausen. In re Scheibler ((1874)
LR 9 Ch App 722 at 726–727) (referred to by Lord Morris in his dissenting speech in British Eagle International Airlines Ltd. v. Compagnie 753
Nationale Air France ([1975] 2 All ER 390 at 402, [1975] 1 WLR 758 at 770–771)).’
He then summarised the facts in the British Eagle case and cited the observations by Lord Simon, which I have already cited. He cited also the
passage from the speech of Lord Cross to which I have referred. His conclusion was that s 440 of the Companies (Victoria) Code (which is in
substantially the same terms as s 33(7) of the 1914 Act)—
‘does not require that in all cases a liquidator must distribute pari passu. He may distribute in accordance with an agreement between the
parties where to do so could not adversely affect any creditor not a party to the agreement.’ (See [1987] VR 913 at 922.)
Horne’s case concerned an agreement between unit holders which was entered into before loans were made and indeed before the company to which
they were made was incorporated. It would no doubt be easier in that context to give effect to the agreement by the implication of a term for the
assignment of the benefit of the interest of F in the winding up to C and S to the extent necessary to meet the additional loans. However, that was not the
ground on which Southwell J decided the case.
The Federal Bankruptcy Code

Section 510(a) of the US Federal Code (11 USC §510(a)) provides:
‘A subordination agreement is enforceable in a case under this title to the same extent that such agreement is enforceable under applicable
nonbankruptcy law.’
That provision gave effect to the law developed by the courts. In the earlier cases subordination agreements were given effect on a variety of grounds.
However, in recent cases a subordination agreement has been recognised as having direct contractual effect. In First National Bank of Hollywood v
American Foam Rubber Corp (1976) 530 F 2d 450 at 454 Van Graafeiland J, giving the judgment of the court, said:
‘Various theories have been advanced to support the enforcement of subordination agreements in bankruptcy: equitable lien, equitable
assignment, constructive trust and enforcement of contractual rights. [Having referred to a number of cases he continued.] This Circuit has favored
the recognition of priorities based upon the “lawful contractual arrangement between the parties.” In re Aktiebolaget Kreuger & Toll ((1938) 96 F
2d 768 at 770). As we stated in In re Credit Industrial Corporation ((1966) 366 F 2d 402 at 407), if the terms of the contract are unambiguous,
there is no need to resort to “strained theories of third-party beneficiary, estoppel or general principles of equity” to determine the rights of the
parties.’
I have not been referred to the law of any continental jurisdiction except Switzerland. It seems to me unlikely that in any system derived from the
civil code the law will differ in this respect from the position under Swiss law. It seems from the speech of Lord Kilbrandon that under Scottish law a
creditor can contract out of or waive his right to set-off and if so he can presumably validly agree that his debt be subordinated. I have set out the leading
authorities in South Africa, the United States and Australia. It would, I think, be a matter of grave concern if, at a time when insolvency increasingly has
international 754 ramifications, it were to be found that English law alone refused to give effect to a contractual subordination. I have reached the
Preamble
clear conclusion that such a clause is valid and effective and is not avoided by any consideration of public policy and I shall so declare.
Declaration accordingly.
Jacqueline Metcalfe Barrister.

[1994] 1 All ER 755
Panayiotou and others v Sony Music Entertainment (UK) Ltd

CIVIL PROCEDURE: ADMINISTRATION OF JUSTICE; Courts
CHANCERY DIVISION
SIR DONALD NICHOLLS V-C
29, 30 JUNE, 1, 6, 7, 15 JULY 1993
Evidence – Foreign tribunal – Evidence for purpose of civil proceedings – Production of documents – Jurisdiction – Letters rogatory requesting
production of documents by foreign company – Whether English court having jurisdiction to issue letter of request seeking production of documents
belonging to company and in its possession RSC Ord 39, r 2.
The plaintiff, a popular singer who had worldwide sales, entered into agreements with the defendant recording company by which he tied himself to the
defendant in respect of all his performances as a recording artist for a substantial period of years. The plaintiff subsequently wished to be released from
the agreements on the grounds that their terms were so unreasonable that they were an unlawful restraint of trade. He brought an action against the
defendant claiming that he was not bound by the agreements and applied to the court to issue of a letter of request pursuant to RSC Ord 39, r 2a addressed
to the New York court, seeking the production of certain documents by a New York company associated with the defendant which he believed were
material to the issues in the action. The New York company acted as the central licensing body for other companies in the defendant company’s group.
The plaintiff sought, inter alia, production of the company’s sub-licence agreements affecting the exploitation of the plaintiff’s recordings outside the
United Kingdom, details of recording agreements between the company and certain well-known artists and release schedules showing dates of release,
actual or intended, throughout the world of each of the plaintiff’s recordings delivered to the defendant. The defendant contended that although the
English court could issue a letter of request for the attendance of a person to be examined before the foreign court and to give oral evidence and to
produce documents, it had no jurisdiction to issue a letter of request concerned only with the production of documents.
________________________________________
a Rule 2, so far as material, is set out at p 760 b c, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – The court had inherent jurisdiction to issue a letter of request to the judicial authorities of a foreign country seeking the production of documents
755 belonging to a company and in its possession which, had they been in England, could properly have been made the subject of a subpoena issued
by the English court. However, the letter of request had to be confined to particular documents, although those might be described compendiously, and
ought not to be issued for the purpose of obtaining pre-trial discovery of documents. Moreover, the court would be astute to see that what was essentially
a discovery exercise was not disguised as an application to produce particular documents. Further, in order to be the subject of a letter of request a
document had to be admissible in evidence and directly material to an issue in the action and the court had to be satisfied that the document did exist or
had existed and that it was likely to be in the possession of the person from whom production was sought. On the facts, the court would make an order
directing the issue of a letter of request for the production of certain documents as being necessary for the purposes of the action (see p 761 c to e, p 762 a
b g to j, p 763 f, p 764 j to p 765 c e to g and p 768 d, post).
Cape Copper Co v Comptoir d’Escompte de Paris (1890) 38 WR 763 distinguished.
Notes
For letters of request for examination of witness abroad, see 17 Halsbury’s Laws (4th edn) para 295, and for cases on the subject, see 22(2) Digest (2nd
reissue) 341, 10165–10166.

Amey v Long (1808) 9 East 473, [1803–13] All ER Rep 321, 103 ER 653, NP.
Asbestos Insurance Coverage Cases, Re [1985] 1 All ER 716, [1985] 1 WLR 331, HL.
Bremer Vulkan Schiffbau Und Maschinenfabrik v South India Shipping Corp [1981] 1 All ER 289, [1981] AC 909, [1981] 2 WLR 141, HL.
Burchard v Macfarlane, ex p Tindall and Dryhurst [1891] 2 QB 241, [1891–4] All ER Rep 137, CA.
Cape Copper Co v Comptoir d’Escompte de Paris (1890) 38 WR 763, CA.
Elder v Carter, ex p Slide and Spur Gold Mining Co (1890) 25 QBD 194, CA.
Lee v Angas (1866) LR 2 Eq 59, V-C.
Mackinnon v Donaldson Lufkin & Jenrette Securities Corp [1986] 1 All ER 653, [1986] Ch 482, [1986] 2 WLR 453.
Norwich Pharmacal Co v Customs and Excise Comrs [1973] 2 All ER 943, [1974] AC 133, [1973] 3 WLR 164, HL.
Penn-Texas Corp v Murat Anstalt [1963] 1 All ER 258, [1964] 1 QB 40, [1963] 2 WLR 111, CA.
Penn-Texas Corp v Murat Anstalt (No 2) [1964] 2 All ER 594, [1964] 2 QB 647, [1964] 3 WLR 131, CA.
Rio Tinto Zinc Corp v Westinghouse Electric Corp, RTZ Services Ltd v Westinghouse Electric Corp [1978] 1 All ER 434, [1978] AC 547, [1978] 2 WLR
81, HL.
Sunderland Steamship P & I Association v Gatoil International Inc, The Lorenzo Halcoussi [1988] 1 Lloyd’s Rep 180.
Preamble
Wakefield v Outhwaite [1990] 2 Lloyd’s Rep 157.
Cases also cited

A-G v Wilson (1839) 9 Sim 526, 59 ER 461, V-C.
British South Africa Co v Cia de Moçambique [1893] AC 602, HL.
Ehrmann v Ehrmann [1896] 2 Ch 611, CA.
756
Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1967] 1 All ER 699, [1968] AC 269, HL.
Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627, HL.
Maclaine Watson & Co Ltd v Dept of Trade and Industry [1989] 3 All ER 523, sub nom J H Rayner (Mincing Lane) Ltd v Dept of Trade and Industry
[1990] 2 AC 418, HL.
Mason & Barry (Ltd) v Comptoir D’Escompte (1890) 38 WR 685, DC.
Moore v Assignment Courier Ltd [1977] 2 All ER 842, [1977] 1 WLR 638, CA.
Schroeder (A) Music Publishing Co Ltd v Macaulay [1974] 3 All ER 616, [1974] 1 WLR 1308, HL.
Senior v Holdsworth,[1975] 2 All ER 1009, [1976] QB 23, CA.
South Carolina Insurance Co v Assurantie Maatschappij ‘de Zeven Provincien’ NV [1986] 3 All ER 487, [1987] AC 24, HL.
Application
The plaintiff, Georgios Panayiotou (professionally known as George Michael), and two of his companies, Robobuild Ltd and Big Geoff Overseas Ltd,
applied by motion dated 2 June 1993 for the issue of a letter of request, addressed to the proper judicial authority of the City of New York, seeking the
production of documents held by Sony Music Entertainment Inc, a New York company associated with the defendant, Sony Music Entertainment (UK)
Ltd against whom the plaintiff had brought an action claiming that the plaintiffs were not bound by an agreement dated 4 January 1988. The facts are set
out in the judgment.
Mark Cran QC and Pushpinder Saini (instructed by Sheridans) for the plaintiffs.
Gordon Pollock QC and David Unwin (instructed by Clintons) for the defendant.
Cur adv vult
SIR DONALD NICHOLLS V-C. In January 1988 George Michael, as he is known professionally, and two of his companies entered into agreements
with the defendant, a company carrying on business in this country. The defendant was then known as CBS United Kingdom Ltd, and it was part of the
CBS recording group of companies. By the agreements George Michael tied himself to the defendant, in respect of all his performances as a recording
artist, for a substantial period of years. He has now brought proceedings claiming he is not bound by the agreements. Their terms are so unreasonable
that the agreements are in unlawful restraint of trade. He is, he claims, not obliged to deliver any further recordings or albums of recordings to the
defendant.
The plaintiffs are in the course of obtaining discovery from the defendant. The defendant is obliged to give discovery of the documents which are or
have been in its possession, custody or power. Herein lies the difficulty confronting the plaintiffs. The Sony Corp of Japan has taken over the CBS
group, and the defendant is now part of the worldwide Sony group. On some of the issues raised in the action documents in the possession of other
companies in the Sony group will be material. For instance, exploitation of George Michael’s recordings outside the United Kingdom has been carried
out, not by the defendant, but by other companies in the Sony group. To know the full extent 757 and value of the benefits passed by the plaintiffs to
the defendant under the recording agreements it is necessary to discover the benefits obtained by the Sony group worldwide, or at least in the other
principal markets for George Michael’s recordings. The plaintiffs have identified the other major territories as the United States of America, Canada,
Australia, Japan, France, Germany, Italy, Austria and Switzerland. The Sony companies responsible for exploitation in those countries are not parties to
this action, and so the plaintiffs cannot obtain discovery from them. The defendant’s accountancy experts, Messrs Ernst & Young, are in the course of
preparing their report on the issues in the action, and the defendant is willing to permit the plaintiffs’ expert to inspect the financial documentation used
by Ernst & Young in preparing their report. Whether that documentation will include everything the plaintiffs could reasonably expect is not yet clear.
Meanwhile, time is short. The trial has been expedited and is due to start in October. Rightly or wrongly, the plaintiffs’ advisers are not confident
they can rely on the defendant’s wholehearted co-operation on this important aspect of the plaintiffs’ case. So the plaintiffs have applied to the court for
the issue of a letter of request, addressed to the New York court, seeking that court’s assistance. It seems that a Sony company carrying on business in
New York, Sony Music Entertainment Inc, to which I shall refer as ‘SMEI’, operates as a central licensing body for other companies in the Sony group.
The defendant has granted a licence to SMEI, and SMEI has granted sub-licences to other Sony companies throughout the world. The plaintiffs wish the
New York court to require SMEI to produce certain documents held by SMEI which the plaintiffs believe are material to the issues in this action: for
example, each of SMEI’s sub-licence agreements affecting the exploitation of George Michael’s recordings in the major territories. The plaintiffs also
seek to have certain individuals orally examined before the New York court on certain issues.
The jurisdiction issue

The defendant’s primary answer to this application, so far as the documents are concerned, is that the English court has no jurisdiction to issue the
letter of request sought. The English court can issue a letter of request pursuant to RSC Ord 39, r 2 for the attendance of a person to be examined before
the foreign court. He can be required to give oral evidence. At the examination the witness may also be required to produce documents. However, it is
said, the English court has no jurisdiction to issue a letter of request concerned only with the production of documents.
If that is correct, it would reveal a serious lacuna. Let me explain this by reference to the present case. The documents sought are the documents of
SMEI. Accordingly, if it is to be issued, the letter of request must be directed, not at any individual officer of the company, but at the company itself.
But such an order, directed at the company, cannot be made as part of an order for the examination of a witness. That cannot be done, because a letter of
request cannot be directed to a company for the examination of a witness. SMEI can be required to produce, by its proper officer, the documents in
question. Under English law, however, it seems that a company cannot be required to attend, by its proper officer, to give oral evidence. That was
decided by the Court of Appeal in Penn-Texas Corp v Murat Anstalt [1963] 1 All ER 258, [1964] 1 QB 40. In a sequel to that case, also in the Court of
Preamble
Appeal, neither Lord Denning MR nor Pearson LJ was overly enthusiastic about that decision: see 758 Penn-Texas Corp v Murat Anstalt (No 2)
[1964] 2 All ER 594 at 598, 600, [1964] 2 QB 647 at 662, 665. None the less the decision is clear and binding authority. Hence the difficulty: an order to
produce a company’s documents cannot be directed at an individual; the order must be directed at the company. But an order to produce documents
pursuant to a letter of request can only be ancillary to an order to attend for examination, and such an order does not lie against a company. If this is
correct, it would mean that the letter of request procedure is never available to compel production of documents which belong to a company and are in its
possession. A submission having this result calls for the closest examination.
I must go back to the last century. Before 1884, and leaving aside India and British colonies, there were two methods of taking evidence overseas for
use at a trial: under a commission pursuant to a writ of commission, and before an examiner pursuant to an order to that effect. The governments of
several countries objected to the examination of their subjects in their own countries by examiners appointed by the English court: see Daniell’s Practice
of the High Court (8th edn, 1914) vol 1, p 549. So the letter of request procedure was introduced to meet this difficulty. The English court addresses a
request to the foreign court, seeking its assistance by conducting an examination of the witness who is within the jurisdiction of the foreign court. To this
end RSC Ord 37, r 6A was introduced in 1884:
‘If in any case the Court or a Judge shall so order, there shall be issued a request to examine witnesses in lieu of a commission. The Forms 1 and
2 in the Appendix hereto shall be used for such order and request respectively, with such variation as circumstances may require, and may be cited
as Forms 37A and 37B in Appendix K.’
The specimen letter of request in Form 37B requested the foreign court to summon the witness, and to cause him ‘to be examined upon the interrogatories
which accompany this letter of request (or viva voce)’. The court was also asked to identify all books, letters, papers and documents produced upon the
examination.
This rule was considered by the Court of Appeal in Cape Copper Co v Comptoir d’Escompte de Paris (1890) 38 WR 763. The defendants had
obtained an order for the examination of witnesses before a special examiner in France. They then made an application for an order that a letter of request
should issue, under Ord 37, r 6A, to the French court for the purpose of obtaining production of documents which were in the possession of the French
court. The court held that the application should be refused. The report of the judgment of Lord Esher MR reads (at 764):
‘The application was made under ord. 37, r. 6a, and by that rule forms 37a and 37b in appendix K. were to be followed. According to those
forms it was clear that the examination of witnesses was the foundation for the issue of letters of request. The examination of witnesses was the
necessary essential in an order for the issue of letters of request, and upon that examination there might be production of documents and copies of
those documents taken. In the present case the summons did not ask for the examination of any witnesses, and therefore the court, upon the present
materials, had no jurisdiction to issue letters of request.’
759
The corresponding rule today is Ord 39, r 2. Rule 1 provides that the court, where it appears necessary for the purpose of justice, may make an order
for the examination of any person on oath before a judge or examiner or some other person at any place. Such an order may contain an order for the
production of any documents ‘which [appear] to the court … necessary for the purposes of the examination’. Rule 2(1) provides:
‘Where the person in relation to whom an order under rule 1 is required is out of the jurisdiction, an application may be made—(a) for an order
(in Form No. 34 in Appendix A) under that rule for the issue of a letter of request to the judicial authorities of the country in which that person is to
take, or cause to be taken, the evidence of that person …’
The letter of request must be in a prescribed form, Form 35. Form 35 envisages the examination of the witness in accordance with questions or on
topics which are to be set out fully. The form contains a note: ‘N.B. Where the witness is required to produce documents, these should be clearly
identified.’
I must mention one further matter. The application before me concerns an outgoing letter of request, that is, a request emanating from the English
court to the court of another country. It is instructive to see what is the position of an English court today regarding an incoming letter of request. The
United Kingdom and the United States of America are both signatories to the Convention on the Taking of Evidence Abroad in Civil or Commercial
Matters (the Hague, 18 March 1970; TS 20 (1977); Cmnd 6727). The convention came into force in September 1976. Article 1 provides:
‘In civil or commercial matters a judicial authority of a Contracting State may, in accordance with the provisions of the law of that State,
request the competent authority of another Contracting State, by means of a Letter of Request, to obtain evidence, or to perform some other judicial
act.’
The letter of request is to specify the evidence to be obtained. ‘Evidence’ is not defined, but there is no reason to doubt it embraces documentary
evidence just as much as oral testimony.
The obligations accepted by the United Kingdom under that convention are treaty obligations. Accordingly, for them to become part of English law,
legislation was needed. That is to be found in the Evidence (Proceedings in Other Jurisdictions) Act 1975. The 1975 Act enables the courts of the United
Kingdom to give effect to a request issued by a court in a country outside the United Kingdom. Section 2(1) provides that when an application is made
pursuant to such a request, the courts of the United Kingdom shall have power by order to make such provision for obtaining evidence as may appear to
the court to be appropriate for the purpose of giving effect to the request. The order may require a person to take such steps as the court may consider
appropriate for that purpose. In particular, such an order may make provision for the examination of witnesses either orally or in writing (s 2(2)(a)), and
for the production of documents (s 2(2)(b)).
The 1975 Act is concerned with incoming letters of request. It is not confined to requests from the courts of countries which are signatories of the
Hague Convention. Nevertheless it would be surprising if English courts were not at liberty to request, even from Hague Convention countries, assistance
760 corresponding to the assistance United Kingdom courts may now give to the courts of countries outside the United Kingdom. Indeed, in
Mackinnon v Donaldson Lufkin & Jenrette Securities Corp [1986] 1 All ER 653 at 656, [1986] Ch 482 at 491 Hoffmann J took it for granted that the
English court could issue a letter of request to the New York courts seeking the production of documents.
The defendant’s answer is that the remedy lies with the Supreme Court Rule Committee. The court’s jurisdiction to issue a letter of request is
regulated by the rules. Order 39, r 2 does not differ materially from the wording of the old Ord 37, r 6A, which was authoritatively construed by the
Court of Appeal in the Cape Copper case. Before the English court can issue a letter of request seeking only the production of documents, the rules need
amending appropriately.
Preamble
I cannot accept this contention. The jurisdiction of the High Court to make a request to the court of another country for assistance in obtaining
evidence does not derive from statute, or even from the Rules of the Supreme Court. These rules regulate and prescribe ‘the practice and procedure’ to be
followed in the Supreme Court (s 84 of the Supreme Court Act 1981). They regulate the exercise of the court of its jurisdiction; they cannot extend the
court’s jurisdiction or confer a jurisdiction which, in the absence of rules, the court would otherwise lack.
In my view the court’s power to issue a letter of request stems from the jurisdiction inherent in the court. Inherent in the court is power to do those
acts which the court needs must have to maintain its character as a court of justice (see Lord Diplock in Bremer Vulkan Schiffbau Und Maschinenfabrik v
South India Shipping Corp [1981] 1 All ER 289 at 295, [1981] AC 909 at 977). It is important to keep in mind that when a letter of request is issued, the
English court is doing no more than make a request to a foreign court for assistance. It is not making an order. It is not making an order addressed to a
foreign court or to witnesses. Further, the subject matter on which assistance is sought, the obtaining of evidence, is one over which the court has long
exercised close control. This is a subject peculiarly within the court’s own control. Thus, the process by which the court compels the attendance of
witnesses, or compels the production of documents as evidence, is a process whose source is the court’s own inherent powers. RSC Ord 38, rr 14 to 19
regulate the form of subpoenas, and the way they should be issued and served and so forth; those rules do not create the jurisdiction. Specifically with
regard to a subpoena to produce documents (duces tecum), Lord Ellenborough CJ observed as long ago as 1808 in Amey v Long 9 East 473 at 484,
[1803–13] All ER Rep 321 at 323:
‘The right to resort to means competent to compel the production of written, as well as oral, testimony seems essential to the very existence and
constitution of a Court of Common Law, which receives and acts upon both descriptions of evidence, and could not possibly proceed with due
effect without them. And it is not possible to conceive that such Courts have immemorially continued to act upon both, without great and notorious
impediments having occurred, if they had been furnished with no better means of obtaining written evidence than what the immediate custody and
possession of the party who was interested in the production of it, or the voluntary favour of those in whose custody the required instruments might
happen to be, afforded. The Courts of Common law, therefore, in order to administer the justice they have been in the habit of doing for so many
centuries, must have employed the same or similar 761 means to those which we find them to have in fact used from the time of Charles the
Second at least …’
Against this background there is nothing surprising or remarkable in the idea that the English court should choose to communicate with a foreign
court, and seek its assistance in the production of documents which, had they been in England, could properly have been made the subject of a subpoena
issued by the English court. The English court would not normally embark on such a course unless there was reason to suppose the foreign court would
be receptive to the request. Now there is the Hague Convention. The courts of the United States have obligations to provide assistance to an English
court, in the same way as under the 1975 Act the English court has obligations to provide assistance to an American court. It cannot be right that, in the
absence of legislation or a rule, the English court is unable to take advantage of this situation when necessary for the purpose of doing justice in a case
currently before the English court. That really would make no sense at all.
What, then, of the decision in the Cape Copper case? That decision is an authority on the interpretation of the old Ord 37, r 6A. Even if that
decision is to be regarded as equally applicable to the current Ord 39, rr 1 and 2, I do not think this should be taken to exclude the exercise by the court of
its inherent jurisdiction to issue a letter of request to the judicial authorities of a foreign country seeking their aid in the production of documents. The
point seems not to have been argued in that case. Order 39, rr 1 and 2 cannot be read as impliedly ousting that jurisdiction if, so read, the consequence
would be as unfortunate as mentioned above. Especially now the Hague Convention is in place, there would be obvious advantages in the Rule
Committee prescribing a simple form of letter of request to be used when the request is confined to the production of documents. For the time being Form
35 can be adapted without difficulty. Indeed, Ord 39, r 3(2) envisages that the form of the letter set out in Form 35 is to be subject to such variations as
the court order may require.
The particularity issue

In accordance with English legal procedures, and leaving aside special cases such as Norwich Pharmacal Co v Customs and Excise Comrs [1973] 2
All ER 943, [1974] AC 133, discovery of documents is obtainable only from persons who are parties to the action. In the normal way, parties are
compelled to produce for inspection all their documents relating to matters in issue in the action. Persons who are not parties are not subject to such a
wide, far-reaching obligation. They can be compelled to give evidence at the trial, either by way of oral testimony or by being required to produce
documents. But it is established that a subpoena to produce documents cannot be drawn so widely as to amount to requiring the witness to give
discovery. The object of the subpoena is to compel the witness to produce evidence directly material to the issues in the case. The object is not to require
him to produce documents just because they may be useful for the purpose of corroborating or challenging a witness, or because they may lead to a train
of inquiry which may result in the discovery of evidence or may, in some other way, advance one party’s case or damage the other’s. Nor is the witness
to be required to undertake an unfairly burdensome search through his records to find this or that document or to see if he has any documents relating to a
particular subject matter. All this is well established in relation to a subpoena to produce documents at the trial. The 762 position is the same
regarding an order to produce documents before the trial, under Ord 38, r 13: see r 13(2) and Elder v Carter, ex p Slide and Spur Gold Mining Co (1890)
25 QBD 194.
The English courts apply a similar approach to the production of documents under a letter of request. With regard to incoming letters of request, the
matter is the subject of legislation. When ratifying the Hague Convention the United Kingdom government exercised its right to declare that it would not
execute letters of request issued for the purpose of obtaining ‘pre-trial discovery of documents’. That reservation, in which the government’s
understanding of what that expression meant, was reflected in s 2(4) of the 1975 Act. This subsection limits the scope of an order the United Kingdom
courts may make in response to an incoming letter of request, in these terms:
‘An order under this section shall not require a person—(a) to state what documents relevant to the proceedings to which the application for the
order relates are or have been in his possession, custody or power; or (b) to produce any documents other than particular documents specified in the
order as being documents appearing to the court making the order to be, or to be likely to be, in his possession, custody or power.’
Paragraph (a) excludes discovery. Paragraph (b) narrows the ambit of the order even further.
Before me there was some discussion on whether the particularity required of a subpoena to produce documents is the same as that set out in this
paragraph. The plaintiffs contended that a lesser degree of particularity will suffice for a subpoena, and that when issuing a letter of request the English
court should apply the less rigorous standard and not, by way of analogy, the standard set by the 1975 Act for an incoming letter of request.
In my view there is only one standard, applicable alike to subpoenas to produce documents, outgoing letters of request and incoming letters of
request. In principle there ought to be only one standard. I turn to the authorities. In Lee v Angas (1866) LR 2 Eq 59 at 63 Page Wood V-C commented
adversely on the subpoena before him being in wide general form, ‘not for production of any document in particular’. The same approach was adopted in
Preamble
Burchard v Macfarlane, ex p Tindall and Dryhurst [1891] 2 QB 241, [1891–4] All ER Rep 137. Lord Halsbury LC drew a distinction between what was
in substance an order for inspection and discovery and an order that was part of a procedure to examine witnesses in the course of proof for the purpose of
establishing the facts (see [1891] 2 QB 241 at 244–245, [1891–4] All ER Rep 137 at 140). Lord Esher MR observed that a subpoena was an order to a
person to produce ‘a document’ alleged to be in his possession (see [1891] 2 QB 241 at 247, [1891–4] All ER Rep 137 at 141. Fry LJ observed that a
subpoena could not be used to call upon a witness to find out whether documents related to a particular matter in controversy, and he noted that in the
instant case the order did not ‘by date or parties or other simple method of identifying, indicate the instrument’ required to be produced (see [1891] 2 QB
241 at 249, 251, [1891–4] All ER Rep 137 at 142, 143). In Rio Tinto Zinc Corp v Westinghouse Electric Corp, RTZ Services Ltd v Westinghouse Electric
Corp [1978] 1 All ER 434, [1978] AC 547 the House of Lords was concerned with incoming letters rogatory and, accordingly, with the interpretation of s
2(4)(b) of the 1975 Act. Lord Diplock drew a distinction between subpoenas and the requirements of the 1975 Act ([1978] 1 All ER 434 at 463, [1978]
AC 547 at 635):
763
‘Classes of documents, provided the description of the class is sufficiently clear, may be required to be produced on subpoena duces tecum.
The requirements of s 2(4)(b), however, are not in my view satisfied by the specification of classes of documents. What is called for is the
specification of “particular documents” which I would construe as meaning individual documents separately described.’
That statement must now be read in the light of observations by Lord Fraser of Tullybelton in Re Asbestos Insurance Coverage Cases [1985] 1 All ER
716 at 721, [1985] l WLR 331 at 337–338, another case concerned with incoming letters rogatory:
‘I do not think that by the words “separately described” Lord Diplock intended to rule out a compendious description of several documents
provided that the exact document in each case is clearly indicated. If I may borrow (and slightly amplify) the apt illustration given by Slade LJ in
the present case, an order for production of the respondents’ “monthly bank statements for the year 1984 relating to his current account” with a
named bank would satisfy the requirements of the paragraph, provided that the evidence showed that regular monthly statements had been sent to
the respondent during the year and were likely to be still in his possession. But a general request for “all the respondent’s bank statements in 1984”
would in my view refer to a class of documents and would not be admissible.’
Given this qualification, it is difficult to perceive any significant difference between the established principle applied to subpoenas and the test set
out in the 1975 Act. Indeed, the draftsman of s 2(4)(b) was seeking to do no more than reproduce the established test. As already noted, he echoed the
language used by the government in its reservation when ratifying the Hague Convention, by which the government had sought to define what was meant
by the alien process of pre-trial discovery of documents. When enacting the 1975 Act, Parliament was concerned to provide that the English court should
not afford to parties to proceedings abroad a wider right to production of documents from witnesses in this country than the corresponding right enjoyed
by parties to proceedings in United Kingdom courts. There is no reason to believe that, when enacting s 2(4)(b), Parliament intended more than this. In
this connection I am fortified by noting that in two recent cases Steyn and Potter JJ both proceeded on the footing that, indeed, there was no difference
between the standard prescribed by the 1975 Act and the standard appropriate for a subpoena: see Sunderland Steamship P & I Association v Gatoil
International Inc, The Lorenzo Halcoussi [1988] 1 Lloyd’s Rep 180 at 184 and Wakefield v Outhwaite [1990] 2 Lloyd’s Rep 157 at 160, 161.
The documents sought

I approach this application, therefore, on the footing that the plaintiffs are not entitled to seek what is in substance discovery. The letter of request
must be confined to particular documents, although these may be described compendiously, as with the letters in Lee v Angas (1866) LR 2 Eq 59 at 63.
I preface consideration of the documents sought by noting that particularity of identification or description is a matter of degree. The description
used, moreover, may be important in another way: it may throw light on the purpose for which the documents in question are sought. The court should be
764 astute to see that what is essentially a discovery exercise, whereby the applicant is seeking production of documents with a view to ascertaining
whether they may be useful rather than with a view to adducing them in evidence as proof of some fact, is not disguised as an application to produce
particular documents. Where an applicant has not seen the documents sought and does not know what they contain, the application can the more readily
be characterised as a discovery exercise. Further, to be the subject of a letter of request a document must be admissible in evidence; it must be directly
material to an issue in the action; and the court must be satisfied the document does exist or did exist, and that it is likely to be in the possession of the
person from whom production is being sought. Actual documents are to be contrasted with conjectural documents, which may or may not exist: see Lord
Fraser in the Asbestos case [1985] 1 All ER 716 at 721, [1985] 1 WLR 331 at 338.
There is no difficulty with two of the items sought. Item 4 relates to each of SMEI’s matrix or sub-licence agreements affecting the exploitation of
George Michael’s recordings in any of the major territories. Item 7(i) relates to recording agreements, and variations of them, in force in January 1988 or
after 22 July 1990, between SMEI and certain well-known artists. There was some dispute before me over the status of one of them, Robert Halford, but
that is an issue to be resolved at the trial, not at this stage. Item 7(ii) relates to an identified agreement between Michael Jackson or his companies and
SMEI. I am satisfied that the production of all the documents in items 4 and 7 is necessary for the purposes of justice in this action, and that an order for
a letter of request should be made in respect of them.
Item 6 stands on the same footing. This item relates to release schedules showing the dates of release, actual or intended, throughout the world of
each of George Michael’s recordings delivered to the defendant.
Item 8 relates to exploitation in the major territories outside the United States. The plaintiffs seek (item 8(i)) production of royalty statements
received by SMEI from sub-licensees in the major territories in respect of the exploitation of George Michael’s recordings, and (item 8(ii)) invoices or
demands sent by SMEI to sub-licensees in respect of payments for such exploitation. Although the documents covered by these two heads are likely to be
numerous, I am satisfied their production is necessary for the purposes of justice in this action. These documents are adequately particularised.
The plaintiffs also seek (item 8(iii)) production of reports rendered to SMEI by each sub-licensee of payments made by the sub-licensee, either to
SMEI or the defendant or any other company in the Sony group, in respect of the exploitation of George Michael’s recordings in the major territories or in
respect of the results of such exploitation. This is too wide and general.
Item 9 relates to exploitation within the United States. Under 9 (i) the plaintiffs seek, in short, royalty statements or reports prepared by SMEI
showing royalties or other payments due to the defendant, or any other company in the Sony group, in respect of the exploitation of George Michael’s
recordings. In my view SMEI should be required to produce these documents.
Item 9 (ii) specifies a list of classes of documents evidencing costs incurred by SMEI in the manufacture, distribution, sale, marketing and promotion
of George Michael’s recordings: relevant dealer price lists, relevant records of discounts, and relevant stock movement reports. Item 9 (iii) reads: ‘records
or summaries showing in sufficient detail the costs of manufacture, storage and distribution’. Items 9 (iv) and (v) are similarly worded, in respect of
certain 765 other heads of cost. In my view, items 9 (ii) to (v) are in substance an exercise in discovery. The plaintiffs are seeking information about
Preamble
certain costs. Unlike with royalty statements in respect of income, in respect of costs the plaintiffs are unable to identify particular documents setting out
the costs in question. An application for all SMEI documents relating to the costs would, all too obviously, be an application for discovery. So different
language has been adopted; for instance, ‘records or summaries showing …’ This change in language has not changed the essential nature of the exercise.
Likewise with item 1. This comprises the files containing SMEI’s internal notes and memoranda, and communications with the defendant,
concerning the negotiation and conclusion of the recording agreements in 1987 and 1988 and the subsequent variations in October and December 1988
and July 1990. A file is a folder containing one or more documents. Here, the files are likely to contain a wide range of documents: internal memoranda,
notes on meetings and telephone discussions, drafts of letters and agreements, correspondence, and so forth. The plaintiffs do not know what the files
contain. They seek production of their contents, whatever they may be. This is a discovery exercise.
Item 2 suffers from the same defect. It relates to lists, or computer print-outs, providing reasonably detailed summaries of SMEI’s marketing,
promotion, advertising and selling activities undertaken in the United States, and marketing expenditure incurred in the United States, for several named
recordings. The plaintiffs seek, as part of this, a reasonably detailed breakdown of the figures appearing in a schedule which has been prepared by the
defendant’s accountancy experts. There is no evidence, nor is it self-evident, that documents answering this description exist or have ever done so. This
also is discovery on a particular topic, sought to be concealed by naming a type of document SMEI may or may not have containing the information
sought.
The same comment applies to item 5. Item 5 relates to ‘SMEI’s accounting records, or summaries thereof, sufficient to show in reasonable detail
SMEI’s gross and net income received and receivable’ from the exploitation in the United States of four named recordings, and the costs incurred by
SMEI in connection with those recordings.
The other items in the amended application were abandoned before me.
Examination of witnesses
As amended on the second day of the hearing before me, the application was for production of documents by SMEI. At that stage the plaintiffs
sought, in addition, an order that SMEI by its proper officer attend to be examined regarding the documents and on certain other specified topics. Later,
in the course of his reply, Mr Cran QC accepted that the letter of request could not be addressed to SMEI, so far as it related to attending to give oral
evidence. He then sought, at that late stage, to amend his application by substituting two individuals for SMEI. He named one of them who, he said,
could deal with part of the oral evidence sought. He told me that urgent inquiries were being made in New York to see who would be the appropriate
person to deal with the other part of the oral evidence. If I was in the plaintiffs’ favour in principle on this part of the application, the other name could be
produced in due course. I was not asked to grant an adjournment for the further name to be produced before the parties concluded their submissions. This
is a manifestly 766 unsatisfactory way to proceed. The defendant’s advisers must have an opportunity of taking instructions and commenting on the
individuals whose examination is being sought. That they have not had. On this short ground this part of the application must fail.
However, in case this may be of assistance I shall express my views shortly on the substance. The first matter on which evidence is sought is the
corporate structure of the Sony group, including the relationship between SMEI and its sub-licensees in the major territories. In principle I would have
directed examination on this subject. Evidence on this is necessary to understand documentary evidence on the benefits received by the different parts of
the Sony group from George Michael’s recordings. I would have hoped that a letter of request would not be needed to obtain this material. Some
information was provided by Mr Pollock QC in the course of his submissions. I would have hoped that, if necessary, the defendant would agree to
produce at the trial a witness who can give this evidence.
The other principal item on which evidence was sought concerned financial matters: in short, an explanation of the documents produced by SMEI;
and an explanation of the system of payments and financial reporting between SMEI and its sub-licensees in the major territories. Again, in principle I
would have been disposed to make an order, if the evidence sought were suitably confined to matters in issue in the action.
Further discovery
There is also before me an application against the defendant for further discovery under Ord 24, r 7. The principal item comprises documents
relating to the defendant’s back catalogue and its exploitation. ‘Back catalogue’ is a reference to recordings deleted from the defendant’s current
catalogue. It may also include other recordings, depending on how one chooses to define the expression. In the action the plaintiffs rely on the absence
of an obligation on the defendant to exploit recordings of George Michael once they become back catalogue. The defendant answers that it is in its
commercial interest to exploit the back catalogue. The plaintiffs’ reply is that no weight should be attached to this, because in practice the defendant
never does exploit the back catalogue, other than passively (that is, in response to requests).
I shall not order discovery to be made of lists or summaries evidencing the size of the defendant’s back catalogue. The defendant does not have a list
of the contents of its back catalogue, which is of enormous size. There are tens of thousands of items. To require the defendant to sort out all the relevant
documents, covering the whole range of the recordings in its back catalogue, would impose a burden altogether disproportionate to the extent to which the
documents would assist at the trial. For the plaintiffs’ purposes it suffices to note firstly that the back catalogue, however defined, is voluminous and,
secondly, that the defendant is admittedly not able to produce any sort of list at all readily. Those two facts are adequate for the plaintiffs’ purpose on this
point.
The plaintiffs also seek discovery of the accounting records showing the income received by the defendant from its exploitation of its back catalogue
for the years 1990–92 and showing also any specific costs incurred in this exploitation. Accounting records in this form do not exist. Here again, sifting
through all the records to obtain the information would be an enormous task. I was told by Mr Pollock that at the trial the defendant will not say it spends
767 any significant sums in seeking to exploit recordings which have been deleted from its current catalogue. That being so, I shall not order
discovery of these classes of documents. In the circumstances such discovery would be oppressive.
Finally, two last items. The defendant has already disclosed recording agreements made between it and artists it regards as of comparable stature to
George Michael. I shall direct disclosure also of the recording agreements made with Robert Halford, for the reason stated above. The other item relates
to agreements between artists and so-called ‘satellite’ companies from which the defendant derives rights under sub-licences. I shall not direct disclosure
of these agreements. On the basis on which disclosure of these agreements was sought and supported in the evidence, there is on the pleadings no issue of
substance. I am not persuaded that a case has been made for disclosure on any other ground.
Conclusion
I shall make an order directing the issue of a letter of request for the production of documents to the extent indicated above. I shall also make an
order for further discovery to the extent I have mentioned.
Order accordingly.

Preamble
768
[1994] 1 All ER 769
Matrix-Securities Ltd v Inland Revenue Commissioners

TAXATION; Income Tax, Capital Allowances
HOUSE OF LORDS
LORD TEMPLEMAN, LORD GRIFFITHS, LORD JAUNCEY OF TULLICHETTLE, LORD BROWNE-WILKINSON AND LORD MUSTILL
15, 16, 17 NOVEMBER 1993, 17 FEBRUARY 1994
Income tax – Capital allowances – Industrial building or structure – Enterprise zone – Tax consequence of transaction – Tax avoidance scheme –
Inspector of taxes confirming availability of capital allowances – Full and accurate disclosure not given by applicant when seeking clearance – Revenue
Financial Institutions Division subsequently withdrawing clearance – Whether Revenue bound by inspector’s clearance – Whether withdrawal of
clearance unfair and amounting to abuse of power by Revenue – Capital Allowances Act 1990, s 10A.
Income tax – Commissioners of Inland Revenue – Administration and management of taxation system – Advice and guidance to taxpayers – Advance tax
clearance – Withdrawal – Inspector of taxes giving applicant unqualified clearance – Full and accurate disclosure not given by applicant when seeking
clearance – Revenue Financial Institutions Division subsequently withdrawing clearance – Whether Revenue bound by inspector’s clearance – Whether
withdrawal of clearance unfair and amounting to abuse of power by Revenue.
The applicant was the sponsor of a scheme to develop an enterprise zone property. Under the scheme it was proposed that a unit trust would be formed to
acquire the freehold and a 200-year headlease in certain land and buildings in the course of construction in an enterprise zone. It was intended that the
unit trust would purchase the property from the vendor for a stated price of £95m (which was to be raised by higher-rate taxpayers subscribing £30·875m
and a bank loan of £64·125m), that the vendor would grant a new company owned by the applicant a 99-year lease out of the 200-year lease and would
pay a premium of £70m to the new company as consideration for the latter entering into the lease, and that the payment of the £70m together with a
payment of £10m to be made by the vendor to the building contractors to complete the construction works would be funded out of the £95m purchase
price. The vendor would in fact be left with the net sum of £8m for the purchase. The terms of the proposed 99-year lease included payment of an annual
rent of £5·7m for the first ten years and that the new company would surrender the lease and accept a new long lease at a nominal rent for a premium of
£64·125m in the event of the trustee exercising an option on or after the expiration of the tenth year requiring the new company to do so or if the investors
decided to sell the property. It was intended that under the proposed ‘exit arrangements’ the bank would make ten-year loans to investors of 67·5% of the
purchase price of the investors’ units secured by a charge on the units and thus on (i) the rent payable by the new company and (ii) the premium payable
by the new company on its surrender of the lease, and it was envisaged that the interest on the investors’ loans would be paid out of the rent and the
premium of £64·125m would be sufficient to enable investors to repay their loans after ten years or on the sale of the property if earlier. The effectiveness
of the scheme depended on whether investors would 769 qualify for capital allowances of £38m pursuant to s 10A(9)(a) and (2)(b)a of the Capital
Allowances Act 1990 as purchasers of an estate or interest in a building or structure in an enterprise zone by reference to the net price paid for the estate
or interest. If capital allowances of £38m were made the net result for investors would be that for every £1,000 unit in the scheme an investor would pay
only £325 but could reclaim £392 in capital allowances while his loan of £675 would be repaid out of the premium and he would be entitled to 80% of the
occupation rent and proceeds of sale. The applicant sent a letter dated 15 July 1993, approved by leading counsel, to the local inspector of taxes outlining
the terms of the scheme and seeking the Revenue’s assurance on whether, inter alia, capital allowances would be available to each investor in respect of
his share of the purchase price of £95m less his share of the disallowable land element. In a letter dated 27 July 1993 the inspector gave the assurance
sought (namely that capital allowances would be available by reference to the figure of £95m) without qualification. On 12 October the Financial
Institutions Division of the Revenue wrote to the applicant effectively revoking the tax clearance given by the inspector. The applicant sought judicial
review of the revocation decision by way of a declaration that the withdrawal of tax clearance was unfair and amounted to an abuse of power by the
Revenue. The judge dismissed the application and the Court of Appeal upheld his decision, on the ground that the applicant, by omitting to disclose that
the vendor would only retain £8m out of the £95m purchase price, had failed to disclose all the material facts and had failed to draw the Revenue’s
attention to the critical issues underlying the assurance sought and had thereby failed to discharge the duty of candid disclosure imposed on an applicant
for a tax clearance in advance. The applicant appealed.
________________________________________
a Section 10A, so far as material, is set out at p 772 j to p 773 d, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – (1) (Per Lord Templeman and Lord Griffiths) The scheme proposed by the applicant was a sophisticated tax avoidance scheme of circular
self-cancelling payments designed to obtain capital allowances of £38m in circumstances where only capital allowances of £7·2m were actually available.
Under the scheme construed as a whole the expenditure on which relief was available under the 1990 Act was the actual expenditure of £10m and the
allowable deemed expenditure was £8m. The claim to initial allowances of £38m was based on a pretended expenditure of £95m when in fact the scheme
aimed to produce fiscal expenditure of £95m and a real expenditure of only £18m. It followed that the inspector had wrongly given tax clearance to the
scheme (see p 778 c d f h j, p 780 a to d and p 781 c to f, post).
(2) It was not an abuse of power for the Revenue to withdraw the advance clearance give by the inspector, and accordingly the appeal would be
dismissed, because—
(a) (per Lord Templeman, Lord Jauncey and Lord Mustill) the applicant’s letter of 15 July was inaccurate and misleading in that it omitted a vital
piece of information to the Revenue, namely the fact that the applicant would be paying the vendor only £8m for the property (see p 777 e, p 781 c d, p
789 g to j, p 790 j to p 791 a and p 793 e f, post);
Preamble
(b) (per Lord Griffiths, Lord Jauncey, Lord Browne-Wilkinson and Lord Mustill) the Revenue had, to the applicant’s knowledge, made it known that
in particular categories of transactions, such as unit trust schemes for acquiring 770 property which included expenditure on a put option, advance
clearances could only be given by the Financial Institutions Division (see p 781 f to j, p 790 e f, p 791 f to p 792 c f to p 793 a e f, post).
Per Lord Jauncey. (1) The fact that sufficient information is disclosed to enable inferences to be drawn does not necessarily mean full disclosure has
been made (see p 789 b, post).
(2) When asked for clearances or other views the Revenue should never feel pressurised by importunate taxpayers or their prestigious advisers; rather
they should take such time as is reasonably necessary for them to give full consideration to the problems placed before them (see p 790 j, post).
Notes
For capital allowances for purchases of buildings in enterprise zones, see 23 Halsbury’s Laws (4th edn reissue) para 345.
For advice from the Inland Revenue as to the tax consequences of a particular transaction, see ibid para 31.
For judicial review of a breach of a representation by a public body, see 1(1) Halsbury’s Laws (4th edn reissue) para 23.
For the Capital Allowances Act 1990, s 10A, see 43 Halsbury’s Statutes (4th edn) (1993 reissue) 1139.

Black Nominees Ltd v Nicol (Inspector of Taxes) [1975] STC 372.
Ensign Tankers (Leasing) Ltd v Stokes (Inspector of Taxes) [1992] 2 All ER 275, [1992] 1 AC 655, [1992] 2 WLR 469, HL.
Fitzwilliam v IRC [1993] 3 All ER 184, [1993] 1 WLR 1189, HL.
IR Comr v Challenge Corp Ltd [1986] STC 548, [1987] AC 155, [1987] 2 WLR 24, PC.
IRC v Burmah Oil Co Ltd [1982] STC 30, HL.
Moodie v IRC [1993] 2 All ER 49, [1993] 1 WLR 266, HL.
Preston v IRC [1985] 2 All ER 327, [1985] AC 835, [1985] 2 WLR 836, HL.
R v Board of Inland Revenue, ex p MFK Underwriting Agencies Ltd [1990] 1 All ER 91, [1990] 1 WLR 1545, DC.
Ramsay (W T ) Ltd v IRC, Eilbeck (Inspector of Taxes) v Rawling [1981] 1 All ER 865, [1982] AC 300, [1981] 2 WLR 449, HL; affg W T Ramsay Ltd v
IRC [1979] 3 All ER 213, [1979] 1 WLR 974, CA and Eilbeck (Inspector of Taxes) v Rawling [1980] 2 All ER 12, CA.
Appeal
Matrix-Securities Ltd (the applicant) appealed from the decision of the Court of Appeal (Dillon and Nolan LJJ (Roch LJ dissenting)) ([1993] STC 774) on
1 November 1993 affirming the decision of Laws J ([1993] STC 774) on 21 October 1993 dismissing its application for a declaration that the withdrawal
of certain advance clearances given by the Inland Revenue regarding the availability of capital allowances in connection with an enterprise zone property
unit trust of which the applicant was the sponsor was unfair and amounted to an abuse of power by the Revenue. The facts are set out in the opinion of
Lord Templeman.
David Goldberg QC, David Pannick QC and John Walters (instructed by Theodore Goddard) for the applicant.
Lord Lester of Herne Hill QC and Charles Flint (instructed by the Solicitor of Inland Revenue) for the Crown.

771
LORD TEMPLEMAN. My Lords, the appellant, Matrix-Securities Ltd (the applicant), seeks a declaration that the respondent Commissioners of Inland
Revenue are not entitled to revoke tax clearances given by a letter dated 27 July 1993 and confirmed by a letter dated 10 September 1993 from the
inspector of taxes. Laws J and the Court of Appeal (Dillon and Nolan LJJ (Roch LJ dissenting)) refused to make the declaration (see [1993] STC 774)
and the applicant appeals.
On 1 January 1989 Wiggins Waterside Ltd (WWL) entered into a contract for Wimpey Construction Ltd to carry out the South Quay development
by constructing three buildings at South Quay, Marsh Wall Development in the Isle of Dogs (Docklands) Enterprise Zone. On 23 March 1989 South
Dock Developments Ltd granted to WWL a lease of the site of the three buildings for a term of 200 years. Construction of the buildings began. On 6
August 1989 the freehold reversion expectant on the determination of the term created by the 200-year lease was conveyed to WWL but the lease was not
merged in the freehold. On 1 October 1990 the 200-year lease and the freehold reversion were assigned and conveyed by WWL to South Quay Ltd
(SQL) for the sum of £28·1m. On the same day the benefit of the building contract with Wimpey was also assigned to SQL. Sums amounting to £44m
were paid by SQL to Wimpey for the continued construction of the buildings. SQL incurred debts of about £60m owed to a consortium of six banks
which included Hill Samuel Bank Ltd (Hill Samuel). That bank was entitled to 10% or about £6m of the debts owed by SQL to the consortium. In May
1992 Cork Gulley was appointed administrative receiver to SQL and the buildings now require a further £10m to be expended in order to complete them
and make them ready for letting.
The applicant carried on business as organisers of enterprise zone property unit trusts whereby investors in trust units finance construction in
enterprise zones and a trustee on their behalf purchases an interest in the buildings constructed. Such investors may become entitled to capital allowances
under the Capital Allowances Act 1990 as amended. By s 1(1) of the 1990 Act—
‘where—(a) a person incurs capital expenditure on the construction of a building … there shall be made to the person who incurred the
expenditure, for the chargeable period which is that related to the incurring of the expenditure, an allowance (“an initial allowance”) equal to 100
per cent. of the amount of that expenditure.’
Section 10A(1) of the 1990 Act as amended applies—
‘where—(a) expenditure is incurred on the construction of a building … (actual expenditure); (b) … that expenditure is incurred … at a time
when the site of the building … is in an enterprise zone … and (c) before the building … is used, the relevant interest in it is sold.’
Preamble
By s 20 of the 1990 Act the relevant interest in the present case was the freehold and the 200-year lease held by the receiver of SQL. Where s 10A
applies sub-s (2) provides:
‘(a) the actual expenditure shall be left out of account for the purposes of sections 1 to 8, but (b) subject to subsection (8) below, the person who
buys 772 the relevant interest shall be deemed for those purposes to have incurred, on the date when the purchase price becomes payable,
expenditure on the construction of the building … (deemed expenditure) equal to the actual expenditure or to the net price paid by him for that
interest, whichever is the less.’
Subsections (8) and (9) provide:
‘(8) Where the relevant interest in the building … is sold more than once before the building … is used, subsection (2)(b) above shall have
effect only in relation to the last of those sales.
(9) Where the actual expenditure was incurred by a person carrying on a trade which consists … in the construction of buildings … with a view
to their sale and, before the building … is used, he sells the relevant interest in it in the course of that trade … then—(a) if that sale is the only sale
of the relevant interest before the building … is used, paragraph (b) of subsection (2) above shall have effect as if the words “the actual expenditure
or to” and “whichever is the less” were omitted; and (b) in any other case, that paragraph shall have effect as if the reference to the actual
expenditure were a reference to the price paid on that sale.’
Both WWL and SQL were traders for the purposes of s 10A(9). Neither of them could claim initial allowances under s 1 because their expenditure
on the three buildings was not capital expenditure but an expense which they could bring into account in calculating their income liable to corporation tax.
The receiver of SQL sought a purchaser of the interests of SQL in South Quay. That purchaser would be obliged to expend £10m to complete the
building and would be entitled under s 1 of the 1990 Act to recover from the Revenue the sum of £4m, being tax at 40% on the initial allowance of 100%
of the actual expenditure. The purchaser would also be entitled under s 10A of the 1990 Act to recover 40% of deemed expenditure equal to his purchase
price. There might be some discount from the purchase price for the value of the land which formed the site of the buildings; this complication can be
ignored for present purposes.
By a letter dated 15 July 1993 Messrs Theodore Goddard, business and finance lawyers, wrote to Mr Fairley, an inspector of taxes at Piccadilly
District in London, in the following terms:
‘Dear Sirs
New Enterprise Zone Property Unit Trust—Matrix South Quay Trust
We act for Matrix-Securities Limited (“Matrix”) of Gossard House, 7–8 Savile Row, London, W1X 1AF. Matrix are the sponsors to a proposed
Enterprise Zone Unit Trust which is to be known as the “Matrix South Quay Trust” (the “Trust”). It is proposed that the Trustee of the Trust will be
the Royal Trust Company of Canada (CI) Limited (the “Trustee”), a company incorporated and resident in Jersey. The Trust will be established to
enable the trustee to acquire three partially completed buildings (the “Buildings”) totalling some 350,000 sq.ft at the South Quay, Marsh Wall
Development which is situated in the Isle of Dogs (Docklands) Enterprise Zone (the Buildings together with their site are referred to as the
“Property”). The Trustee will hold the Property on Trust for the benefit of investors in the Trust (“the Investors”).
773
We are writing to seek your views on aspects of the Trust. In this letter, references to sections are to sections of the Capital Allowances Act
1990, unless otherwise stated.’
Paragraphs 1.1 to 1.6 of that letter contained a confused and non-sequential history of the South Quay development from 1 January 1989 until May
1992 and the letter then continued:
‘1.7 It is intended that during September 1993 SQL, acting by the Receiver, will contract to sell the Property, subject to and with the benefit of
the Newco lease, which is described further below, to the Trustee for £95 million (the completion of that contract being referred to as the “Sale”).
1.8 Prior to the Sale, SQL, acting by the Receiver, will borrow £10 million and will pay the proceeds to Wimpey to complete the work under the
Construction Contract and it will also grant Newco a 99 year lease in respect of the Property (the “Newco lease”). The Newco Lease will be
granted out of the 200 year lease. In consideration for Newco entering into the Newco Lease, the Receiver will pay Newco a reverse premium of
approximately £70 million. This payment together with repayment of the loan of £10 million will be funded by the receipt of the purchase
consideration on the Sale. Newco will be a company incorporated and managed and controlled in Jersey. The shares in Newco will be owned by
Matrix.’
Paragraph 1.10 set out some of the terms of the Newco lease, including payment of an annual rent of £5·7m for the first ten years and an option to the
trustee on or after the expiration of the tenth year of the Newco lease to require Newco to surrender the Newco lease and take a long lease at a nominal
rent for a premium of £64·125m. By para 1.16, when the investors decide to sell the property, Newco must surrender the Newco lease and pay a premium
of £64·125m for the grant of a long lease for 500 years at a nominal rent. That long lease and the freehold must then be sold to a purchaser and the price
paid by the purchaser is divisible as to 90% up to £34m and as to 50% of the proceeds in excess of that figure to the trustee and as to the balance to
Newco.
Paragraph 1.11 explained that Newco’s obligations under the Newco lease would be guaranteed by Hill Samuel. Paragraph 1.12 said that a facility
would be made available to investors whereby Hill Samuel would make ten-year loans of 67·5% of the purchase price of the units in the trust at a fixed
interest rate anticipated to be 9%. The loan would be secured by a charge on the investors’ units and thus on the rent payable by Newco under the Newco
lease and on the £64·125m premium payable by Newco on the surrender of that lease and the grant of a long lease. Paragraph 1.13 explained that Hill
Samuel would ‘sub-participate’ its loans to investors to Hill Samuel Bank Jersey Ltd, a wholly-owned subsidiary of Hill Samuel. The Jersey bank would
in turn ‘sub-participate’ them to Newco.
Paragraph 2 of the letter was entitled ‘Technical Issue’. Paragraph 2.1 said:
‘… we would expect the transaction to fall within Section 10A(9)(a) so that capital allowances would be available by reference to the net price
paid by the Trustee to SQL, i e £95 million less the disallowable land element.’
Preamble
Paragraph 2.2 said:
774
‘It has been suggested that Section 10A(9)(b) could apply to the Trustee’s purchase of the Buildings … [in which case] allowances would only
be available in respect of the price paid by SQL to WWL, i.e. £28 million.’
Paragraph 2.2 gave reasons why the applicant considered that s 10A(9)(b) did not apply. Paragraph 2.4 stated:
‘It is not considered that the existence of the Trustee’s rights to require a surrender of the Newco Lease and to grant a new lease to Newco will,
in any way, restrict the ability of Investors to obtain capital allowances. This is for two reasons: (a) those rights being incorporated in the Newco
Lease form part of the relevant interest purchased by the Investors so that, even if any price were properly attributable to those rights that price
would qualify for capital allowances; and (b) in any event, those rights have no significant value given the rental obligations under the Newco
Lease which mean that the monies which the Trustee can realise on exercise of those rights represent only the market value of the relevant interest.
We have, however, mentioned the point because we have seen a letter which raises a question about allowances where a put option (which raises
somewhat different issues) is granted.’
Paragraph 3 was entitled ‘Confirmations’ and was in these terms:
‘We should be most grateful if, on behalf of Matrix, the Trustee and the Investors, you would confirm that:
3.1 100% initial capital allowances will indeed be available to each Investor in respect of his share of the purchase price of £95 million to be
paid by the Trustee to SQL, less his share of the disallowable land element;
3.2 sums paid in respect of rents under the Newco Lease will constitute rental receipts (i e schedule A receipts from the letting of land as
detailed in Sections 15 and 355(4) of the Income and Corporation Taxes Act 1988); and
3.3 Investors will be entitled to claim interest relief, pursuant to Section 354 of the Income and Corporation Taxes Act 1988, in respect of the
interest payable by them on loans used to acquire their units.’
By a letter dated 27 July 1993 the inspector wrote to Theodore Goddard saying:
‘Your letter of 15 July refers

I confirm that the items numbered 3.1, 3.2, & 3.3 on page 5 of the above letter are agreed. The precise figures for capital allowances to be
agreed when the land element figures are to hand from the relevant valuer.’
On 19 August 1993 the applicant wrote to the receiver as follows:
‘Re South Quay

Further to your letter of 18th August 1993 inviting us to participate in a re-run of the “best and final offers” for the above, I write to set out our
improved offer. Matrix is in a position to proceed to a rapid completion of the purchase of the property for a net price payable to you of £8,000,000
(subject to contract) on the basis of this offer which will involve the series of transactions as described by us to your firm’s Tax Department … in
recent meetings … These transactions are necessary to preserve the tax allowances available on the buildings and would be required for any capital
allowance based tax scheme and will include the novation of the Wimpey 775 Construction Limited construction contract. These transactions
will not expose the Receivers to any additional liabilities. We do not believe that this price could be bettered … Matrix have evolved an enterprise
zone trust structure which … guarantees investors an immediate profit, and the prospect of further profits dependant on the long term performance
of the property … The Inland Revenue have confirmed that capital allowances will be available to investors on the basis of full disclosure to the
Revenue of the trust details including the loan back agreements and the put options implicit in the structure. This will ensure that investors can
participate without any tax risk. A leading bank has agreed to provide investors with non status loans and funding for investors will therefore be in
place … Matrix believe that there is an excellent opportunity to launch a trust of this nature in the Autumn of this year. You should be aware that
Matrix are in discussion to apply this structure to a number of other buildings. If South Quay is not the first trust launched of this nature, it is
unlikely that they will be able to repeat this offer. Matrix have a 100% success record in launching Enterprise Zone Trusts.’
On 9 September 1993 Theodore Goddard wrote to the inspector enclosing an advanced draft of an information memorandum which described and
advertised the Matrix South Quay Trust. The letter informed the inspector that the information memorandum ‘sets out the details of the proposed
structure, which you will see is in principal [sic] substantially the same as that envisaged in our earlier letter.’
The letter described seven changes which do not require comment save that in para 7 the inspector was asked to—
‘note that the Trust will now be entitled to 80% of the occupational rents throughout the lease which will be net of expenses and that the share
of proceeds as described in paragraph 1.15 in our letter will be 80% of all proceeds.’
The remaining 20% of the occupational rents and proceeds of sale will be enjoyed by the applicant.
The letter dated 9 September 1993 asked the inspector to confirm that the clearances given in his letter of 27 July were still valid in the light of the
information contained in the letter dated 9 September 1993 and the information memorandum and continued:
‘As mentioned to you, our clients intend to launch the Trust on Monday 13th September. You have however kindly agreed to provide us with a
response by Thursday 9th September.’
The letter dated 9 September 1993 and the information memorandum were delivered to the inspector on the morning of 9 September 1993 and the
following day he replied in writing as follows:
‘The various alterations now made to the draft exhibited to me in July do not affect the substance of my letter of 27 July so that the confirmation
given therein remain valid.’
Preamble
My Lords, Theodore Goddard should never have asked the inspector for a clearance. The letter dated 15 July 1993 was not finalised by a legal
executive or a senior partner but by leading counsel. The letter should have been directed to 776 the only authority qualified to deal with it, namely
the Financial Institutions Division of the Inland Revenue.
A clearance should not have been given either by the inspector or by the Financial Institutions Division. The 1990 Act provides that an initial
allowance shall be paid for actual expenditure and deemed expenditure. If leading counsel was unable to give an assurance, satisfactory to the applicant,
that the scheme described in the information memorandum involved relevant expenditure by the investors of £95m attracting an initial capital allowance
of £38m, the Revenue were neither bound nor entitled to express an opinion.
Nevertheless, a clearance was sought, a clearance was given in unequivocal terms by a representative of the Revenue who had been furnished with
the information memorandum and that clearance was acted and relied on by the applicant, which incurred considerable expenditure in launching the
scheme.
Soon after this appeal was opened and again during the course of the appeal, I asked Mr Goldberg QC, who had approved the terms of the letter from
Theodore Goddard to the inspector of taxes dated 15 July 1993, and who appeared for the applicant, whether paras 1.7, 2.1 and 3.1 of that letter were
correct and not misleading when they referred to the ‘purchase price of £95 million to be paid by the Trustee to SQL’. Mr Goldberg replied and
submitted that those statements were accurate and were not misleading. If they appeared accurate to Mr Goldberg, they must have appeared accurate to
the inspector. If the statements are in fact accurate and are not misleading then the Revenue should not be allowed to revoke the clearance contained in
the tax inspector’s letter dated 27 July 1993 and confirmed on 10 September 1993. If, on the other hand, the statements are materially inaccurate or
misleading, then the clearance may be revoked.
Under s 10A of the 1990 Act initial allowances are payable on the net price paid by a purchaser for the relevant interest. The letter dated 15 July
from Theodore Goddard to the inspector asserted that the price to be paid by the trustee for the relevant interest was £95m. On this basis the initial
allowance was £38m. The letter dated 19 August 1993 from the applicant to the receiver offered £8m for the relevant interest. On this basis the initial
allowances were £3·2m and if a further £10m were expended in completing the buildings there would be further initial allowances of £4m, making a total
of £7·2m recoverable from the Revenue. The result of this appeal depends on the resolution of the contradictions between the letter dated 15 July 1993
from Theodore Goddard to the inspector and the letter dated 19 August 1993 from the applicant to the receiver.
By the information memorandum, investors liable to pay income tax at the highest rate of 40% were invited to apply for units in the South Quay
Trust. The minimum application must be £25,000. The application must be accompanied by a cash payment of £325 for every £1,000 applied for. When
the trustee has received £30·875m in cash from investors in respect of applications for £95m of units, the trustee will purchase the South Quay
development.
The information memorandum offers 95 million South Quay Trust Units to investors. The investors are required to pay to the trustee £30·875m in
cash. That sum of £30·875m will be distributed as follows: (1) to the receiver £8m, he having conditionally accepted the offer made on 19 August 1993
to sell the interests of SQL in the South Quay development for that sum; (2) to Wimpey £10m to complete the construction of the buildings; (3) to Hill
Samuel £2·5m guarantee fee; (4) to the applicant £4·875m for stamp duty, commission and its 777 own fees and expenses; (5) the remaining £5·5m
will be paid to South Quay Properties Ltd (SQPL), that being the company to which the Newco lease will be granted; SQPL will in turn deposit that sum
of £5·5m with Hill Samuel (Jersey); this deposit is intended to discharge the rates and other outgoings of the development for the first ten years of the
Newco lease.
When the trustee has received £30·875m in cash from the investors, the trustee will be in a position to complete the purchase of the relevant interest
from the receiver. First, Hill Samuel will provide title to £64·125m, for example by banker’s draft and will hand that draft by way of loan to the trustee
on behalf of the investors. The trustee will pass the draft to the receiver with an additional sum out of the moneys actually paid by the investors. The
receiver will pass the draft for £64·125m to SQPL as a reverse premium on the grant of the Newco lease. SQPL will hand the draft by way of loan to Hill
Samuel Bank (Jersey) Ltd. Hill Samuel Bank (Jersey) Ltd will in turn pass the draft by way of loan to Hill Samuel, whence it came. The initial circle of
self-cancelling payments of £64·125m will have been completed. The conveyancing documents will be worded so that the receiver conveys the relevant
interest to the trustee for the sum of £95m subject to and with the benefit of the Newco lease which will be dated immediately before the conveyance.
Under the Newco lease, SQPL are due to pay a basic annual rent of £5·7m. The investors are due to pay interest of £5·7m on their loan. There will
be an annual ceremony at which Hill Samuel provide a draft for £5·7m. That draft will be handed by Hill Samuel to Hill Samuel (Jersey) in payment of
the interest due from Hill Samuel to Hill Samuel (Jersey) on its loan of £64·125m. Hill Samuel (Jersey) will hand the draft to SQPL in payment of the
interest due from Hill Samuel (Jersey) to SQPL on its loan of £64·125m. SQPL will hand the draft to the trustee in payment of the basic rent. The trustee
will return the draft to Hill Samuel, whence it came, in payment of the interest due from the investors to Hill Samuel on their loans of £64·125m. These
transactions will constitute an annual circle of self-cancelling payments of £5·7m so long as the Newco lease is allowed to continue by the trustee.
When the investors decide that the South Quay development shall be sold, the trustee will call for the surrender of the Newco lease and for the
payment by SQPL of a premium of £64·125m for the long lease. Hill Samuel will provide a draft for £64·125m and hand that draft to Hill Samuel
(Jersey) in repayment of the loan of that amount from Hill Samuel (Jersey) to Hill Samuel. The draft will be handed on by Hill Samuel (Jersey) to SQPL
in repayment of the loan from SQPL to Hill Samuel (Jersey) of £64·125m. SQPL will hand the draft to the trustee in payment of the premium of
£64·125m for the long lease. The trustee will return the banker’s draft to Hill Samuel, whence it came, in repayment of the investors’ loans of £64·125m.
These transactions constitute the final circle of self-cancelling payments.
The initial circle of payments must be played out in order that the investors may be able to claim initial allowances of £38m without spending £95m
on the purchase of the relevant interest. The annual circles of payments must be played out until the trustee considers that the time is ripe to sell the South
Quay development. This will take place after the development has been completed and after the offices in the buildings have been let on occupational
tenancies so that the development becomes saleable. Until the trustee is ready to sell the development, the circular annual payments must be played out in
order to 778 expunge the liabilities for rent and interest. The final circle of payments must be played out in order to expunge the loans and the
premium for the long lease.
The circular payments can be effected by a banker’s draft or without involving any title to any money. All that is required is that the appropriate
entries should be made in the accounts of the participants and it would not then be necessary for the participants to meet and hold hands. The playing out
of the circular payments is placed under the control of Hill Samuel by a guarantee. No one can break any circle and it is not in the interests of any
participant to try to break any circle. Under the express terms of the guarantee, Hill Samuel will guarantee payment of the basic rent payable under the
Newco lease by SQPL and will guarantee payment by SQPL of the premium of £64·125m payable on the grant of the long lease. Under the terms of the
guarantee, the basic rent and the £64·125m premium are assigned by the trustee to Hill Samuel so that Hill Samuel may be indemnified. Hill Samuel is
not liable to pay the basic rent under its guarantee unless it receives interest of the same amount from the investors. The investors’ units are charged to
Hill Samuel by way of security. Hill Samuel is appointed the attorney of the trustee and the investors to require the Newco lease to be surrendered and
the premium of £64·125m to be paid and received. In addition Hill Samuel is entitled to set off rent against interest.
After the final circle has been completed the trustee and SQPL will convey and assign the South Quay development to a purchaser in fee simple
Preamble
freed from the long lease. The purchase price will be divided as to 80% to the trustee for the investors and as to 20% to the applicant.
It is now possible to resolve the contradiction between the letter dated 15 July 1993 to the inspector which refers to a price of £95m for the relevant
interest and the letter dated 19 August 1993 to the receiver which refers to a price of £8m.
The price of £8m in the letter dated 19 August 1993 from the applicant to the receiver is the real price, being the consideration for the sale by the
receiver and the purchase by the trustee of the relevant interest, namely the freehold and the 200-year lease of the South Quay development and will be
expenditure on the relevant interest which entitles the investors to initial allowances of £3·2m. The price of £95m in the letter dated 15 July 1993 from
Theodore Goddard on behalf of the applicant to the inspector is the fiscal price, being a figure fixed by the applicant to enable the investors to claim a tax
advantage of £38m without expending £95m on the relevant interest. If the fiscal price had been fixed at less than £95m the claimed tax advantage would
have been less than £38m and the attraction of the scheme to investors on the look out for something for nothing would have been reduced. If the fiscal
price had been fixed at more than £95m, the attractions to the investors would have been increased but the chances of obtaining a clearance from the
inspector would have been reduced.
The fiscal price of £95m was fixed so that potential investors could be told by the information memorandum that if an investor invests £100,000 in
the trust he need only pay £32,500 and will receive within six months £39,200 by way of an initial allowance so that he will make an immediate capital
profit of £6,700 and in addition will be entitled to share with all the other investors in 80% of the occupation rents of the buildings when they are
completed and in 80% of the proceeds of sale of the South Quay development when the buildings are eventually sold. The sum of £64·125m required to
make up the fiscal price will never be paid but will be revolved by Hill Samuel and its subsidiary, by the trustee, the receiver and SQPL in such a manner
that each receipt is matched by 779 an equal and preordained immediate payment. The circular payments are self-cancelling.
The South Quay trust is a sophisticated tax avoidance scheme designed to plunder the Treasury of £38m initial allowances instead of allowances of
£3·2m for the purchase price and £4m for the Wimpey expenditure, making a total of £7·2m. The scheme is based on circular self-cancelling transactions
whereby the sum of £64·125m is bound to go round in a circle at the inception of the scheme, finishing where it starts. The sum of £5·7m is bound to go
round in a circle annually until the Newco lease is brought to an end by the trustee and that sum will finish where it starts. When the scheme is finally
wound up, £64·125m is bound to go round in a reverse circle finishing where it starts.
The South Quay trust is a tax avoidance scheme because it aims to produce fiscal expenditure of £95m and a real expenditure of only £18m (see IR
Comr v Challenge Corp Ltd [1986] STC 548 at 555, [1987] AC 155 at 168). The courts have long since insisted that fiscal consequences correspond to
real consequences.
Every tax avoidance scheme involves a trick and a pretence. It is the task of the Revenue to unravel the trick and the duty of the court to ignore the
pretence. In the present case the principal trick employed consisted of circular self-cancelling payments of £64·125m. The pretence was that the
investors were expending £64·125m. The trick of circular, self-cancelling payments with matching receipts and payments was rejected in each of the
following cases: Black Nominees Ltd v Nicol (Inspector of Taxes) [1975] STC 372, W T Ramsay Ltd v IRC [1981] 1 All ER 865, [1982] AC 300 (see also
[1979] 3 All ER 213 at 214–215, [1979] 1 WLR 974 at 979), Eilbeck (Inspector of Taxes) v Rawling [1981] 1 All ER 865, [1982] AC 300 (see also [1980]
2 All ER 12 at 21), IRC v Burmah Oil Co Ltd [1982] STC 30, Moodie v IRC [1993] 2 All ER 49, [1993] 1 WLR 266 and Ensign Tankers (Leasing) Ltd v
Stokes (Inspector of Taxes) [1992] 2 All ER 275, [1992] 1 AC 655.
In Fitzwilliam v IRC [1993] 3 All ER 184, [1993] 1 WLR 1189 the majority failed to take into account the nature and effect of the transaction
regarded as a whole.
The authorities disclose that unacceptable tax avoidance schemes exhibit several similar or identical characteristics. A scheme may of course include
embellishments designed to avoid the mistakes of earlier schemes. It is a common characteristic of a scheme that, considered as a whole, the results
claimed are too good to be true. The applicant claims that if top rate taxpayers invest £30·875m they will immediately receive a return of £38m from the
Revenue and an 80% interest in the South Quay development which may ultimately be very valuable indeed. It is a common characteristic that some
steps in the scheme are preordained though not necessarily contractual. According to Mr Goldberg the Matrix scheme avoids the mistake made in the
Ensign Tankers case, where there was no recourse by a lender to a borrower; Hill Samuel are expressly accorded a right of recourse against the investors
and therefore, he argues, the steps are not preordained. But in reality recourse to the investors will never be made. Title to the money circulated will be
produced by Hill Samuel only for the purpose of steps which ensure that in practice the money will come back to Hill Samuel immediately. A scheme
may include the achievement of a commercial purpose; the South Quay development will be vested in the trustee and the investors will pay £30·875m.
But some steps in the scheme have no commercial purpose; they are only included in order to obtain a tax advantage. In the real world Hill Samuel would
not lend and borrow £64·125m on the terms and in the manner provided by the 780 scheme. These transactions only have the purpose of
manufacturing a tax advantage. The Matrix scheme also contains the familiar feature that out of the real money engendered by the scheme, in this case
£30·875m, large sums of costs, charges and fees are siphoned off to the organisers of the scheme, its associates and its legal advisers. Hill Samuel will
receive £2·5m without running a risk or incurring expenditure. The applicant will receive £4·875m to meet its own costs and charges and the professional
fees charged by its solicitors and counsel. In addition the applicant will receive 20% of the South Quay development, which may ultimately be worth
£100m or more.
Once a tax avoidance scheme has been identified, the scheme must be construed as a whole and the taxing statute must be applied to the results in
fact achieved by the scheme. Applying the 1990 Act, the Matrix scheme as a whole will result in relevant actual expenditure of £10m and relevant
deemed expenditure of £8m. The claim to initial tax allowances of £38m based on a pretended expenditure of £95m must fail. The letter dated 15 July
1993 was inaccurate and misleading. The Revenue are therefore entitled to withdraw the clearance obtained as a result of that letter and the appeal must
be dismissed. The applicant must pay the costs of the Revenue of these proceedings and before the House.
LORD GRIFFITHS. In this case a local tax inspector made a bad mistake. He gave clearance to a scheme proposed by Matrix-Securities Ltd (the
applicant) which my noble and learned friend Lord Templeman has exposed as a manifestly impermissible tax avoidance scheme. Although the letter of
15 July 1993 in which the applicant puts the scheme to the inspector was not expressed as clearly as it might have been, I have no doubt that if the
inspector had read it carefully he would have realised either that it was a tax avoidance scheme or at the very least it should be considered by the
specialist division of the Revenue before clearance was given. In either case he should not have given his clearance.
The scheme involved a valuable put option. The applicant knew that the specialist division was not prepared to approve such schemes and I agree
with my noble and learned friend Lord Browne-Wilkinson that in these circumstances the applicant should have put the scheme to the specialist division
and was not entitled to rely on the clearance of the local tax inspector. I would therefore dismiss this appeal for the reasons given more fully in the speech
of Lord Browne-Wilkinson, with which I agree.
I wish, however, to add a few words of a more general nature to the issue that has arisen in the appeal. It is part of the human condition that people
will make mistakes, but they must not be held to mistaken decisions if the mistake is discovered in time to take effective remedial action. In the present
case the specialist unit discovered the mistake made by their tax inspector and gave immediate notice to the applicant that they could not approve the
scheme before any money had been invested by the public in the scheme. In these circumstances even if the inspector had been the right person to submit
the scheme to in the first instance, and even if the scheme had been clearly set out, it would be wholly wrong to hold the Revenue to the mistaken
clearance and allow the scheme to go ahead at a cost of some £38m of lost revenue to the national exchequer. It is one thing to hold the Revenue to a
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clearance that has been acted on in good faith, but quite another to permit the correction of an error before it has been acted on.
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If, however, the applicant had been entitled to rely on the clearance given by the inspector and had spent money in promoting the scheme before the
clearance was withdrawn, then it seems to me that fairness demands that the applicant should be reimbursed for this out-of-pocket expense and it could be
regarded as an abuse of power for the Revenue to refuse to do so. This point does not have to be decided in this appeal but I mention it because this
aspect of the argument only surfaced towards the end of the hearing and the Revenue strenuously resisted any liability to compensate the applicant in such
circumstances.
LORD JAUNCEY OF TULLICHETTLE. My Lords, the issue in this appeal is whether the Revenue are entitled to revoke tax clearances given to the
applicant by a local tax inspector in respect of a proposed enterprise zone property unit trust of which the applicant was the sponsor. The clearances
related to the eligibility of unit holders to receive a 100% initial allowance under the Capital Allowances Act 1990 in respect of expenditure on buildings
forming the proposed trust property.
The relevant history of the proposed trust property which consisted of land at South Quay, Marsh Wall Development, in the Isle of Dogs (Docklands)
Enterprise Zone is summarised in the speech of my noble and learned friend Lord Templeman, which summary I gratefully adopt. The applicant had
sponsored other enterprise zone property unit trusts (EZPTs) in Swansea and Dudley in the early part of 1993 and in the early summer of 1993 it became
interested in the purchase of SQL’s interest in the trust property. To this end it approached the receiver of SQL and by letter of 19 August 1993 offered it
the net sum of £8m for the purchase of South Quay, stating that the offer would involve a series of transactions which were ‘necessary to preserve the tax
allowances available on the buildings and would be required for any capital allowance based tax scheme’. The word ‘preserve’, as will become apparent,
was somewhat of a euphemism. In the meantime, the applicant and its legal advisers had been devising a scheme which it was hoped would be attractive
to investors and would also satisfy the Revenue as to its eligibility for 100% capital allowances on the price paid for the property, a price which in the
scheme far exceeded the £8m referred to in the letter of 19 August 1993. Without eligibility for such capital allowances the scheme would have little or
no attraction for the investing public.
The scheme which was produced may be summarised as follows.
(1) The trustee, Sun Alliance Trust Co (Jersey) Ltd (in place of Royal Trust Co of Canada (CI) Ltd as originally proposed), was to purchase a
leasehold interest in South Quay for 198 years from the receiver of SQL for the sum of £95m.
(2) This sum was to be subscribed by higher rate taxpaying investors who, with a minimum individual investment of £25,000, would themselves pay
over £30·875m and would borrow the remaining £64·125m from Hill Samuel Bank Ltd (Hill Samuel). The loans would be non-status with full recourse
for ten years at a fixed interest rate of 9% and the bank would have a charge over the investors’ units. The annual interest would amount to approximately
£5·7m.
(3) The receiver would grant to South Quay Properties Ltd (SQPL, alias Newco) a sub-lease for 99 years with an annual rent of £5·7m for the first
ten years plus a percentage of any occupational rent received from sub-tenants and at a reverse premium of £72·125m. The receiver would also borrow
£10m and 782 would pay that sum to Wimpey to complete the building contract. On receipt of the £95m from the trustee, the receiver would repay
the loan of £10m, and would pay the reverse premium of £72·125m. It would also pay £4·875m to the applicant as a fee to include stamp duty and
expenses, retaining in its own hands only £8m. SQPL (Newco) is a Jersey company wholly owned by the applicant.
(4) The loans by Hill Samuel to the investors would be sub-participated to Hill Samuel Bank (Jersey) Ltd, which would in turn sub-participate them
to Newco. Therefore, on receipt of the £72·125m reverse premium Newco would lend £64·125m to Hill Samuel (Jersey) Ltd, who would in turn lend it
back to Hill Samuel. Newco would deal with the remaining £8m by placing £5·5m on deposit with Hill Samuel (Jersey) and by paying £2·5m to Hill
Samuel in respect of a guarantee of Newco’s obligations under the 99-year lease.
(5) Rent of £5·7m was to be paid under the 99-year lease by Newco to the trustee, which rent was payable to the investors. However, as the
investors’ units were charged to Hill Samuel, the bank would use the rents to meet the interest payments of £5·7m which were due to the bank in respect
of the loans to the investors.
(6) Intended as one of the attractions of the scheme were the ‘exit arrangements’ which were embodied in the 99-year lease. It was provided that
after a period of ten years, or earlier, in certain circumstances the trustee could require Newco to take a long sub-lease carved out of the 198-year lease for
a premium of £64·125m payable by Newco to the trustee, together with a nominal rent. This premium would then be used to repay to Hill Samuel the
loans to the investor. Hill Samuel would repay to Hill Samuel (Jersey) Ltd its loan of £64·125m and Hill Samuel (Jersey) Ltd would, in turn, repay to
Newco the loan of that sum which Newco had made out of the reverse premium received in respect of the lease. In the event of a sale by Newco of its
interest under either the 99-year lease or any longer lease which it had been required to take under the exit arrangements, 80% of the net proceeds of any
such sale should be paid to the trustees for behoof of the investors. Hill Samuel’s guarantee of Newco’s obligations under the 99-year lease referred to in
para 4 above extended both to payment of rent and to the payment of the premium of £64·125m if and when required.
The practical effect of the matters hereinbefore summarised would be: (1) for every £1,000 nominally invested by him in the scheme, an investor
would have put up £325 and received back within a matter of months a tax-free sum of £392 being 40% of £1,000 less a land element thereof amounting
to 2%; (2) he would almost certainly have no call made on him or his estate in respect of his loan from Hill Samuel; and (3) he would have the prospect of
participating in any occupational rents payable to Newco as sub-lessors and in any profitable sale of the trust property.
To suggest therefore that the maximisation of tax allowances for the benefit of individual investors was not a primary object of the scheme would be
naive, but that is not the primary question in this appeal. In obtaining Revenue clearances for the Swansea EZPT, whose characteristics differed in some
respect from those in the South Quay Trust, the applicant, through its solicitors, Messrs Theodore Goddard, wrote to Mr George Fairley, its local
inspector of taxes for the Piccadilly District of London, on 23 February 1993, setting out the details of the scheme and enclosing a brochure. It asked for
confirmation that:
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‘3.1 The proposed Trust will be a qualifying Enterprise Zone Property Scheme in accordance with Statutory Instrument 1988, No 267 [the
Income Tax (Definition of Unit Trust Scheme) Regulations 1988];
‘3.2 Claims for 100% initial allowances may be made in respect of the full sum of £4·4m paid in consideration for the grant of the 125 year
Lease other than the part of the consideration which relates to the land element.
‘3.3 The sums paid in respect of rents under the proposed leases (and if necessary, bank guarantees) will constitute Schedule A receipts from the
letting of the land, as detailed in Sections 15 and 355(4) Taxes Act 1988 …’
By letter of 26 February 1993 Mr Fairley replied as follows:
‘I refer to your faxed letter of 23 February and to our subsequent telephone conversation. You have asked for three confirmations:
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3.1 This matter is being handled centrally by my Head Office. I have submitted the papers and await a response.
3.2 3.3 On both of these I can confirm the position provided of course that the final arrangements do not differ from those contained in the draft
proposals.’
Mr Fairley reconfirmed the matter by a faxed letter of 5 March 1993.

In the case of the Dudley EZPT, Theodore Goddard, by letter of 15 March similar to that of 23 February (above), sought confirmation that 100%
initial allowances might be made in respect of the purchase price of the property less the land element. This confirmation was forthcoming on the same
day.
On 6 May 1993 an officer of the Financial Institutions Division of the Revenue wrote to the chairman of the Enterprise Zone Property Unit Trust
Association in the following, inter alia, terms:
‘We have had further enquiries from some of your members about this and so I thought it would be as well to restate our position. Our view
remains that a unit trust scheme acquiring property which includes a put option may not satisfy the test in Regulation 4(2) of the 1988 Regulations
[the Income Tax (Definition of a Unit Trust Scheme) Regulations 1988, SI 1988/267]. Furthermore, we also have doubts that expenditure on a put
option qualifies for relief under Section 1 Capital Allowances Act 1990.
This is the view we seek to apply consistently in this area. We are aware, however, of a recent instance where assurances were given locally
which conflict with that view. We felt bound by those assurances in the circumstances of that particular case, but will continue to apply the law as
we see it in other cases.’
The contents of this letter were known to the applicant and its advisers prior to its approach to the Revenue in relation to the South Quay Trust scheme.
On 15 July 1993 Theodore Goddard sent to Mr Fairley, the local inspector of taxes, a letter extending to some five pages, which had been settled by
senior counsel, seeking his view on an aspect of the proposed scheme. The relevant passages in that letter are set out in the speech of my noble and
learned friend Lord Templeman and it is therefore necessary for me neither to repeat them nor to set out the terms of Mr Fairley’s manuscript reply of 27
July 1993, which is also set out in the speech of my noble and learned friend. I would only add that a concluding sentence of the letter of 15 July was in
the following terms: ‘We enclose a spare copy of this letter in case you wish to refer any matter of this letter to your specialists.’ On 9 September 1993
Theodore Goddard again wrote 784 to Mr Fairley enclosing an advance draft of the information memorandum which the applicant intended to send to
potential investors. The letter which was delivered by hand early on the morning of 9 September sought confirmation on the same day that the clearance
given to Mr Fairley’s letter of 27 July 1993 was still valid. At about 3 p m on that date Mr Fairley telephoned to say that the confirmation remained valid,
which message was confirmed by letter of 10 September. Once again, the relevant parts of the letter of 9 September and the information memorandum
are set out in the speech of my noble and learned friend, and I gratefully adopt his account thereof. It will, however, be noted that neither in that letter nor
in the memorandum was there any reference to the offer by the applicant of 19 August 1993 to purchase the property at South Quay for £8m. Thereafter,
in the light of the two confirmations given by Mr Fairley, the applicant proceeded to implement the scheme and incurred expense of approximately £1m.
On 8 October 1993 Mr M Templeman, the director of the Revenue’s Financial Institutions Division, wrote to Theodore Goddard in the following
terms:
‘Dear Sirs,
Matrix South Quay Trust
1. We have recently noticed press reports about the Matrix South Quay Trust and we have considered the letter of 15 July 1993 which you
wrote to the Inspector at Piccadilly District. We have also considered carefully the reply he sent you on 27 July 1993 and we have concluded that,
on the facts available, he should not have given you assurances in the terms he did. We think that we should take the first opportunity of letting you
know that the Board cannot undertake not to challenge certain aspects of the scheme if it proceeds.
2. There are three main reasons why we think the Inspector was wrong to give those assurances.
3. First, it appears to us that investors will not incur expenditure for capital allowances purposes to the extent that their investments are funded
by the Hill Samuel loan facility. In substance these loans may fall within the scope of the decision of the House of Lords in Ensign Tankers
(Leasing) Ltd v Stokes.
4. Second, we believe that the guaranteed exit right amount to a valuable separate right and expenditure attributable to this right will not qualify
for allowances.
5. Third, on section 10A CAA 1990, we think that neither of the alternative views of subsection (9) put forward in your letter are correct.
Where there is more than one sale by a developer or builder in the course of his trade we think that section 10A(9) has to be applied twice. Section
10A(9)(a) will apply to the first sale and section 10A(9)(b) will apply to the second. That is, the allowances on the purchase from the second
developer will be dealt with as follows: 1. to the extent that the purchase price is attributable to the construction expenditure incurred by the second
developer, section 10A(9)(a) will apply because this is the first sale of that part of the building; subject to other considerations, including the points
mentioned earlier, capital allowances are available to the purchaser on the full amount of the purchase price attributable to that part of the building;
2. to the extent that the purchase price is attributable to the construction expenditure incurred by the first developer, section 10A(9)(b) will apply
because this is the second sale of that part of the building. The allowances 785 available to the purchaser (again, subject to other
considerations) are therefore limited to the lower of the price paid on the sale of its relevant interest by the first developer and the part of the price
paid by the purchaser which is attributable to that part of the building.’
On 13 October the applicant sought judicial review of the decision in the letter of 8 October to revoke the clearances in the letters of 15 July and 9
September. On 21 October Laws J refused the application and on 1 November the applicant’s appeal was dismissed by a majority of the Court of Appeal
(Dillon and Nolan LJJ (Roch LJ dissenting)) (see [1993] STC 774).
In his affidavit Mr Fairley stated that he knew that he had no authority to approve the scheme, which was a matter for head office. He disclosed that
he had not paid much attention to the details in paras 1 and 2 of the letter of 15 July since he regarded this as the province of the head office specialists.
However, he forgot to send the papers to head office. He further stated that he did not consider at all the memorandum sent with the letter of 9 September
and, once again, forgot to send the papers to head office. Notwithstanding these remarkable revelations, Mr Fairley proffered no comprehensible
explanation as to why he had given the clearances in his letter of 27 July.
I turn now to the law applicable to this appeal, which raises, first, the issue of whether the conduct of the Revenue in seeking to revoke the
clearances constituted unfairness amounting to abuse of power and, second, the general applicability of the 1990 Act to the scheme.
In Preston v IRC [1985] 2 All ER 327 at 339, [1985] AC 835 at 864, in which the circumstances were very different from those of the present appeal,
Lord Templeman said:
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‘The court can only intervene by judicial review to direct the commissioners to abstain from performing their statutory duties or from exercising
their statutory powers if the court is satisfied that “the unfairness” of which the applicant complains renders the insistence by the commissioners on
performing their duties or exercising their powers an abuse of power by the commissioners.’
He said ([1985] 2 All ER 327 at 341, [1985] AC 835 at 866–867):
‘In principle I see no reason why the taxpayer should not be entitled to judicial review of a decision taken by the commissioners if that decision
is unfair to the taxpayer because the conduct of the commissioners is equivalent to a breach of contract or a breach of representation. Such a
decision falls within the ambit of an abuse of power for which in the present case judicial review is the sole remedy and an appropriate remedy.
There may be cases in which conduct which savours of breach of [contract] or breach of representation does not constitute an abuse of power; there
may be circumstances in which the court in its discretion might not grant relief by judicial review notwithstanding conduct which savours of breach
of contract or breach of representation. In the present case, however, I consider that the taxpayer is entitled to relief by way of judicial review for
“unfairness” amounting to abuse of power if the commissioners have been guilty of conduct equivalent to a breach of contract or breach of
representations on their part.’
786
And Lord Templeman continued ([1985] 2 All ER 327 at 341, [1985] AC 835 at 867):
‘The inhibitory effect which the inspector’s letter of 21 July 1978 would, or might, have had on future Revenue action was lost to the taxpayer
by the fact that [his letter] did not contain the full disclosure which the inspector had the right to expect and on which he plainly relied.’
I take from these passages (i) that the court may properly review a decision of the Revenue to exercise their statutory powers if the decision is so
unfair as to amount to an abuse of power, although the court has a discretion to refuse relief even if such decision does savour of such abuse, and (ii) that
a breach of representation by the Revenue will not amount to an abuse of power if full disclosure of all relevant material had not been made by the
taxpayer prior to the making of the representation.
In R v Board of Inland Revenue, ex p MFK Underwriting Agencies Ltd [1990] 1 All ER 91 at 110, [1990] 1 WLR 1545 at 1569 Bingham LJ, after
referring to the publication by the Revenue to the world of a formal statement, said:
‘But where the approach to the Revenue is of a less formal nature a more detailed inquiry is, in my view, necessary. If it is to be successfully
said that as a result of such an approach the Revenue have agreed to forgo, or has represented that it will forgo, tax which might arguably be
payable on a proper construction of the relevant legislation it would, in my judgment, be ordinarily necessary for the taxpayer to show that certain
conditions had been fulfilled. I say “ordinarily” to allow for the exceptional case where different rules might be appropriate, but the necessity in my
view exists here. First, it is necessary that the taxpayer should have put all his cards face upwards on the table. This means that he must give full
details of the specific transaction on which he seeks the Revenue’s ruling, unless it is the same as an earlier transaction on which a ruling has
already been given.’
My Lords, I have no doubt that Bingham LJ was absolutely correct in stating that in the circumstances posited the taxpayer must put all his cards face
upwards on the table. I have equally no doubt that this is the sort of case which Bingham LJ had in mind. However, before considering whether the
applicant had done what was required of it, it is necessary to look at the relevant provisions of the Capital Allowances Act 1990 as amended.
Section 1(1) of the 1990 Act provides that when a person incurs capital expenditure on the construction of a building in an enterprise zone to be
occupied for the purposes of a trade carried on by him or by a lessee he shall receive an initial allowance equal to 100% of the amount of that expenditure
for the relevant chargeable period.
Section 10A covers the situation where expenditure has been incurred on the construction of a building but before that building is used the relevant
interest in it is sold. Subsection (2) provides:
‘Where this section applies—(a) the actual expenditure shall be left out of account for the purposes of sections 1 to 8, but (b) subject to
subsection (8) below, the person who buys the relevant interest shall be deemed for those purposes to have incurred, on the date when the purchase
price becomes payable, expenditure on the construction of the building or structure 787 (deemed expenditure) equal to the actual expenditure or
to the net price paid by him for that interest, whichever is the less.’
Pausing here, it would appear that the allowances available under sub-s (2)(b) could not exceed the actual expenditure incurred but might be less if
the net price paid for the relevant interest was less than that actual expenditure. Subsection (9) deals with a situation where the seller of the relevant
interest had incurred the expenditure in the course of the trade of constructing buildings for sale and sells the building in the course of the trade before it is
used. Subsection (9)(a) and (b) is in the following terms:
‘(a) if that sale is the only sale of the relevant interest before the building or structure is used, paragraph (b) of subsection (2) above shall have
effect as if the words “the actual expenditure or to” and “whichever is the less” were omitted; and (b) in any other case, that paragraph shall have
effect as if the reference to the actual expenditure were a reference to the price paid on that sale.’
In terms of para (a) of this subsection, it would appear that it might be possible to obtain an allowance which exceeded the actual expenditure on the
construction of a building provided that the net price paid for the relevant interest exceeded that sum. However, it is abundantly clear from these
provisions that capital allowances are to be made only in respect of real expenditure or real purchase prices paid for the relevant interest.
‘Relevant interest’ is defined in s 20(1) as follows:
‘Subject to the provisions of this section, in this Part, “the relevant interest” means, in relation to any expenditure incurred on the construction
of a building or structure, the interest in that building or structure to which the person who incurred the expenditure was entitled when he incurred
it.’
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Laws J considered that the applicant failed to make full disclosure inasmuch as it neither sent to Mr Fairley a copy of the letter of 6 May 1993 from
the Financial Institutions Division, nor informed him specifically that there might be a question as to whether the scheme involved a put option element.
Further, the applicant failed to mention the £8m agreed as the price of SQL’s interest and it should have put the matter to the Financial Institutions
Division given, in particular, the put option element in the scheme. In the Court of Appeal Dillon LJ concluded that the fact that the applicant had
approached the inspector rather than the Financial Institution’s Division did not of itself justify the Revenue in revoking Mr Fairley’s assurances.
However, he concluded that the sum of £8m to be kept by the receiver should have been disclosed to the Revenue at least by 9 September and that cl 3.1
of the letter of 15 July did not indicate that the correctness of the £95m was at the heart of the problem. Nolan LJ considered that Ensign Tankers
(Leasing) Ltd v Stokes (Inspector of Taxes) [1992] 2 All ER 275, [1992] 1 AC 655 should have been referred to in the letter of 15 July and that the sum of
£8m to be retained by the receiver should have been disclosed in the letter of 9 September. I should add that the Revenue have all along accepted both in
the courts below and in this House that the applicant has throughout acted in good faith.
Before this House, Mr Goldberg QC, for the applicant, argued that there had been full disclosure. He developed this argument by detailed references
to the two letters and memorandum of information sent to Mr Fairley and relied in 788 particular on the fact that Mr Templeman had no difficulty in
concluding from this information that the scheme gave rise to problems. The clearances therefore resulted not from non-disclosure on the part of the
applicant but from the incompetence of Mr Fairley. There is clearly force in this argument in view of the terms of Mr Templeman’s letter of 8 October
1993. However, I do not consider that it necessarily follows that full disclosure had been made because sufficient information was disclosed to enable
inferences to be drawn therefrom.
In para 2.1 of the letter of 15 July 1993 Theodore Goddard stated their expectation that the trustee’s purchase of the buildings would fall within s
10A(9)(a), so that capital allowances would be available by reference to the net price of £95m less the small disallowable land element. Paragraphs 1.7
and 1.8 of the above letter stated that the receiver of SQL, after borrowing £10m to pay Wimpey to complete the work under the construction contract and
granting to Newco a 99-year lease, would sell the property to the trustee for £95m paying out of said sum the £10m loan and the reverse premium of
£70m, or thereby. One does not need to be a mathematical genius to infer from these paragraphs that the receiver would ultimately be left with no more
than £15m. How then is the figure of £95m payable to the receiver in terms of the scheme to be reconciled with the applicant’s offer to it of £8m?
Neither the letter of 9 September 1993 nor the accompanying memorandum of information attempts to answer this question.
My Lords, the figure by reference to which a capital allowance is available under s 10A(9)(a) is the net price paid for the relevant interest which, by
virtue of s 20, means the interest in the building to which the person who incurs the expenditure was entitled when (the emphasis is mine) he incurred it.
In this case that would have been the interest of SQL as freeholders and under the 200-year lease before the receiver granted the 99-year Newco lease. It
would appear that it was for that interest that the applicant was prepared to pay £8m. In determining what was the net price by reference to which any
allowance would be available the Revenue would, in the present case, require not only to have regard to the figure of £95m but also to consider whether,
and if so to what extent, that sum was properly attributable to the relevant interest. The fact that the applicant was prepared to purchase the receiver’s
interest in the property for £8m would have been a vital piece of information to the Revenue in performing the latter exercise. It is, of course, of arguable
force that it should have been apparent from the terms of para 1.8 of the letter of 15 July to anyone who had bothered to read the definition of ‘relevant
interest’ in s 20 that the price paid therefor could not possibly include the reverse premium payable for the Newco lease—a transaction which could not
affect the nature of SQL’s interest in South Quay at the prior time when it incurred the relevant expenditure and indeed a transaction which would have
produced precisely the same legal effect as between the trustee and Newco had the trustees granted the lease and paid the reverse premium after it had
acquired the leasehold interest in South Quay. However, that, to my mind, did not constitute full disclosure. As Bingham LJ said in R v Board of Inland
Revenue, ex p MFK Underwriting Agencies Ltd [1990] 1 All ER 91 at 110, [1990] 1 WLR 1545 at 1569: ‘… it is necessary that the taxpayer should have
put all his cards face upwards on the table.’ The proposed sale by the receiver of the property for £8m was a card of critical importance in the exercise
which the applicant asked the Revenue to carry out and was never placed on the table. For this reason alone I would dismiss this appeal.
789
There are, however, three further matters which I should like to mention. I agree with Laws J that a copy of the letter of 6 May 1993 from the
Financial Institutions Division should have been sent to Mr Fairley with the letter of 15 July. Paragraph 2.4 of the letter merely states: ‘… we have seen a
letter which raises a question about allowances where a put option (which raises somewhat different issues) is granted.’ If the writer of para 2.4 thought
that it was a matter of sufficient importance to mention the unidentified letter then I consider that he should have gone on to draw the attention of Mr
Fairley to the contents thereof.
There was some argument to the effect that the letter of 15 July should, having regard to the terms of the letter of 6 May, have been sent to the
Financial Institutions Division at Head Office and not to the local tax inspector. Had there been evidence to suggest that Mr Fairley was known to the
applicant prior to 15 July to be incompetent and suffering apparently from a degree of amnesia, it may well be that disclosure to him might per se have
failed to constitute full disclosure. However, there was no such evidence. The letter of 15 July enclosed a copy for reference to specialists, if required,
and I consider that the applicant at that date was entitled to assume that Mr Fairley was a reasonably competent inspector of taxes who would refer any
matter which was beyond his competence or authority to those officers of the Revenue who had the necessary skills and powers.
However, the letter of 6 May 1993 is important inasmuch as it expresses doubts as to whether expenditure on a put option qualifies for relief under s
1 of the 1990 Act and warns that in the future the Financial Institutions Division will continue to apply the law as they see it. Notwithstanding the
foregoing warning the applicant chose to proceed with a scheme which included a put option and on the basis of a clearance which did not bear to have
been given with the authority of the Financial Institutions Division. It cannot now complain that revocation of such a clearance would be unfair to it.
It is of great advantage to taxpayers and their advisers that the Revenue should continue to implement the practice described in their statement of 18
October 1990 to ‘continue where practical to inform practitioners of the Revenue’s interpretation of tax law as it applies to any case which falls within the
responsibility of their office’ (see Memorandum TR 818 of the Institute of Chartered Accountants in England and Wales). Advance Revenue clearance is
no doubt critical for large numbers of financial and insurance schemes which are promoted. It is, however, equally important that when clearance is
sought for such schemes the Revenue should not be put under undue pressure to give an answer by return. In the present case, the letter of 9 September
with its accompanying memorandum of information required an answer the same day. I have grave doubts whether that requirement was in the
circumstances reasonable. In my view, the Revenue when asked for clearances or other views should never feel pressurised by importunate taxpayers or
their prestigious advisers. Rather should they take such time as is reasonably necessary for them to give full consideration to the problems placed before
them. Taxpayers and their advisers should appreciate this when asking the Revenue for their view.
My Lords, I do not find it necessary to consider the various authorities dealing with tax avoidance and circular payments. I am content to dismiss
this appeal on the simple ground that a piece of information essential to the deliberations required of the Revenue by the taxpayer was not furnished to
790 them and that accordingly there would be no unfairness to the applicant in revoking the clearances of Mr Fairley.
LORD BROWNE-WILKINSON. My Lords, the only issue in this appeal is whether the Revenue are prevented by their conduct from alleging that a
scheme promoted by Matrix-Securities Ltd (the applicant) gives rise to tax consequences less favourable to participants in the scheme than were indicated
Preamble
in two letters from the Revenue. Your Lordships are not concerned to consider the actual consequences for tax purposes which the proposed scheme
would have given rise to if implemented.
It is the statutory function of the Revenue to collect the taxes which Parliament has legislated are to be payable. The tax liability which any given
transaction attracts can only be determined by the courts after the transaction has been carried through. But the financial viability of many transactions
depends on its tax repercussions. Therefore taxpayers frequently need to know the tax consequences of a transaction before carrying it through. To meet
this need, the Revenue are prepared in certain circumstances to give advance assurances as to the tax repercussions of a transaction so that the parties can
proceed with confidence. This practice is of the greatest benefit to taxpayers and it would not be in the public interest to discontinue it.
It is now established that, in certain circumstances, it is an abuse of power for the Revenue to seek to extract tax contrary to an advance clearance
given by the Revenue. In such circumstances, the taxpayers can by way of judicial review apply for an order preventing the Revenue from seeking to
enforce the tax legislation in a sense contrary to the assurance given (see Preston v IRC [1985] 2 All ER 327, [1985] AC 835). But the courts can only
restrain the Revenue from carrying out their duties to enforce taxation obligations imposed by legislation where the assurances given by the Revenue
make it unfair to contend for a different tax consequence, as a result of which unfairness the exercise of their statutory powers by the Revenue would
constitute an abuse of power (see [1985] 2 All ER 327 at 339, [1985] AC 835 at 864 per Lord Templeman). It is further established that if the taxpayer, in
seeking advance clearance, has not made a full disclosure of the relevant circumstances, the Revenue are not acting unfairly, and therefore are not abusing
their powers, if they go back on an advance clearance which they have only given in ignorance of all the relevant circumstances (see [1985] 2 All ER 327
at 341, [1985] AC 835 at 867 per Lord Templeman and R v Board of Inland Revenue, ex p MFK Underwriting Agencies Ltd [1990] 1 All ER 91, [1990] 1
WLR 1545).
In my judgment a failure by the taxpayer to make full disclosure of the material circumstances is not the only case in which, notwithstanding that the
Revenue have given an assurance, it will be no abuse of power for the Revenue to go back on the assurance given. Many of the transactions on which
advance clearance is sought are extremely complex, both factually and legally. If the Revenue have made it known that in particular categories of
transaction advance clearance can only be given effectively at a particular level and clearance is not obtained from that level, there is in my judgment no
abuse of power if the Revenue seek to extract tax on a basis different from that contained in the assurance. If the taxpayer either knows or (by reason of
Revenue circulars) ought to have known that a binding clearance can only be obtained in a particular way and a purported clearance has been obtained in
a different way, there is nothing unfair if the Revenue say that the purported clearance (being to 791 the knowledge of the taxpayer given without
authority) is of no effect and does not bind them.
In my view this consideration, by itself, is sufficient to dispose of this appeal. Enterprise zone property unit trusts (such as the Matrix scheme in the
present case) involve extremely complex documentation, the tax repercussions of which are regulated by intricate fiscal legislation. In the present
scheme, there was included a ‘put option’, viz ‘the exit arrangements’ summarised in the speech of my noble and learned friend Lord Jauncey. In earlier
drafts of the scheme the exit arrangements were defined as a put option. Before any clearance was sought by the applicant or its solicitors in relation to
the present scheme, it was aware of the letter dated 6 May 1993 from the Financial Institutions Division of the Inland Revenue to the chairman of the
Enterprise Zone Property Unit Trust Association, which reads as follows:
‘We have had further enquiries from some of your members about this and so I thought it would be as well to restate our position. Our view
remains that a unit trust scheme acquiring property which includes a put option may not satisfy the test in Regulation 4(2) of the 1988 Regulations
[the Income Tax (Definition of Unit Trust Scheme) Regulations 1988, SI 1988/267]. Furthermore, we also have doubts that expenditure on a put
option qualifies for relief under Section 1 Capital Allowances Act 1990.
This is the view we seek to apply consistently in this area. We are aware, however, of a recent instance where assurances were given locally
which conflict with that view. We felt bound by those assurances in the circumstances of that particular case, but will continue to apply the law as
we see it in other cases.’
The letter therefore makes it clear that, for the future, advance clearances given at local level relating to schemes which contain a put option would
not bind the Revenue but that they would, notwithstanding any such clearance, continue to apply the law as the Revenue saw it to be.
In those circumstances, I find it hard to understand how it came about that on 15 July 1993 the applicant’s solicitors (who knew of the contents of the
letter of 6 May) addressed their request for clearance of a scheme which, to their knowledge, contained a put option not to the Financial Institutions
Division but to the local inspector. The letter of 6 May made it clear that the local inspector had no power to deal with the matter. It is even stranger to
find in the letter of 15 July, para 2.4, the statement, ‘we have seen a letter which raises a question about allowances where a put option (which raises
somewhat different issues) is granted’. I am unable to see how, given the existence of the put option in the Matrix scheme, the letter raised somewhat
different issues. However, no allegation of bad faith is made against the applicant or its solicitors and, in any event, the conduct of the applicant is not the
relevant factor. What is relevant is that the Revenue had made it clear that a clearance at local level of a scheme containing a put option would not in the
future be treated as binding. In those circumstances I can see no ground on which it can be said that it is unfair or an abuse of power for the Revenue to
press a claim for tax in accordance with the fiscal legislation since, to the knowledge of all parties, such clearance at local level was not to be treated as
binding on the Revenue.
This point being by itself sufficient to dispose of any allegation of abuse of power, I prefer to express no opinion on the difficult question whether the
792 applicant made full disclosure of all the relevant circumstances. I would dismiss the appeal.
LORD MUSTILL. My Lords, the single issue in this case is one of impression—namely whether it is an abuse of power for the Commissioners of
Inland Revenue to maintain that in assessing the tax implications of the scheme described by your Lordships they are free to disregard the opinions
expressed in the letters of 27 July and 10 September 1993 from the inspector of taxes. There are two questions which are not involved. First, whether the
applicant itself abused the useful procedure whereby persons contemplating transactions with tax implications can assure themselves in advance that an
adverse ruling on tax will not destroy what would otherwise be an unobjectionable mode of dealing. It has not been suggested that the applicant acted in
bad faith when passing its scheme before the eyes of the local inspector. The second issue not before the House is whether this scheme, designed as it
was to exploit legislation whose purpose was to breathe commercial life into the designated areas rather than to enable higher-rate taxpayers to make an
immediate and virtually risk-free profit, has achieved the aims of its promoters. The sole question before the House is not how the scheme should be
taxed, but whether it is contrary to the spirit of fair dealing, which should inspire the whole of public life, that the Revenue should be enabled to maintain
that the tax implications of the scheme are different from those which their inspector was so ready to concede. Your Lordships being unanimous in giving
a negative answer, it will be for another tribunal to decide how the scheme should be taxed, and I offer no opinion on it.
As to the answer I feel no doubt. Others of your Lordships have concentrated on one aspect or another of the applicant’s dealings with the Revenue.
I give these full weight, but prefer to approach the problem on a broader front, taking into account all aspects of the exchanges between the applicant and
the authorities. Their timing, the level of communication, the complexity of the scheme and its documentation, the guarded terms of the letters all speak
for themselves. In my opinion not only is there no injustice in permitting the Revenue to depart from their inspector’s assurance, any other course would
be positively unjust.
Preamble
Appeal dismissed.
Susan J Murphy Barrister.
793
[1994] 1 All ER 794
R v Secretary of State for the Home Department, ex parte T

and other applications
PRISONS

KENNEDY LJ AND PILL J
18, 19, 22 OCTOBER 1993
Prison – Release on licence – Life sentence – Mandatory or discretionary life sentence – Detention in mental hospital – Secretary of State refusing to
refer mandatory or discretionary life prisoners’ cases to Parole Board – Whether life prisoner serving sentence while patient in mental hospital –
Whether life prisoner who was a mental patient while under detention eligible for review by Parole Board – Mental Health Act 1983, s 50 – Criminal
Justice Act 1991, ss 34, 35.
The applicants were five prisoners serving discretionary life sentences and one serving a mandatory life sentence. After they had been sentenced the
Secretary of State ordered pursuant to s 47 of the Mental Health Act 1983 that they be transferred to a mental hospital whilst under detention. In all six
cases the Secretary of State refused to certify that the applicants were life prisoners whose cases were eligible for review by the Parole Board with a view
to their release under s 34a or s 35(2)b of the Criminal Justice Act 1991. The applicants applied for judicial review of the Secretary of State’s decision,
contending that, even though they were patients, once the penal element of their sentence had been served their cases should have been referred to the
Parole Board and that if the board was satisfied that there was no necessity for them to be confined the Secretary of State was obliged to release them on
licence. The Secretary of State contended that so long as they remained patients they had instead the protection of the 1983 Act and no right to appear
before the Parole Board and that the power of release remained with the Secretary of State. Under s 34(3) of the 1991 Act the Secretary of State was
required to release a discretionary life prisoner if he had served the tariff part of his sentence and the Parole Board directed his release, and under s 35(2)
the Secretary of State had a discretion to release a mandatory life prisoner if he had served the tariff part of his sentence and the Parole Board
recommended his release. However, under s 50c of the 1983 Act if, but not until, the Secretary of State was notified by a doctor or by a mental health
review tribunal that a prisoner who was a patient no longer required treatment in hospital the Secretary of State had a discretion either to arrange for the
prisoner to be returned to prison or to be released.
________________________________________
a Section 34, so far as material, is set out at p 798 j to p 799 c, post
b Section 35(2) is set out at p 802 e, post
c Section 50 is set out at p 797 j to p 798 c, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – When a prisoner was transferred to a mental hospital time continued to run so far as his sentence was concerned, so that if he was transferred back
to prison his time in hospital was to be taken into account when calculating whether he had ‘served’ the tariff part of his sentence. Detention for the
794 purpose of punishment and thereafter for the protection of the public was to be distinguished from detention for the purposes of treating mental
illness. There was no reason why consideration should not be given to the question of whether the former reason for detention was at an end simply
because the latter reason for detention continued. Accordingly, a life prisoner who became a mental patient while under detention nevertheless remained
a life prisoner for the purposes of the parole provisions of ss 34(5) and 35(2) of the 1991 Act and therefore the Secretary of State’s policy not to certify
that he was eligible for review by the Parole Board or to refer his case to the board in the case of a mandatory life prisoner was unlawful. The
applications would therefore be granted and declarations would be made accordingly (see p 799 c h j, p 800 j, p 801 b to d h j and p 803 c d f, post).
Notes
For life prisoners transferred to mental hospital, see 30 Halsbury’s Laws (4th edn reissue) para 1330 and 37 Halsbury’s Laws (4th edn) paras 1189–1192.
For the powers of the Secretary of State to release on licence prisoners serving life sentences, see 37 Halsbury’s Laws (4th edn) para 1190, and for a
case on the subject, see 37(3) Digest (Reissue) 406, 5341.
For the Mental Health Act 1983, ss 47, 50, see 28 Halsbury’s Laws (4th edn) 690, 693.

R v Parole Board, ex p Prem Singh (20 April 1993, unreported), DC.
R v Secretary of State for the Home Dept, ex p S (1992) Times, 19 August.
Thynne v UK (1991) 13 EHRR 666, E Ct HR.
Preamble
X v UK (1981) 1 BMLR 98, 4 EHRR 188, E Ct HR.
Case also cited

Brind v Secretary of State for the Home Dept [1991] 1 All ER 720, [1991] AC 696, HL.
R v Secretary of State for the Home Dept, ex p H and ors

H, F, B and W, being persons sentenced to discretionary life sentences but transferred to a mental hospital and detained there under ss 47 and 49 of the
Mental Health Act 1983, applied, with the leave of Judge J given on 17 May 1993, for judicial review of the decisions of the Home Secretary
communicated in October and November 1992 not to certify the applicants as discretionary life prisoners eligible for review by the discretionary life
prisoner panel of the Parole Board empowered by s 34 of the Criminal Justice Act 1991 to order their release on licence. The relief sought was
declarations (i) that the applicants were entitled to have their cases referred to a discretionary life prisoner panel of the Parole Board and to have their
cases reviewed in accordance with the provisions of s 34 of the Criminal Justice Act 1991, (ii) that the applicants were ‘existing life sentence prisoners’
and satisfied all the conditions laid down in para 9 of Sch 12 to the Criminal Justice Act 1991 for determining the eligibility of ‘existing life prisoners’ for
review under procedures for the release of discretionary life sentence 795 prisoners introduced by the 1991 Act and (iii) that the Home Secretary’s
policy not to certify discretionary life sentence prisoners who had been transferred to hospital under the Mental Health Act 1983 for review by the
discretionary life prisoner panels under s 34 of the Criminal Justice Act 1991 was unlawful. The facts are set out in the judgment of Kennedy LJ.
R v Secretary of State for the Home Dept, ex p Hickey

Michael Hickey, a patient detained at Ashworth Hospital, Liverpool, pursuant to a transfer direction without limit of time, applied, with the leave of Owen
J given on 27 April 1993, for judicial review of the Home Secretary’s decision communicated on 6 January 1993 not to refer the applicant’s case to the
local review committee and/or the Parole Board for consideration under s 35(2) of the Criminal Justice Act 1991 notwithstanding the fact that the
applicant was a life sentence prisoner who would have completed his tariff in December 1993. The relief sought was declarations (i) that the applicant
was a life sentence prisoner for the purposes of s 35 of the Criminal Justice Act 1991, (ii) that the applicant was and had since 1990 been entitled to be
referred to the local review committee and the Parole Board for consideration of his suitability for release on licence under the Criminal Justice Acts 1967
and 1991 and (iii) alternatively, that the applicant was entitled to have his case referred to the Parole Board no later than the date on which his tariff
period expired in December 1993, and to be released on licence thereafter unless either the Parole Board or the Home Secretary was satisfied that he
continued to present a risk to the safety of the public. The facts are set out in the judgment of Kennedy LJ.
R v Secretary of State for the Home Dept, ex p T

T, being a person sentenced to a discretionary life sentence but transferred to a mental hospital under s 47 and 49 of the Mental Health Act 1983, applied,
with the leave of Macpherson J given on 20 September 1993, for judicial review of the decision of the Home Secretary communicated on 31 May 1993
not to certify the applicant as a discretionary life sentence prisoner eligible for review by a discretionary life prisoner panel empowered by s 34 of the
Criminal Justice Act 1991 to order his release on licence. The relief sought was declarations (i) that the applicant was entitled to have his case referred to
a discretionary life prisoner panel of the Parole Board and to have his case reviewed in accordance with the provisions of s 34 of the Criminal Justice Act
1991, (ii) that the applicants were ‘existing life sentence prisoners’ and satisfied all the conditions laid down in para 9 of Sch 12 to the Criminal Justice
Act 1991 for determining the eligibility of ‘existing life prisoners’ for review under procedures for the release of discretionary life sentence prisoners
introduced by the 1991 Act and (iii) that the Home Secretary’s policy not to certify discretionary life sentence prisoners who had been transferred to
hospital under the Mental Health Act 1983 for review by the discretionary life prisoner panels under s 34 of the Criminal Justice Act 1991 was unlawful.
The facts are set out in the judgment of Kennedy LJ.
Edward Fitzgerald (instructed by Galbraith Branley, Scott-Moncrieff & Harbour, Brighton, and Taylor Nichol) for the applicants.
796
Stephen Richards (instructed by the Treasury Solicitor) for the Secretary of State.
Cur adv vult
KENNEDY LJ. The issue which arises in each of these cases is the interrelationship between the Mental Health Act 1983 and the Criminal Justice Act
1991. The first five applicants, H, F, B, W and T, were all separately convicted of serious offences such as rape or buggery, and they were each sentenced
to life imprisonment. The sentence was discretionary, because unlike the sixth applicant, Hickey, they were not convicted of murder. He was 17 years of
age when convicted in 1979, so he was ordered to be detained at Her Majesty’s pleasure. In all six cases the Secretary of State, after they had been
sentenced, ordered transfer to a mental hospital, and the complaint made by the applicants amounts to this if they had not been transferred the Secretary of
State would have issued a certificate in accordance with the transitional provisions to be found in Sch 12 to the Criminal Justice Act 1991. That would
have put them in the same position as if they had been sentenced after that Act came into force in that, the penal element of their sentence having been
served, their cases would have had to be referred to the Parole Board, and if it were satisfied that it was no longer necessary for them to be confined the
Secretary of State would be obliged to release them on licence. The applicants contend that even as patients they are entitled to the benefit of that
procedure, whereas the Secretary of State contends that so long as they remain patients they have no such benefit but have instead the protection of the
provisions of the Mental Health Act 1983. The point is of importance because if the Secretary of State is right the applicants do not have the right to
appear before a body entitled to order their release, that power being retained in the hands of the Secretary of State.
Mental Health Act 1983

So I turn to look first at the provisions of Pt III of the Mental Health Act 1983, which under the heading ‘Patients concerned in criminal proceedings
or under sentence’ deals with remands to hospital of persons accused of offences, hospital and guardianship and detention orders which can be made at
the time of sentence, and then in ss 47 to 53 it makes provision for the transfer to and from hospital of persons serving sentences. Section 47 authorises
the Secretary of State to order the transfer to hospital, and that power was exercised in each of these cases. So was the power granted by s 49 to make a
Preamble
restriction direction.
That brings me to s 50, which provides:
‘(1) Where a transfer direction and a restriction direction have been given in respect of a person serving a sentence of imprisonment and before
the expiration of that person’s sentence the Secretary of State is notified by the responsible medical officer, any other registered medical
practitioner or a Mental Health Review Tribunal that that person no longer requires treatment in hospital for mental disorder or that no effective
treatment for his disorder can be given in the hospital to which 797 he has been removed, the Secretary of State may—(a) by warrant direct that
he be remitted to any prison or other institution in which he might have been detained if he had not been removed to hospital, there to be dealt with
as if he had not been so removed; or (b) exercise any power of releasing him on licence or discharging him under supervision which would have
been exercisable if he had been remitted to such a prison or institution as to aforesaid, and on his arrival in the prison or other institution or, as the
case may be, his release or discharge as aforesaid, the transfer direction and restriction direction shall cease to have effect.
(2) A restriction direction in the case of a person serving a sentence of imprisonment shall cease to have effect on the expiration of the
sentence.’
So, if (but not until) the Secretary of State is notified by a doctor or by a tribunal that a patient no longer requires treatment in hospital etc, then the
Secretary of State may either arrange for the return of the patient to prison or exercise any power of releasing on licence etc which he could have
exercised had the patient been returned to prison. In this context it may be worth recalling that under the Criminal Justice Act 1967, which was in force in
1983, the power to release on licence was solely that of the Secretary of State.
Apart from s 50 there are two other sections of the Mental Health Act 1983 which enable the Secretary of State to arrange for the discharge of a
prisoner who has been transferred to a mental hospital, namely s 42(2) and s 74(2). Section 42(2) enables the Secretary of State to act of his own motion
at any time, and s 74(2) enables the Secretary of State to authorise the Mental Health Tribunal to act where it has advised that it would be appropriate to
do so. Thus it follows that under the Mental Health Act a prisoner who has been transferred to hospital and whose sentence has not expired must remain
there until the Secretary of State orders otherwise. In a policy statement made in 1985 the Secretary of State indicated that he would normally if
discharging use s 50(1)(b), and in R v Secretary of State for the Home Dept, ex p S (1992) Times, 19 August, Henry J held that the Secretary of State was
entitled to make that choice.
Criminal Justice Act 1991

In Thynne v UK (1990) 13 EHRR 666 the European Court of Human Rights criticised the United Kingdom for failing to provide a ‘court’ (as
opposed to a government minister) to consider at reasonable intervals the lawfulness of continuing to detain discretionary life sentence prisoners after they
had served the punitive element in their sentences. Similar criticisms had been made in relation to patients in mental hospitals in X v UK (1981) 1 BMLR
98, 4 EHRR 188. Parliament then enacted s 34 of the Criminal Justice Act 1991 which enables a trial judge imposing a discretionary life sentence to
specify the part of the sentence to the served to meet the seriousness of the offence or the combination of the offence and other offences associated with it.
If that is done then once the relevant part of the sentence has been served the case has to be transferred to the Parole Board. Then s 34(3) provides:
‘As soon as, in the case of a discretionary life prisoner—(a) he has served the part of his sentence specified in the order (“the relevant 798
part”); and (b) the Board has directed his release under this section, it shall be the duty of the Secretary of State to release him on licence.’
Section 34(4) enables the Parole Board to direct release if satisfied that it is no longer necessary for the protection of the public that the prisoner should be
confined. Section 34(5) enables a discretionary life prisoner to require the Secretary of State to refer his case to the Parole Board at any time ‘after he has
served the relevant part of his sentence’, and s 34(6) provides:
‘In determining for the purpose of subsection (3) or (5) above whether a discretionary life prisoner has served the relevant part of his sentence,
no account shall be taken of any time during which he was unlawfully at large within the meaning of section 49 of the Prison Act 1952.’
It is accepted by the Secretary of State in the present case that when a prisoner has been transferred to a mental hospital time continues to run so far as his
sentence is concerned, but it is contended that whilst in hospital he is not a prisoner serving his sentence, so that if the relevant part of his sentence has not
expired before his transfer to hospital he cannot thereafter take advantage of s 34(5) and require the Secretary of State to refer his case to the Parole
Board. In support of that contention Mr Richards referred us to various sections in the 1991 Act and to some of the provisions in the 1983 Act, but, as he
recognised, none of them directly support his submission, and s 50(2) of the 1983 Act, which I have already cited, does seem to contemplate that a person
may still be ‘serving a sentence of imprisonment’ whilst in hospital. Mr Richards submitted that the wording of that particular section is ambivalent
because the first part of it may be referring to the time immediately before admission to hospital when the restriction direction was made. That seems to
me to be a somewhat strained interpretation. The direction has a continuing effect whilst the person is in hospital, and the subsection refers to him serving
a sentence of imprisonment. Had the other meaning been intended, the conclusion would have referred to a direction made when the person ‘was serving’
a sentence of imprisonment.
Mr Richards also relied upon the discharge powers of the Secretary of State which, as I have already noted, are to be found in s 42(2) and s 74(2) of
the 1983 Act. If the applicants are right those powers are capable of being used to override a life sentence currently being served, as Mr Fitzgerald
concedes. Mr Fitzgerald submitted that ever since 1816 it had been the position that a prisoner transferred to hospital has continued to serve his sentence,
and he invited our attention to the relevant provisions of the Act 56 Geo 3 c 117 (custody of insane persons), the Criminal Lunatics Act 1884 and the
Mental Health Act 1959, but in my judgment the wording of those statutes is not directly decisive of the point. Much more persuasive is the fact that by
common consent whilst a prisoner is a patient in a mental hospital time continues to run so that if he is transferred back to prison he can then pray in aid
his time in hospital when calculating the relevant part of his sentence for the purposes of s 34(5)(a) of the 1991 Act. It is part of the relevant part of his
sentence which he has ‘served’. If Parliament had wished to exclude the period in hospital from the calculation it could easily have done so in s 34(6),
where time as an absconder is excluded, and equally, as it seems to me, if Parliament had wished to deprive a prisoner whilst in hospital of the rights to
invoke s 34(5) it would have said so.
799
The transitional provisions

That brings me to the transitional provisions, because of course s 34 of the 1991 Act only applies directly to those sentenced after the Act came into
force in October 1992, and in respect of those whom the sentencing judge has exercised his powers pursuant to s 34(1). Paragraph 9 of Sch 12 to the 1991
Act provides:
Preamble
‘(1) This paragraph applies where, in the case of an existing life prisoner, the Secretary of State certifies his opinion that, if—(a) section 34 of
this Act had been in force at the time when he was sentenced; and (b) the reference in subsection (1)(a) of that section to a violent or sexual offence
the sentence for which is not fixed by law were a reference to any offence the sentence for which is not so fixed, the court by which he was
sentenced would have ordered that that section should apply to him as soon as he had served a part of his sentence specified in the certificate.
(2) In a case to which this paragraph applies, Part II of this Act except section 35(2), shall apply as if—(a) the existing life prisoner were a
discretionary life prisoner for the purposes of that Part; and (b) the relevant part of his sentence within the meaning of section 34 of this Act were
the part specified in the certificate.
(3) In this paragraph “existing life prisoner” means a person who, at the commencement of Part II of this Act is serving one or more of the
following sentences, namely—(a) a sentence of life imprisonment; (b) a sentence of detention during Her Majesty’s pleasure or for life under
section 53 of the 1933 Act.’
The Secretary of State is not obliged always to issue a certificate. The paragraph applies where he does so, but if his reason for not doing so is that a
discretionary life sentence prisoner is a patient in hospital and therefore is not serving his life sentence then, in my judgment, the reason is a bad one and
the decision ought not to stand. Furthermore it does have to be remembered that the purpose of s 34 of the 1991 Act does seem to have been to meet the
criticism voiced in Thynne v UK (1990) 13 EHRR 666, and if the Secretary of State is right, in relation to a select band of discretionary life sentence
prisoners, namely those in hospital when the relevant part of their sentences expire and in respect of whom no certificate was granted before they entered
hospital, the criticisms will not be met. They will not be entitled to have the lawfulness of their continued detention decided by a ‘court’ (such as a
mental health tribunal or the Parole Board) empowered to act independently of the Secretary of State.
Paragraph 9(2) of Sch 12 refers to s 35(2) of the Act, which I have already quoted. A ‘discretionary life prisoner’ is defined in 34(1) and (7) as
meaning a person ‘serving’ a sentence of life imprisonment. It is therefore the submission of the Secretary of State that in respect of patients he can in
appropriate cases invoke the provisions of s 50(1)(b) of the 1983 Act and s 35(2) of the 1991 Act, thus making it unnecessary to resort to Sch 12 and s 34.
I disagree, because in my judgment a discretionary life prisoner who becomes a patient remains a discretionary life prisoner for the purposes of s 35(2) of
the 1991 Act, and therefore the powers granted by that subsection cannot be exercised in respect of him.
800
In the alternative Mr Richards submitted that the Secretary of State would be acting reasonably if he took no action to involve the Parole Board until
he was himself in a position to act pursuant to s 50(1) of the 1983 Act. At first sight that seemed an attractive argument, and Mr Richards supported it by
submitting that it would be unsatisfactory if a man were to be entitled to be released pursuant to the 1991 Act whilst still subject to a transfer direction and
a restriction direction, and whilst the responsible medical officer and the mental health tribunal were of the view that he still required treatment in hospital
for a mental disorder. But in my judgment that argument exposes the underlying fallacy, namely a tendency to conflate two separate reasons for detention
the first being to punish and thereafter to detain for so long as the prisoner is judged to be a danger to the public, and the second being detention for the
purposes of treating illness. There is no reason why consideration should not be given to the question of whether the first reason for detention is at an end
simply because the second reason for detention, which requires no support from the criminal law, is still continuing. Accordingly I do not regard Mr
Richards’s alternative submission as well founded.
Mr Fitzgerald also advanced an alternative submission which was that if the Secretary of State was right to wait until he was in a position to act
pursuant to s 50(1) of the 1983 Act, the power which he should then have invoked was the power to certify pursuant to para 9 of Sch 12 to the 1991 Act,
and the powers to be found in s 34 of that Act, not those to be found in s 35(2). In my judgment that is right, but as Mr Fitzgerald has been successful in
relation to his primary submission I need not consider his alternative submission any further.
The relief sought
(a) The discretionary life sentences

No relief is now sought in the case of W, and the position of T is unusual in that in his case the Secretary of State has acted pursuant to s 50(1) of the
1983 Act, and certified under para 9 of Sch 12 to the 1991 Act, but nevertheless, in the cases of H, F, B and T Mr Fitzgerald seeks the same five
declarations. Mr Richards has reserved his position as to the relief sought, but as at present advised I would be prepared to grant only three declarations,
and those in words different from the wording proposed by Mr Fitzgerald. I would be prepared to grant declarations in the following terms: (1) that H, F
and B whilst they remain in hospital pursuant to orders made under the Mental Health Act 1983, are nevertheless existing life prisoners for the purposes
of para 9 of Sch 12 to the Criminal Justice Act 1991; (2) that the policy of the Secretary of State not to certify under para 9 of Sch 12 to the Criminal
Justice Act 1991 discretionary life sentence prisoners on the ground that they have been transferred to hospital under the Mental Health Act 1983 is
unlawful (the existence of the policy is apparent from the documents, and it is not disputed; the only justification for it seems to be the mistaken belief
that a prisoner ceases to serve his sentence when he enters hospital); and (3) that in the cases of H, F and B the Secretary of State should consider again, in
the light of this judgment whether or not to issue a certificate pursuant to para 9 of Sch 12 to the Criminal Justice Act 1991.
801
That is as far as at the moment I would be disposed to go because, as I have indicated, para 9 does not in terms require the issue of a certificate. The
Secretary of State has a discretion, but I confess that I am not at the moment aware of any good reason for exercising it in favour of inactivity. In the
context of Pt II of the Act, the paragraph appears to assume that the Secretary of State will certify if the conditions specified in that paragraph are
satisfied. As to s 35(2) of the 1991 Act no declaration is in my judgment necessary. The point has been adequately dealt with in the body of this
judgment.
(b) Hickey’s case

Hickey’s case is different because he was sentenced under s 53 of the Children and Young Persons Act 1933. Part II of the 1991 Act (which
includes ss 34 and 35) nevertheless applies to him as it applies to persons serving sentences of imprisonment for life (see s 43(2)), and for the purposes of
Pt III of the 1983 Act he is a person serving a sentence of imprisonment (see s 47(5) of that Act). I see no reason to regard him as having any special
status because he was sentenced to detention rather than to life imprisonment, despite what was said by Evans LJ when giving judgment in R v Parole
Board, ex p Prem Singh (20 April 1993, unreported). The issues in that case were very different from those with which we are concerned. If Hickey had
not been sent to hospital he could hope to benefit from the provisions of s 35(2) of the 1991 Act, which provides:
‘If recommended to do so by the board, the Secretary of State may, after consultation with the Lord Chief Justice together with the trial judge if
available, release on licence a life prisoner who is not a discretionary life prisoner.’
Preamble
It will be recalled that in Hickey’s case the offence was murder, so the sentence was mandatory not discretionary. On 6 June 1991 the Secretary of State,
in a letter to Hickey’s solicitors, confirmed ‘that a tariff of 15 years has been set in this case, to count from the first day of Mr Hickey’s remand in
custody.’ That was in 1978, so it comes to an end in December 1993, and Mr Fitzgerald contends that in preparation for that date the Secretary of State
should be seeking the recommendation of the Parole Board, and consulting with the Lord Chief Justice and the trial judge so as to be in a position to
decide whether or not to exercise his powers under s 35(2) to release. The Secretary of State contends that the matter cannot be referred to the Parole
Board because he has not yet received from the doctors or from the mental health tribunal the information which would enable him to act pursuant to s
50(1), although it now seems as though that information may be to hand. Unless, to use Mr Richards’s phrase, s 50(1) is engaged the Secretary of State
contends that there could be no referral to the Parole Board, because Hickey is not a life prisoner for the purposes of Pt II of the 1991 Act so long as he is
a patient. For the reasons set out in the earlier part of this judgment, that is a view I cannot accept, but Mr Richards makes the alternative submission that
even if a referral can be made pursuant to s 35(2) it is a reasonable exercise of discretion not to make it. In answer to that submission Mr Fitzgerald
contends that when December 1993 comes Hickey is entitled to know where he stands. Dr Sylvester in his letter of 15 October 1993 says that it is his
opinion that—
802
‘Michael Hickey if he were not subject to a life sentence would not be detainable under the Mental Health Act for treatment in hospital for
mental disorder in the interests of his own health or safety or for the protection of others. In that sense his mental disorder is no longer of a nature
or degree to ‘require’ treatment in hospital for mental order.’
Detention after December 1993 can only be justified, submits Mr Fitzgerald, if the Secretary of State, having received the advice of the Parole Board and
the judges, considers it necessary for the protection of the public that Hickey should be confined, and there is no reason why Hickey should have to
remain in custody for a considerable period whilst the necessary inquiries, starting with a reference to the Parole Board, are being carried out. The force
of that submission is obvious, but in my judgment it should not lead this court to make all four of the declarations which Mr Fitzgerald seeks. As at
present advised I would be prepared to made the following two declarations: (1) that whilst he remains in hospital pursuant to orders made under the
Mental Health Act 1983 Mr Hickey is nevertheless a prisoner for the purposes of s 32 and a life prisoner for the purposes of s 35(2) of the Criminal
Justice Act 1991; and (2) that the Secretary of State may seek the recommendation of the Parole Board in relation to s 35(2) of the said Act before he is in
a position to exercise his powers under s 50(1) of the Mental Health Act 1983.
Further than that in the present situation I do not consider it necessary or advisable to go but as with the other declarations I am prepared to listen to
counsel as to the form which the declarations should take. If the Secretary of State accepts that the matter can now be referred to the Parole Board, I do
not doubt that it will be referred as soon as possible, and thereafter, if release is recommended, I see no reason to doubt that the Secretary of State will
exercise his discretion in accordance with s 35(2). So, subject to any submissions which counsel may wish to make as to the form of the declarations, I
would grant relief accordingly.
PILL J. I agree.
Applications allowed. Declarations accordingly.
803
[1994] 1 All ER 804
Re Dorman (deceased)
SUCCESSION; Wills, Gifts
CHANCERY DIVISION
DAVID NEUBERGER QC SITTING AS DEPUTY JUDGE OF THE HIGH COURT
9, 10 SEPTEMBER 1993
Will – Ademption – Bank account – Gift of moneys in numbered account at bank – Person having power of attorney transferring moneys to account
bearing higher interest – Transfer made in ignorance of terms of will – Whether moneys in second account at date of testatrix’s death passing as specific
legacy or to residuary legatees.
By cl 2 of her will made on 29 September 1987 the testatrix bequeathed certain specific legacies and further stipulated that the balance of a numbered
deposit account at a bank be added to the capital of a trust fund from which the testatrix received income. The trust was effectively administered by the
third defendant and on 5 June 1989 the testatrix gave him power of attorney over her affairs. On 16 July 1990 the third defendant, in ignorance of the
terms of the will, closed the deposit account and opened a second account at the same bank to take advantage of a higher rate of interest. All the moneys
in the first account were transferred to the second account. Thereafter, until the death of the testatrix, the third defendant arranged for income from the
trust payable to her to be paid into the second account. The testatrix died on 27 January 1991. The plaintiff, the executrix of the will, sought the
determination of the court on the question whether the moneys standing in the second account at the date of the testatrix’s death passed as a specific
legacy to the trust under cl 2 of the will or to the charities named as residuary legatees under the will.
Preamble
Held – On the true construction of the will the moneys which at her death the testatrix held in the second account at the bank passed as a specific bequest
to the trust under cl 2 of the will and not to the residuary estate since the money in the original account represented money in the nature of a fund, all or
virtually all of which had been passed to the testatrix by the trust, and it was to be inferred that the money was effectively intended to be repaid by the
testatrix to the trust on her death in so far as it had not been spent during her lifetime. Furthermore, the arrangements under the new account were the
same as under the original account except for the improved rate of interest in the new account and different withdrawal arrangements, from which it was
to be inferred that the reference in cl 2 of the will to be balance in the first account was effectively a reference to a fund of money and that the change to
the second account was a change in name and form only (see p 809 g to p 810 e and p 811 g h, post).
Re Slater, Slater v Slater [1907] 1 Ch 665, Re Leeming, Turner v Leeming [1912] 1 Ch 828, Re Kuypers, Kuypers v Kuypers [1925] All ER Rep 343
and Re Heilbronner (decd), Nathan v Kenny [1953] 2 All ER 1016 considered.
Ballantyne’s Trustees v Ballantyne’s Trustees 1941 SC 35 distinguished.
Notes
For change in the form of property passing under a will, see 50 Halsbury’s Laws (4th edn) paras 342–343, and for cases on the subject, see 50 Digest
(Reissue) 317–331, 3065–3215.
804

Ballantyne’s Trustees v Ballantyne’s Trustees 1941 SC 35, Ct of Sess.
Brems, Re (1963) 36 DLR (2d) 218, Ont HC.
Heilbronner (decd), Re, Nathan v Kenny [1953] 2 All ER 1016, [1953] 1 WLR 1254.
Kuypers, Re, Kuypers v Kuypers [1925] Ch 244, [1925] All ER Rep 343.
Leeming, Re, Turner v Leeming [1912] 1 Ch 828.
Puczka, Re (1970) 10 DLR (3d) 339, Sask QBD.
Rider v Wager (1725) 2 P Wms 328, 24 ER 751.
Slater, Re, Slater v Slater [1907] 1 Ch 665.
Cases also cited

Bridle, Re (1879) 4 CPD 336.
Humphreys v Humphreys (1789) 2 Cox Eq Cas 184, 30 ER 85, LC.
Jameson, Re, King v Winn [1908] 2 Ch 111.
Macdonald v Irvine (1878) 8 Ch D 101, CA.
Originating summons
The plaintiff, Brenda Penswick Smith, the executrix of the will dated 29 September 1987 of Audrey Pauline Dorman deceased, who died on 27 January
1991, applied by originating summons dated 15 April 1992 seeking the determination of the question whether on the true construction of the will and in
the events which had happened, moneys at the death of the deceased held in the name of capital advantage account No 0327786 at 10 Church Street, St
Austell, Cornwall branch of Barclays Bank plc passed under cl 2(e) of the will and not under cl 4 thereof. The defendants were the National Children’s
Home and Orphanage Registered and the Cancer Research Campaign, representing charities entitled as residuary legatees under cl 4 of the will, and
Stephen Dorman and Richard Foulkes, the administrators of the Edward Hewson Hobart Dorman Trust which was named as the beneficiary in cl 2(e) of
the will. The facts are set out in the judgment.
Godfrey Jarand (instructed by Penningtons, agents for Kirkland & Lane, Southwell) for the plaintiff.
Bernard Buckley (instructed by Wedlake Saint) for the first and second defendants.
Helen Galley (instructed by Stephens & Scown, Truro) for the third and fourth defendants.
Cur adv vult
10 September 1993. The following judgment was delivered.
DAVID NEUBERGER QC. Audrey Pauline Dorman died on 27 January 1991, having made her will on 29 September 1987. By cl 2 of that will she
made certain specific legacies, including in cl 2(e) as follows:
‘I give the balance of my Barclays higher deposit account No 10327719 to be added to the capital of the Edward Hewson Hobart Dorman Trust
absolutely free of duty.’
By cl 3 of the will she made further specific pecuniary legacies amounting to £18,000 in all. Clause 4 of the will devised and bequeathed the whole
of the residue of her estate to certain charities (which I shall call ‘the charities’) 805 including the first and second defendants. Her estate was duly
proved in the sum of over £120,000.
Until 16 July 1990 the deceased had maintained an account (which I shall call ‘the first account’) being a higher rate deposit account No 10327719 at
the St Austell, Cornwall branch of Barclays Bank plc. However, on 16 July 1990 the first account was closed and all the money in it transferred to a
different account (which I shall call ‘the second account’). This was a capital advantage account No 0327786 at the same branch of Barclays Bank plc.
The question before me is whether the moneys standing in the second account at the date of the deceased’s death pass as a specific legacy to the
Edward Hewson Hobart Dorman trust (which I shall call ‘the trust’) under cl 2(e) of the will, or whether nothing passes to the trust under that clause and
the moneys in the second account pass to the charities as residuary legatees under cl 4 of the will.
On the death of Edward Dorman, who I believe to have been the husband of the deceased, in 1985 the deceased received an income from the trust
which was effectively administered by Stephen Dorman, the third defendant. The income was from a date before 1989 paid into the first account, in so
far as it was not required to pay for the deceased’s living expenses.
Preamble
On 5 June 1989 the deceased gave to the third defendant an enduring power of attorney and he took over the deceased’s affairs. He then investigated
the state of the first account, and concluded that the moneys in that account consisted solely or substantially of the income she had received from the trust.
In accordance with his previous practice, the third defendant arranged for any further income from the trust payable to the deceased to be paid into the
first account.
On 16 July 1990 in ignorance of the terms of the will and purely to take advantage of the higher rates of interest afforded by Barclays Bank plc to
customers holding capital advantage accounts as opposed to higher rate deposit accounts, the third defendant closed the first account and opened the
second account, transferring the whole of the moneys in the first account to the second account. Thereafter, until the death of the deceased the third
defendant arranged for income from the trust payable to the deceased to be paid into the second account in precisely the same way as he had previously
made those arrangements in relation to the first account.
The difference between a higher rate deposit account and a capital advantage account is not only that the latter account involves the payment of a
higher rate of interest by the bank, but also that the latter account involves the customer having to give 30 days’ notice before he can withdraw any
moneys from the account, whereas money can be withdrawn from the former type of account without any notice at all.
The relevant law is stated in Williams, Mortimer and Sunnucks on Executors, Administrators and Probate (17th edn, 1993) pp 941–942 under the
heading ‘Ademption by Change in Nature of Legacy’. The passage reads as follows:
‘The general rule is that, in order to complete the right of a specific legatee to receive his legacy, the thing bequeathed must, at the testator’s
death, remain in specie as described in the will: otherwise the legacy is adeemed. For instance, if the legacy is of a specified chattel in possession,
as of a gold chain, or a bale of wool, or a piece of cloth, the legacy is adeemed, not only by the testator’s selling or otherwise disposing of the
subject in his lifetime, but also if he changes its form so as to alter the 806 specification of it … The law is that where you find a change in the
thing bequeathed ademption will follow, unless it can be shown that the thing is changed in name or form only and remains substantially the same.’
Then under the heading ‘Intention not the Test’ one finds:
‘The rule operates quite independently of the testator’s intention. It is the legal consequence of the change of form, unless the change is due to
the unauthorised act of a third party. Thus where the testator bequeathed a mortgage of £200 and the debt was later paid off the bequest was
adeemed even though the testator had placed the redemption money in a separate account and given the legatee a pass-book.’
It is also right to refer to passages where, under the heading ‘Legacy of a Debt’, the authors write as follows (p 944):
‘If a debt specifically bequeathed is received by the testator, the legacy is adeemed. The subject is extinguished, and nothing remains to which
the words of the will can apply. Thus, in Rider v Wager (1725) 2 P Wms 328, 24 ER 751 the testator specifically bequeathed to A part of a debt
due to him from B, and the remainder to C. The testator called in the money. The legacy was held to be extinguished. In the same case, the
testator having bequeathed to D a debt which D owed him, this legacy was held to be adeemed by payment of the money in his lifetime. So partial
receipt by the testator of the debt specifically bequeathed can operate as an ademption pro tanto.’
Later on on the same page under the heading ‘Legacy of a Fund’ is the following:
‘When a gift is made of a fund, or of the proceeds of the fund however invested, there is no ademption by an alteration in the nature of the fund,
provided the proceeds can be traced. Thus, a gift of “all the real and personal estate which I am or shall or may be entitled to under the will of my
late uncle” was held not adeemed by an alteration in the investment of such property by the testator. Whether a legacy is of a particular form of
property, such as an outstanding debt, or merely the money which happens to be so invested at the date of the will, must in each case depend upon
the construction of the will.’
It is also appropriate to refer to some of the authorities cited to me. In Re Slater, Slater v Slater [1907] 1 Ch 665 the testator bequeathed the income
from his shares in a company to a legatee. After the execution of the will but before the death of the testator the company was taken over by another
company pursuant to an Act of Parliament, and the shares in the second company were issued to the testator in lieu of the original. It was held by the
Court of Appeal that the stock in the new company did not pass under the bequest. The test as stated by Cozens-Hardy MR was as follows (at 672):
‘Where is the thing which is given? If you cannot find it at the testator’s death, it is no use trying to trace it unless you can trace it in this sense,
that you find something which has been changed in name and form only, but which is substantially the same thing.’
807
In the same case Gorell Barnes P said when considering the terms of the Statute pursuant to which the shares had been taken over (at 674–675):
‘… it is obvious that the whole undertaking of the Lambeth Waterworks Company was to be acquired by purchase by the Metropolitan Water
Board on the basis of the provisions of that Act and scheme. So the result was that this was an actual sale of this property and a complete transfer
of the undertaking of which those interested had notice, and the testator, amongst others, appeared to have had notice of it in the month of June,
1904. Although it is, in a sense compulsory upon the shareholders there is in fact an acceptance of the proposals which were made, and it is
extremely difficult, it seems to me, to differentiate that position in a case of this kind from the case of an ordinary sale by the testator of the stock
which existed at the date of the will. In one or two of the cases where stock originally held by a lunatic has been sold under the order of the Court
the sale has been treated as being a sale, in effect, by the testator, although effected by those who represented his estate for the time being, and in
those cases there has been considered to be an ademption or an extinction of the interest.’
In Re Leeming, Turner v Leeming [1912] 1 Ch 828, the testator made a specific bequest of his ten £4 ordinary shares in a company which thereafter
went into voluntary liquidation for the purposes of reconstruction, and for every £4 ordinary shares in the old company the shareholders received two £5
ordinary shares and two £5 preference shares in the new company. Neville J (at 830) held that the £25 ordinary shares and the £25 preference shares in
the new company were—
‘really in substance the same as the shares in the old company and represent the specific bequest. The subject-matter of the bequest remains
Preamble
though unchanged in number and form. [I omit certain words]. It seems to me that the amount of the testator’s interest in the old company remains
and is represented by the shares in the new company and is practically the same, and is changed in name and form only. I think, therefore, there has
been no ademption and that the legatee is entitled to the shares in the new company.’
In Re Kuypers, Kuypers v Kuypers [1925] Ch 244, [1925] All ER Rep 343 the testatrix made a specific bequest of 600 15% cumulative preferred
ordinary shares of £1 each in a company. Subsequently, by virtue of special resolutions of the shareholders of the company, these shares were
consolidated with certain other preference shares and thereafter there were allotted to holders of the 15% preference shares, shares in one class of 8%
cumulative A preference shares of £1 each. In place of her 600 15% preference shares the testatrix received 1,200 of the new 8% preference shares.
Tomlin J held that the specific legacy should be treated as relating to the 600 8% preference shares. He said ([1925] Ch 244 at 249, [1925] All ER
Rep 343 at 345):
‘It seems to me that I must come to the conclusion in this case that the gift takes effect, but as to the original shares only. I can find here the
actual shares that were referred to in the will. It is true that their name has been changed and they have lost some of their attractiveness; but they
remain the same shares, with a continuous history since before the will was made. The other shares were wholly new shares subscribed and paid for
out of the 808 reserve fund; and although those allotted to the testatrix were allotted as part of the arrangement and in view of the alteration in
the rights of the original shares, that circumstance does not to my mind justify me in coming to the conclusion that they are part of the original
holding of shares. They seem to me to be in the nature and form of compensation for loss of rights, but a form of compensation which cannot be
treated as the thing itself.’
The only case in English law on the bequest of moneys in a bank account to which I have been referred is Re Heilbronner (decd), Nathan v Kenny
[1953] 2 All ER 1016, [1953] 1 WLR 1254. The testator in a homemade will bequeathed his ‘bank deposit at the Midland Bank plc’ to his nurse. A few
days before he died he withdrew all moneys from his only bank account with the Midland Bank plc. Roxburgh J said as follows ([1953] 2 All ER 1016 at
1020, [1953] 1 WLR 1254 at 1259)):
‘In my judgment, it is going too far to say that “my bank deposit at the Midland Bank” has not got a reasonably clear meaning. It is quite true,
in one sense, that no money is really deposited at a bank because the relation between the banker and customer is that of debtor and creditor. The
actual money which is deposited is, of course, free for the bank to spend as it thinks fit. But that is a legal notion. It is common to speak of
“deposit account” and “current account”, but there is no difference between a deposit account and a current account except that, in one case, interest
is usually paid and, in the other case, it is usually not paid, though that is not invariable. In the case of a deposit account notice is required, though
it is very often waived, and in the case of a current account it is never required. Those are differences in the terms of the loan and nothing else.
The relationship between the banker and the customer is that of debtor and creditor. Therefore, there is no great art in the words “deposit account”,
and, in my judgment, when a man says “my bank deposit” at a particular bank, primarily he means “the money which I have on current or deposit
account”.’
On the basis that the money was removed from the bank only on a temporary basis, he concluded that the money which had been standing in the
account shortly before the testator’s death passed under a specific request.
Bearing in mind these principles, I have after considerable hesitation reached the conclusion that the moneys in the second account did pass under cl
2(e) of the will in the instant case. I reach that conclusion for two reasons which are to an extent connected. First, the money in the first account
represented, on the very unusual facts of this case, money in the nature of a fund; all, or at any rate virtually all, of the money in that account had been
paid to the deceased by the trust, and it is an inference that the money was effectively intended to be repaid by the deceased to the trust on her death in so
far as it had not been spent by or on her during her lifetime.
It seems to me that the deceased intended that the trust was to receive back the moneys which it had paid to her since its inception in 1985, and in so
far as she did not spend the money during her lifetime. It is difficult to see how she could have more conveniently produced this result if she intended to
bequeath to the trust the funds she had received from the trust and had not spent. If, as seems to me likely in view of the value of her estate and the
pecuniary bequests, she had other sources of income and possibly other accounts be it in banks or 809 building societies, it would have involved a
complex task of tracing the moneys she intended to bequeath to the trust, unless she kept them in some sort of separate account. I think it likely on the
balance of probabilities from the evidence, albeit not very full evidence, in this case that this is what she did.
Accordingly, consistent with what I might call the lay approach to bank accounts as described in Re Heilbronner (decd), Nathan v Kenny [1953] 2
All ER 1016, [1953] 1 WLR 1254, I consider that, on the special facts of this case, the reference in cl 2(e) of the will to the balance in the first account
was effectively reference to a fund of money.
Secondly, the arrangement embodied in the second account was very similar to that in the first account. In legal terms, each involved the same
creditor, that is the deceased; the same debtor, that is Barclays Bank plc; the same branch of the debtor; the same loan subject to withdrawals by the
deceased or payments by the trust; and very similar terms. The only differences were the improved rate of interest in the second account and the need for
30 days’ notice for withdrawal on the second account.
At close of business on 16 July 1990 it seems to me that the money in the second account was substantially the same thing (to use the words in Re
Slater, Slater v Slater [1907] 1 Ch 665) as the money in the first account had been when the bank opened for business that morning. I do not see why that
should cease to be the case some six months later when the deceased died.
The interest of the deceased was practically the same in the second account as it was in the first account, and the change from the first account to the
second account was substantially a change in name and form only, to quote the words of Neville J in Re Leeming, Turner v Leeming [1912] 1 Ch 828.
On 16 July, if the bank account is to be characterised as a loan from customer to bank or a debt from bank to customer, it appears to me that the
change of accounts involved a change of name which was equivalent to, and a change of terms which was less substantial than, the change of name and of
terms in Re Kuypers, Kuypers v Kuypers [1925] Ch 244, [1925] All ER Rep 343 as described in the judgment of Tomlin J.
I should deal with two other aspects. On the unusual circumstances of this case, the conclusion I have come to appears to me to accord almost
certainly with what the deceased would have intended had she known of the removal of the moneys from the first account to the second account. I think
it unlikely that she knew of the transfer from the first account to the second account. It was the third defendant who effected the transfer on her behalf,
and he was unaware of its potential effect on the terms of the will.
Of course, in accordance with the observations I have cited from in Re Slater, Slater v Slater [1907] 1 Ch 665 at 675, the act of a general agent, as
the third defendant was, must bind an estate with regard to ademption with all the same consequences as if it had been the act of the testator. However, in
the same passage Gorell Barnes P does appear to indicate that the testator’s knowledge of the facts that give rise to the alleged ademption is important,
presumably because in the absence of such knowledge the testator would not have had an opportunity of altering his will.
In the instant case, one has the unusual fact that the act is that of someone other than the testator who was ignorant of the terms of the will, for a
Preamble
purpose wholly unconnected with the terms of the will, the act being on the balance of probabilities unknown to the testator.
810
It is accepted by all the parties before me that intention is not relevant to the issue of ademption, as is specifically stated in the first passage in
Williams, Mortimer and Sunnucks on Executors, Administrators and Probate (17th edn, 1993) to which I have referred. To many that may seem a little
surprising in view of the fact that the construction of a will involves the court seeking to discover the intention of the testator. Nonetheless, as it is clear
from the authorities and text books to which I have been referred that intention plays no part in the law of ademption, I do not base my decision on this
factor.
The second aspect I should mention is the reference that has been made to certain other extracurial authorities. The first is Ballantyne’s Trustees v
Ballantyne’s Trustees 1941 SC 35 where ademption was found to have occurred in circumstances where the legacy referred to a specific bank account,
and by the date of the death the bank account did not exist, all the money having been taken out of that bank account and paid into another one.
In my view, that case can be distinguished quite easily from the instant case. The two bank accounts were with different banks. In those
circumstances it would not have been possible to say there had been in any sensible way a variation of the terms of the debt. It had by definition with a
new debtor, the different bank, to be a different debt. Further, the special facts which I have referred to in this case did not arise in that case.
I was also referred to two Canadian cases, Re Brems (1963) 36 DLR (2d) 218 and Re Puczka (1970) 10 DLR (3d) 339, decisions of the High Courts
of Ontario and Saskatchewan respectively. In those cases the courts again had to consider facts very similar to those in Ballantyne’s Trustees v
Ballantyne’s Trustees 1941 SC 35, but in each of those cases the court conclude that ademption had not taken place. In a sense the facts of those cases
were more strongly against the specific bequest taking effect, because there had been, as in the Scottish case, a change not merely in the account but in the
bank with which the account was kept.
However, I do no more than draw a certain amount of comfort from those two decisions, in particular Re Brems, where the wording of the specific
bequest was very familiar to the wording in the instant case (see 36 DLR (2d) 218 at 220). However, it is right to say that, as in this case, the decision
reached in each of the cases depended to a very substantial extent upon their special facts.
In those circumstances, with gratitude for the arguments which were skilfully and succinctly put before me, I have reached the conclusion that the
order I should make on the originating summons before me is that, on the true construction of the will and in the events which have happened, moneys at
the death of the deceased held in the name of capital advantage account No 00327786 at the 10 Church Street, St Austell, Cornwall branch of Barclays
Bank plc do pass under cl 2(e) of the said will and not under cl 4 thereof.
Counsel indicated that whatever decision I reached they were agreed that all parties’ costs of these proceedings should be paid out of the deceased’s
estate. That seems to me to be clearly right and I so order.
Order accordingly.
Jacqueline Metcalfe Barrister.
811
[1994] 1 All ER 812
Re H (a minor) (foreign custody order: enforcement)

FAMILY; Children

SIR STEPHEN BROWN P, STEYN AND KENNEDY LJJ
27 OCTOBER 1993
Minor – Custody – Access – Foreign right of access – Enforcement of foreign custody order – Belgian court granting access to father – Mother removing
children to England – Foreign order registered in English court – Father applying to enforce rights under Belgian order – Enforcement of order no
longer in accordance with child’s welfare – Whether order should be enforced in English court – Whether enforcement of foreign order automatically
following recognition and registration – Child Abduction and Custody Act 1985, Sch 2, art 10.
A Belgian mother removed her child to England in breach of an order made by a Belgian juvenile court which had granted the father access to the child
for half of the child’s school holidays. The father wished to enforce the order in England and registered it in the High Court under s 16 of the Child
Abduction and Custody Act 1985. The mother issued a summons for orders (a) discharging registration of the order or that it be not enforced and (b)
granting the father only such access as was consistent with the child’s welfare. The judge found that, since the child was very unwilling to stay with her
father during access, the terms of the order would manifestly no longer be in accordance with the child’s welfare and therefore recognition and
enforcement of the Belgian order could have been refused under art 10(1)(b)a of the European Convention on the Recognition and Enforcement of
Decisions Concerning Custody of Children, which was set out in Sch 2 to the 1985 Act. However, the judge held that he had no power to refuse to
enforce the order because under s 16(4)b of the 1988 Act refusal of registration of an order was coexistent with refusal of recognition of it and therefore
once an order was registered the English court had no independent power to vary or revoke it but could only do so under s 17, which merely entitled the
court to reflect any changes that had been made to the order abroad, and otherwise it had to be enforced pursuant to s 18 as if it were an order of the
English court. The mother appealed to the Court of Appeal.
________________________________________
a Article 10, so far as material, is set out at p 815 g h, post
b Section 16(4), so far as material, provides: ‘The High Court … shall refuse to register a decision if—(a) the court is of the opinion that on any of the grounds specified
Preamble
in Article 9 or 10 of the Convention the decision should not be recognised in any part of the United Kingdom …’
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – Applying the principle that although recognition of a foreign judgment was a precondition to enforcement of it, enforcement did not automatically
follow from recognition, the words ‘recognition’ and ‘enforcement’ in art 10 of the convention were to be read disjunctively. It followed that the judge
was not inhibited by registration of the order of the Belgium juvenile court from refusing to enforce it, and since the child’s welfare would be greatly
harmed by ordering the enforcement of the order the appeal would be allowed and an order made that the order was not to be enforced in England (see p
818 a b f to p 819 b, post).
812
Notes
For the recognition or enforcement of decisions relating to the custody of a child under the European Convention, see 5(2) Halsbury’s Laws (4th edn
reissue) paras 996–1004.
For child abduction, see ibid paras 977–1020, and for cases on the subject, see 28(3) Digest (2nd reissue) 425–427, 3578–3583.
For the Child Abduction and Custody Act 1985, ss 16, 17, 18, Sch 2, art 10, see 6 Halsbury’s Statutes (4th edn) (1992 reissue) 302, 303, 319.

L (child abduction: European Convention), Re [1992] 2 FLR 178.
Cases also cited

B (minors) (abduction) (No 2) [1993] 1 FLR 993.
Buchanan (James) & Co v Babco Forwarding and Shipping (UK) Ltd [1977] 3 All ER 1048, [1978] AC 141, HL.
Appeal
The mother appealed from the order made by Ward J in the Family Division of the High Court on 28 July 1993 that an order of the juvenile court for the
judicial district of Nivelles, Belgium, granting the father access to the child be enforced. The order was stayed for 28 days pending appeal. Alternatively
the mother applied for leave to appeal out of time in respect of that part of the order of Sir Gervase Sheldon sitting as a judge of the High Court on 15
May 1991 whereby he dismissed the mother’s application for the removal of the access order of the juvenile court in Belgium dated 10 October 1990
pursuant to the Child Abduction and Custody Act 1985 so that the order of the deputy judge could be set aside and the mother could be granted an order
that the order of the Belgian court was ‘manifestly no longer in accordance with the welfare of the child’ and ought not to be recognised pursuant to art
10(1)(b) of the European Convention on Recognition and Enforcement of Decisions Concerning Custody of Children as set out in Sch 2 to the 1985 Act.
The grounds of the appeal and the application were that the judge erred in law in holding that he was obliged to enforce the order of the Belgian court if it
had been registered in England notwithstanding that to do so would be ‘manifestly no longer in accordance with the welfare of the child’ and, further, that
he was bound by the order of Sir Gervase Sheldon refusing to discharge the Belgian order. The facts are set out in the judgment of Sir Stephen Brown P.
Graham Clark (instructed by Leathes Prior, Norwich) for the mother.

Stephen Bellamy (instructed by Mishcon de Reya) for the father.
Jeremy Posnansky (instructed by the Official Solicitor) as amicus curiae.
SIR STEPHEN BROWN P. This is an appeal by a mother from the judgment of Ward J of 28 July 1993. The learned judge had before him what he
described as an interesting application under the Child Abduction and Custody Act 1985, which had become a rather troublesome one. The application
concerned a child who was born in Belgium, of Belgian parents and who is a Belgian national herself. She was born in January 1981 and is therefore
approaching 13 years of age. There had been proceedings in Belgium following the break-up of her parents’ marriage. In Belgium the relevant juvenile
court made an order relating to access. It appears that the mother brought the child to the 813 jurisdiction of the United Kingdom in breach of the
orders of the Belgian court. The child has remained here.
The father, who was a merchant seaman and away at sea for a great deal of the time, sought redress from the Belgian court in December 1988. The
court ordered the mother to appear in January 1989 and she complied with that order. By a judgment of 10 January 1989, the juvenile court for the
judicial district of Nivelles gave a judgment which set out that a separation agreement, which had been entered into between the mother and father, had
accorded visiting rights to the father at certain periods at the child’s domicile, which was meant to indicate the mother’s home, and that after the child had
attained the age of six the father of the child should be entitled to receive the child for holidays, provided it was not against the wish of the child and
provided that the conditions of stay provided security. The judgment recorded that it was highly desirable in the child’s interest that she should be able to
have contact with her father, who had remarried, and that she become acquainted with the family.
The court ordered that the provisions of the original separation agreement should be modified. It ordered that the father had the right to maintain
personal relations with his daughter and vice versa. It also authorised the father to visit the daughter at the domicile of the former wife before her
departure abroad. It made the order, which is relevant for the purposes of the application made to the court in England, to the effect that the father should
be authorised to take the child outside the mother’s domicile and receive and accommodate her in his domicile in Belgium during half of the child’s
vacation and school holidays. It was subject to certain conditions, such as prior notification. The court further ordered that the mother should take the
child to the father, and that the father should take the child back to the mother at the end of the visiting period. There was also provision for telephone
contact and written communication.
In June 1990 the Ministry of Justice in Belgium (as the central authority in that country) sought the Lord Chancellor’s help (as the central authority
in this country) under the European Convention on Recognition and Enforcement of Decisions Concerning Custody of Children, because the father was
not able to locate the child, who had been brought to this country.
The matter came before Ward J on 10 October 1990. He made an order ex parte that the order of the juvenile court in Belgium, dated 10 January
1989, be registered in the High Court of Justice pursuant to s 16 of the 1985 Act. Because the order was made ex parte, he granted liberty to the
defendant (that is the mother) to apply to vary or discharge it on 48 hours’ written notice to the father’s (the plaintiff) solicitors. There were consequential
orders which he made to ensure that the child remained in the jurisdiction. He made orders relating to the whereabouts of the child and where she should
remain.
Eventually, the mother issued a summons dated 8 April 1991 in which she sought the following relief: that the order of Ward J, dated 10 October
1990, registering the order of the Belgium juvenile court be discharged; or alternatively, that the order of the juvenile court be not enforced; and further
Preamble
that the court should make such order for access by the father to the child as was consistent with her welfare.
That application came before Sir Gervase Sheldon, sitting as a judge of the High Court, on 15 May 1991. He dealt with the matter. This is described
by Ward J in his judgment. He said that subject to the plaintiff father having access on Friday, 17 May 1991 at times to be agreed, a court welfare officer
should prepare a report to be limited to the girl’s views on access generally. He 814 adjourned the matter until 4 June. When it came back before him
on 4 June counsel for both parties were present. There was then available a report from the court welfare officer. The learned judge then made the
following orders:
‘on the plaintiff father undertaking, firstly, to deposit his passport with his solicitors; secondly, not to take any further proceedings in Belgium
or this country before August 1992 to enforce the Belgian order, that the plaintiff should have interim access to the child for four hours on two days
in December 1991, two days in January 1992 and finally on a day in August 1992.’
The judge ordered that the plaintiff’s application to enforce the provisions of the Belgian order should be adjourned to be heard in August 1992 after
the access provided for by his interim order had taken place. By para 5 of that order, the learned judge dismissed the defendant mother’s application to
revoke or deregister the registration of the Belgian order. So her application stood dismissed. The matter came back to court because difficulties ensued.
The hoped for settlement of difficulties which undoubtedly must have been in the mind of Sir Gervase Sheldon did not transpire. The court welfare
officer reported in very trenchant terms that this was a very anxious and worried little girl. He reported that she did not wish, and was quite determined
not, to have any contact with her father so far as she could help. The welfare officer regarded that as being quite genuine. As Ward J stated in his
judgment:
‘H has a genuine fear of father currently and that his presence results in a great deal of anxiety for her. I believe she would suffer damaging
trauma if required to undertake staying access against her will.’
He thought that an attempt to enforce staying access could well further damage the girl’s already poor relationship with her father. A later report indorsed
all those matters and made it clear that the position had become more difficult.
The father’s application to enforce the order of the Belgium court eventually came before Ward J. When the matter came before him he had the
benefit of seeing the reports of the court welfare officer. Counsel for the mother drew the judge’s attention to the provisions of art 10 of the European
Convention. The judge cited the relevant provisions:
‘[Recognition and enforcement may also be refused] on any of the following grounds: (a) if it is found that the effects of the decision are
manifestly incompatible with the fundamental principles of the law relating to the family and children in the State addressed; (b) if it is found that
by reason of a change in the circumstances including the passage of time but not including a mere change in the residence of the child after an
improper removal, the effects of the original decision are manifestly [Ward J’s emphasis] no longer in accordance with the welfare of the child …’
Ward J then continued in his judgment:
‘I find that there has been a change in the circumstances of the family and, particularly, of the child. The change does include the passage of
time which has served only to harden the child’s antipathy to her father. The change in the circumstances is essentially that this child is now quite
unwilling to countenance staying with her father for half of the school holidays. By reason of those changes the effects of the original decision of
January 1989 are, in my judgment, manifestly no longer in accordance with 815 the welfare of the child. “Manifestly”, in that regard, must
mean shown quite plainly and quite obviously to be contrary to her welfare.’
He cited the judgment of Booth J in Re L (child abduction: European Convention) [1992] FLR 178 at 182:
‘If I am to exercise my discretion under art 10(1)(b) I have to be satisfied by reason of a change in the circumstances, including the passage of
time, that the effects of the original decision are manifestly no longer in accordance with the welfare of the child. It is a very high burden of proof
that rests upon the party who seeks to persuade the court to be so satisfied.’
Ward J continued:
‘I accept that the burden upon mother must be very high, but in my judgment a reading of the court welfare officer’s reports leads one to only
one clear ineluctable conclusion, viz that the enforcement of the order for staying access for half the school holidays is inimical to the welfare of the
child and positively harmful. When the matter was adjourned over the short adjournment and counsel had by then concluded their arguments, I was
of the view that I had no option but to apply art 10 and refuse to enforce the order on the ground set out in art 10(1)(b). During the short
adjournment I had, however, the opportunity to see the order of Sir Gervase Sheldon. He had dismissed the mother’s application to deregister the
Belgian order and had adjourned her alternative application not to enforce that order. I find myself unhappily in the position where, with great
respect to that learned judge, I am troubled as to whether or not perhaps even he meant to make that order or, if he did, whether he was right to do
so, but especially whether, in the light of what he did do, I now have any power to apply art 10.’
The judge then went on to consider the scheme of the 1985 Act with regard to the European Convention. He referred to ss 15, 16, 17 and 18 and to arts 9
and 10, as they had effect in consequence of the reservation made by the United Kingdom under art 17. That was to provide that they should have the
force of law in the United Kingdom. After considering the terms of s 15, he said:
‘So recognition may be refused on a ground such as art 10(1)(b) but no enforcement can take place unless the order is first registered.
Registration under s 16 also gives the courts powers to refuse to register—they are set out in sub-s (4).’
He quoted s 16(4)(a):
‘The High Court shall refuse to register a decision if—(a) the court is of the opinion that on any of the grounds specified in Article 9 or 10 of the
Convention the decision should not be recognised in any part of the United Kingdom.’
Ward J continued:
Preamble
‘So the refusal to register is co-existent with the refusal to recognise the decision. If registered then the powers to vary or revoke it are narrowly
circumscribed by s 17 to powers which, in essence, simply entitle the court here to reflect any changes that have been made to the order abroad.
There is no independent power given to the English court to vary or revoke a 816 registered decision. There is no original jurisdiction. Section
18 deals with enforcement of decisions. It reads: “Where a decision relating to custody has been registered under section 16 above, the court in
which it is registered shall have the same powers for the purpose of enforcing the decision as if it had been made by that court; and proceedings for
or with respect to enforcement may be taken accordingly.” As I understand s 18, that section merely provides the mechanics for the enforcement of
the order. In other words, it enables enforcement to be effected under threat of committal, it enables enforcement to be effected with, if necessary,
the assistance of the tipstaff to secure the handover of the child, or otherwise as may be appropriate. But the assumption underlying s 18 is that the
order is as valid and as appropriate an order as an order made in this court. When considering enforcement one does not, in my judgment, attack
the underlying validity of the order made. One accepts the order and one enforces it. There is no room under s 18 to raise matters relating to the
welfare of the child in a way which would vary the order that is being enforced. So I find myself in this very unhappy position. Although the
words in parenthesis which introduce art 10 are words which affect recognition and enforcement, the scheme of the 1985 Act is to tie in recognition,
registration and enforcement. It is to provide a means for preventing registration but it does not give an independent remedy to question the
correctness of enforcement in circumstances where the child’s welfare might lead to no enforcement being appropriate.’
The judge made it perfectly clear that if he did have power to apply art 10, then he would apply it by refusing to enforce the order under the provisions of
art 10(1)(b) for the reasons that he had already set out. Then he said:
‘I regret, however, that for purely technical reasons I cannot come to the child’s aid in the way the child’s welfare dictates and, accordingly, I
conclude that I am without any power to prevent the enforcement of the order and accordingly I must make an order that father be authorised to
receive and accommodate the child in his home in Belgium during one half of the school holidays, provided that he is present personally while
exercising that right of contact and provided he has notified the mother one month in advance, the mother to take [H] to the father and the father
return her at the end of the visiting period. Because I encourage an appeal in this matter I grant a stay of execution of this order for 28 days and if
notice of appeal be served within that time then I extend the stay until the conclusion of the hearing in the Court of Appeal.’
The matter therefore has come before this court. By her notice of appeal the appellant mother challenges the order which the learned judge made. In
her notice she seeks an order that the order of the juvenile court in Belgium should not be recognised ‘as being “manifestly no longer in accordance with
the welfare of the child” as provided for in Article 10(1)(b) of the European Convention’. She also seeks an order therefore that the recognition should be
set aside and that enforcement should not take place.
This is an area of law which has important international dimensions. Because of the importance of considering carefully the provisions of the
European Convention in so far as they apply within this jurisdiction, I felt it desirable that the court should have the advantage of the assistance of the
Official Solicitor as amicus curiae. That request, which has been accepted and answered, for which 817 this court is very grateful, has resulted in the
careful consideration by the Official Solicitor, and counsel instructed by him, of the legal interpretation of art 10(1)(b) and consideration of the words
‘recognition and enforcement’ in art 10(1)(b). In a careful and skeleton argument, Mr Posnansky, on behalf of the Official Solicitor, has expressed a very
clear view from a wholly independent position that the words ‘recognition and enforcement’ in art 10(1)(b) should be interpreted disjunctively. That view
is now accepted by counsel on behalf of the father. This is in accordance with a general analysis of the law relating to the interpretation and enforcement
of foreign judgments. Steyn LJ has helpfully drawn my attention to a passage in Dicey and Morris on the Conflict of Laws (12th edn, 1993) vol 1, p 453
where in relation to r 34 dealing with foreign judgments, it says:
‘A judgment of the court of a foreign country … has no direct operation in England but may (1) be enforceable by action or counterclaim at
common law or under statute, or (2) be recognised as a defence to an action or as conclusive of an issue in an action.’
In the commentary considering the distinction between enforcement and recognition it proceeds (pp 453–454):
‘A foreign judgment has no direct operation in England. It cannot, thus, be immediately enforced by execution. This follows from the
circumstance that the operation of legal systems is, in general, territorially circumscribed. Nevertheless, a foreign judgment may be recognised or
enforced in England. It is plain that, while a court must recognise every foreign judgment which it enforces, it need not enforce every foreign
judgment which it recognises.’
That is powerful authority in support of the submissions made by Mr Posnansky on behalf of the Official Solicitor. In the result, for my part I am
persuaded that Ward J was in error when he took the view that he could not construe ‘recognition’ and ‘enforcement’ disjunctively. He made it perfectly
clear that if he could do so in the introduction to art 10, then he would act as he wished on the grounds which he set out so carefully: that the child’s
welfare would be greatly harmed by ordering the enforcement of the order of the Belgium juvenile court.
It seems to me that since the correct construction of art 10 is that the words ‘recognition and enforcement’ in 10(1) should be interpreted
disjunctively, this court should give effect to the course which Ward J clearly thought appropriate in this case.
Accordingly, I would allow this appeal and order that the judgment of the juvenile court in Belgium should not be enforced. That, of course, does
not interfere with the registration of the order, but it means that the present situation of the child continues and that the order requiring her to visit
Belgium is not to be enforced in pursuance of, or as a result of, these proceedings.
STEYN LJ. I agree with the order proposed for the reasons given by Sir Stephen Brown P. The fact is that the recognition or registration is a sine qua
non condition to enforcement, but enforcement does not automatically follow recognition. This distinction has consistently been made in case law for
more than a hundred years. It represents the universal practice of states and forms the backcloth to the European Convention. It follows that Ward J was
not 818 inhibited by the registration of the Belgium judgment in England from refusing enforcement under art 10(1)(b) of the convention, scheduled
to the Child Abduction and Custody Act 1985. I am satisfied that the concessions made to this effect are entirely correct.
KENNEDY LJ. I also agree.
Appeal allowed.
Preamble

[1994] 1 All ER 819
Re C (adult: refusal of medical treatment)

HEALTH; Medicine
FAMILY DIVISION
THORPE J
8, 11, 14 OCTOBER 1993
Medical treatment – Adult patient – Consent to treatment – Right to refuse consent – Mentally ill patient contracting gangrene in leg – Hospital
proposing amputation of leg – Patient refusing to consent to amputation – Patient applying for injunction to restrain hospital from amputating leg without
his written consent – Whether patient’s refusal impaired by mental illness – Whether court should grant injunction – Whether court having jurisdiction to
grant injunction restraining future treatment.
C, a 68-year-old patient suffering from paranoid schizophrenia, developed gangrene in a foot during his confinement in a secure hospital while serving a
seven-year term of imprisonment. He was removed to a general hospital, where the consultant surgeon diagnosed that he was likely to die imminently if
the leg was not amputated below the knee. The prognosis was that he had a 15% chance of survival without amputation. C refused to consider
amputation. The hospital authorities considered whether the operation could be performed without C’s consent and made arrangements for a solicitor to
see him concerning his competence to give a reasoned decision. In the meantime, treatment with antibiotics and conservative surgery averted the
immediate threat of imminent death but the hospital refused to give an undertaking to the solicitor that in recognition of his repeated refusals it would not
amputate in any future circumstances. There was a possibility that C would develop gangrene again. An application was made on C’s behalf to the court
for an injunction restraining the hospital from carrying out an amputation without his express written consent. On behalf of the hospital it was contended
that C’s capacity to give a definitive decision had been impaired by his mental illness and that he had failed to appreciate the risk of death if the operation
was not performed.
Held – The High Court, exercising its inherent jurisdiction, could direct by way of an injunction or declaration that an individual was capable of refusing
or consenting to medical treatment, including future medical treatment. However, in determining whether that person had sufficient capacity to refuse
treatment, the question to be decided was whether it had been established that 819 his capacity had been so reduced by his chronic mental illness that
he did not sufficiently understand the nature, purpose and effects of the proffered medical treatment. That in turn depended on whether he had
comprehended and retained information as to the proposed treatment, had believed it and had weighed it in the balance when making a choice. Although
C’s general capacity to make a decision had been impaired by schizophrenia, the evidence failed to establish that he lacked sufficient understanding of the
nature, purpose and effects of the proposed treatment, but instead showed that he had understood and retained the relevant treatment information, believed
it and had arrived at a clear choice. It followed that the presumption in favour of his right to self-determination had not been displaced. A declaration
would be made accordingly (see p 822 a and p 824 f to p 825 a d to f, post).
Re T (adult: refusal of medical treatment) [1992] 4 All ER 649 and Airedale NHS Trust v Bland [1993] 1 All ER 821 applied.
Notes
For consent to medical treatment, see 30 Halsbury’s Laws (4th edn reissue) para 39, and for cases on the subject, see 33 Digest (Reissue) 273–275,
2242–2246.

Airedale NHS Trust v Bland [1993] 1 All ER 821, [1993] AC 789, [1993] 2 WLR 316, HL.
T (adult: refusal of medical treatment), Re [1992] 4 All ER 649, [1993] Fam 95, [1992] 3 WLR 782, CA.
Originating summons
By an originating summons issued on 4 October 1993, C, a patient confined to Broadmoor Hospital, sought an injunction retraining the defendants,
Heatherwood Hospital, Ascot, from amputating his right leg in the present and future without his express written consent. The summons was heard in
chambers but judgment was given by Thrope J in open court. The facts are set out in the judgment.
Richard Gordon and Craig Barlow (instructed by Scott-Moncrieff & Harbour, Brighton) for the plaintiff.
Adrian Hopkins (instructed by J Tickle & Co) for the defendants.
P A B Jackson (instructed by the Official Solicitor) as amicus curiae.
THORPE J. This originating summons was issued on 4 October 1993 by C. It seeks under the court’s inherent jurisdiction an injunction restraining
Heatherwood Hospital, Ascot from amputating his right leg without his express written consent.
The plaintiff is 68 and of Jamaican origin. He came to England in 1956, his passage being paid by the woman with whom he had lived since 1949.
In 1961 she left him, and in 1962 he accosted her at work and after an altercation stabbed her. He was sentenced at the Old Bailey to seven years’
imprisonment. While serving that sentence he was diagnosed as mentally ill and transferred from Brixton to Broadmoor. On admission he was diagnosed
as suffering from chronic paranoid schizophrenia. He was treated both with drugs and ECT. Over the years he has mellowed and has been
accommodated for the past six years on an open ward of the parole house. He is described as neat and tidy, becoming more sociable with staff and other
Preamble
patients in the past two years.
820
On 6 August 1993 his annual medical revealed no physical problems. However, on 9 September the staff noticed that he had a swollen leg. The
Broadmoor surgeon diagnosed gangrene in the foot and he was transferred to Heatherwood Hospital. On 10 September he was seen there by Dr Ghosh, a
consultant forensic psychiatrist, and his resident medical officer at Broadmoor. He told her that he had knocked his foot in the shower about three weeks
earlier. On the same day he was seen by Mr Rutter, the consultant vascular surgeon at Heatherwood. He found a grossly infected right leg with an
necrotic ulcer covering the whole of the dorsum. Mr Rutter considered that he would die imminently if the leg were not amputated below the knee. He
assessed the chances of survival with conservative treatment no better than 15%, but C refused to consider amputation. He said that he would rather die
with two feet than live with one. Mr Rutter nevertheless booked him in for amputation on 16 September in the hope that consent would be forthcoming
when C had had time to adjust to the prospective loss of the limb.
There followed a period of some confusion. At first, Broadmoor thought that the operation could be performed without consent if two consultants
agreed that he was not of sound mind to decide. Then Dr Ghosh arranged for a solicitor, Miss Scott-Moncrieff, to see him on 14 September. Thereafter
she made plain that there would be no consent forthcoming and discussion took place with Mr Leslie, the hospital’s solicitor, as to who would initiate
court proceedings. In the meantime, Mr Colley was treated with antibiotics and made some improvement.
On 15 September Dr Ghosh applied pressure on C to consent, pressure which reflected her concerns and feelings at the prospect of what she regarded
as his imminent and unnecessary death. He did not yield. Since Mr Rutter had made it plain that he was not prepared to amputate without C’s
unequivocal consent, the operation was abandoned. Thereafter Mr Rutter negotiated more conservative surgery with C. On 22 September he obtained his
consent to debridement of the dead tissue under general anaesthetic. C rejected a more localised spinal injection because of the risk of paralysis. The
operation was performed on 23 September and was successful. Although the ulcerated area was increased to measure 4 inches by 2·5 inches, the edges of
the wound had good blood supply increasing the chance of healing. By 6 October, granulation tissue had reached the level of the surrounding skin and
Mr Rutter agreed with C that he would next take skin from his thigh to graft over the wound. So the 85% of imminent death predicted on 10 September
had by 6 October been averted.
On 29 September Miss Scott-Moncrieff had requested an undertaking from Mr Leslie that the hospital would not amputate in any future
circumstances in recognition of C’s repeated refusals. That request was refused on 4 October and on the same day this originating summons was issued.
Arrangements were made for it to be heard on 8 October at Heatherwood Hospital. In preparation, Miss Scott-Moncrieff instructed Dr Eastman, who is
consultant and senior lecturer in forensic psychiatry at St George’s Hospital, and Mr Leslie arranged for Dr Gall, consultant psychiatrist at Heatherwood
Hospital, to report.
The evidence on 8 October came from Dr Eastman, Mr Rutter and C. On the second day I heard Dr Gall, Dr Ghosh and legal submissions. Dr
Eastman saw C on 6 October and reported comprehensively in writing on 7 October. In his oral evidence he emphasised that schizophrenia is an
all-pervasive illness. Features present in C’s case include grandiose and persecutory delusions as well 821 as incongruity of affect, a technical term
meaning mismatch between the words spoken and the accompanying emotional display. For the patient offered amputation to save life, there are three
stages to the decision: (1) to take in and retain treatment information, (2) to believe it and (3) to weigh that information, balancing risks and needs. C had,
in Dr Eastman’s opinion, achieved the first stage but not the second. Did his disbelief in the imminence of death arise out of his mental illness or other
ordinary convictions, or a combination of both? Of course, if to others he showed greater appreciation of the risk of death, that was evidence that he had
proceeded further in the progressive stages. It was significant that the persecutory delusions did not include the conviction that his present condition had
been caused by agencies at Broadmoor or Heatherwood. For Dr Eastman, the ultimate conclusion should be reached by weighing in the scales the
preservation of life against the autonomy of the patient. If the patient’s capacity to decide is unimpaired, autonomy weighs heavier, but the further
capacity is reduced, the lighter autonomy weighs. Plainly, C’s capacity is reduced by his mental illness. But for him the decision as to whether it is
sufficiently reduced remains marginal in the absence of any direct link between the persecutory delusions and his present condition.
Mr Rutter had reported in writing on 16 September and 6 October. In contrast to his reports, his evidence was unexpectedly forthright. He said that
he had definitely not decided to amputate on 10 September. He had heard later that Dr Ghosh was prepared to authorise the operation, but he was not
prepared to accept that. He felt that the only chance for C to regain mobility was to agree to amputation. Accordingly, he took an active decision not
operate then or at any future time without C’s consent. His assessment was that all C’s responses were normal. Even if he deteriorated in future, he
would not amputate. Knowing C had made a definitive decision and because he did not regard his mental state as deviating much from the mean, he
would respect his wishes and treat him with intravenous antibiotics. He believes in the sanctity of the individual’s choice, even if it be wrong. He
frequently meets people who do not want amputation and he would not force it on them unless they were so confused or comatose as not to recognise that
he was a doctor. For the future, he believes that the condition of the foot will once again threaten C’s life. He suffers from peripheral vascular disease
with the small vessel variant which is not amenable to bypass surgery. Whilst the wound is healing at present, it is likely that the foot or some other area
of his extremities may become necrotic. Infection from the dead tissue would then spread to other organs and cause them to fail. However, there is a
possibility that the foot may be maintained in healing to provide a limb contributing to mobility with the aid of a stick or frame. If gangrene returns, it
might be in the dry form, resulting in a mummified foot that would still serve as a prop. Only if gangrene returns in the wet form would his life again be
threatened. Finally, Mr Rutter established that a below-knee amputation carries with it a 15% mortality risk.
C’s oral evidence did not add much to what had been reported by Dr Eastman and Dr Gall. He expressed the grandiose delusions of an international
career in medicine during the course of which he had never lost a patient. He affirmed his complete faith in God and, subject to one reservation, in the
Bible. He expressed complete confidence in his ability to survive his present trials aided by God, the good doctors and the good nurses. Although he
recognised that he would die, death would not be caused by his foot. As he made clear in re-examination, that was his belief, although he could not say
that that would 822 not happen. Throughout he expressed his rooted objection to amputation. He did not ascribe the condition of his foot to
persecution by authority. As in his interview with Dr Gall, he accepted the possibility of death as a consequence of retaining his limb.
Dr Gall assessed C at interviews on 22 September and 5 October. He reported in writing on 6 October with addendum on 7 October. He heard Dr
Eastman’s evidence and he agreed with it. He said that the differences between him and Dr Eastman were so fine as not to be worth expressing.
Significantly, he also said that he agreed with Mr Rutter’s assessment of the extent of C’s deviation from the mean, certainly as C now is overall, mentally
and physically.
Dr Ghosh has had responsibility for C since May 1992. She has seen him monthly since that date. In addition, she visits his ward weekly. She has
developed a relationship within which she has C’s trust and confidence. She reported on 15 September and again on 6 October. She disagrees with Dr
Eastman and Dr Gall. She considers C incompetent to decide major medical matters because of (1) his grandiose delusion that he was a doctor and (2) his
persecutory delusion that whatever treatment is offered is calculated to destroy his body. His capacity to decide is not absent but very seriously reduced.
Far from being on the borderline, she regards the case as very clearcut.
Amongst the experts, my very clear conclusion is that the opinion of Dr Eastman and Dr Gall is to be preferred. They did not find any direct link
between C’s refusal and his persecutory delusions, nor was any to be found in C’s oral evidence. Furthermore, it was clear to me that C was quite content
to follow medical advice and to co-operate in treatment appropriately as a patient as long as his rejection of amputation was respected.
Preamble
Unfortunately, Dr Ghosh had never discussed the case with Mr Rutter. When she wrote as she did on 6 October and testified on 11 October, she was
unaware of the dramatic aversion of the risk of death over the preceding four weeks. On 11 October she still regarded the limb as dead below the knee
and death within a maximum of two years as certain without an amputation. She did not know that amputation carried a significant mortality risk. I have
no doubt that this lack of information influenced her appraisal of the critical equation and of C’s approach to it.
I was also impressed by the evidence of Mr Rutter, who had obviously considered his professional dilemma profoundly and had made a shrewd
appraisal of C’s capacity over the weeks in which their relationship had developed.
C himself throughout the hours that he spent in the proceedings seemed ordinarily engaged and concerned. His answers to questions seemed
measured and generally sensible. He was not always easy to understand and the grandiose delusions were manifest, but there was no sign of inappropriate
emotional expression. His rejection of amputation seemed to result from sincerely held conviction. He had a certain dignity of manner that I respect.
The submissions of counsel were of a uniformly high standard. Much of the ground that they cover is common. Thanks to the recent decision in Re T
(adult: refusal of medical treatment) [1992] 4 All ER 649, [1993] Fam 95 and Airedale NHS Trust v Bland [1993] 1 All ER 821, [1993] AC 789, the legal
principles applicable to this case are readily ascertained. Lord Donaldson MR’s judgment in Re T concludes with a helpful summary. The propositions
contained in the first four numbered paragraphs govern this case. Those propositions are ([1992] 4 All ER 649 at 664, [1993] Fam 95 at 115):
823
‘(1) Prima facie every adult has the right and capacity to decide whether or not he will accept medical treatment, even if a refusal may risk
permanent injury to his health or even lead to premature death. Furthermore, it matters not whether the reasons for the refusal were rational or
irrational, unknown or even non-existent. This is so, notwithstanding the very strong public interest in preserving the life and health of all citizens.
However, the presumption of capacity to decide, which stems from the fact that the patient is an adult, is rebuttable. (2) An adult patient may be
deprived of his capacity to decide by long-term mental incapacity … (3) If an adult patient did not have the capacity to decide at the time of the
purported refusal and still does not have that capacity, it is the duty of the doctors to treat him in whatever way they consider, in the exercise of
clinical judgment, to be in his best interests. (4) Doctors faced with a refusal of consent have to give very careful and detailed consideration to what
was the patient’s capacity to decide at the time when the decision was made. It may not be a case of capacity or no capacity. It may be a case of
reduced capacity. What matters is whether at that time the patient’s capacity was reduced below the level needed in the case of a refusal of that
importance, for refusals can vary in importance. Some may involve a risk to life or of irreparable damage to health. Others may not.’
Those propositions are common ground. It is also common ground that a refusal can take the form of a declaration of intention never to consent in the
future or never to consent in some future circumstances, to borrow the words of Lord Donaldson MR in Re T. That proposition has been confirmed by the
judgments and speeches in Bland’s case.
However, submissions divide over the definition of the capacity which enables an individual to refuse treatment. Mr Gordon argues for what he calls
the minimal competence test, which he defines as the capacity to understand in broad terms the nature and effect of the proposed treatment. It is common
ground that C has the legal capacity to initiate these proceedings without a next friend, within the terms of RSC Ord 80. Mr Gordon contends that the
capacity to refuse treatment is no higher and is equally no higher than the capacity to contract. I reject that submission. I think that the question to be
decided is whether it has been established that C’s capacity is so reduced by his chronic mental illness that he does not sufficiently understand the nature,
purpose and effects of the proffered amputation.
I consider helpful Dr Eastman’s analysis of the decision-making process into three stages: first, comprehending and retaining treatment information,
second, believing it and, third, weighing it in the balance to arrive at choice. The Law Commission has proposed a similar approach in para 2.20 of its
consultation paper 129, Mentally Handicapped Adults and Decision-Making. Applying that test to my findings on the evidence, I am completely satisfied
that the presumption that C has the right of self-determination has not been displaced. Although his general capacity is impaired by schizophrenia, it has
not been established that he does not sufficiently understand the nature, purpose and effects of the treatment he refuses. Indeed, I am satisfied that he has
understood and retained the relevant treatment information, that in his own way he believes it, and that in the same fashion he has arrived at a clear
choice.
I accept Mr Jackson’s submission that C might have the capacity to make a present refusal but lack the capacity to make an anticipatory refusal, but I
reject 824 that conclusion because in weighing the consequences of facing a future acute phase without amputation he has the experience of a recent
acute attack to guide him.
The relief sought by the originating summons is, in summary, an injunction preventing Heatherwood Hospital from amputation now or in the future
without C’s express written consent. In a sense, the need might be questioned after Mr Rutter’s evidence, but Mr Gordon submits that the plaintiff is
entitled to safeguard against the possibility that Mr Rutter may move on whilst Heatherwood remains the national health hospital to which Broadmoor
refers. Further, an injunction binds a non-party with knowledge of its effect, so that it terms would protect C were he ever treated elsewhere.
Furthermore, Mr Hopkins for Heatherwood request a clear ruling one way or the other. If I accept the plaintiff’s case, he welcomes an order although not
in the terms of summons. If I accept his submission, he seeks a declaration that the plaintiff lacks the capacity to refuse amputation.
Mr Jackson for the Official Solicitor prefaces his very clear submissions with a statement that this summons raises two novel points for decision.
Can the High Court exercising its inherent jurisdiction (1) rule by way of injunction or declaration that an individual is capable of refusing or consenting
to medical treatment and (2) determine the effect of a purported advance directive as to the future medical treatment? I would answer both questions
affirmatively. The recent decisions cited emphasise that the medical professions have ready access to judicial responsibility when difficult ethical
questions confront them. As this case demonstrates, both hospital and patient desired a judicial ruling. It was not significant to them who initiated legal
proceedings. As a matter of principle, I consider that an individual should have the same ready access to judicial determination in extreme circumstances.
Equally, since the same authorities recognise the right to frame a refusal as a declaration extending beyond present to future circumstances, I see no
reason why injunctive or declaratory relief should not be equally extensive.
Order accordingly.
825
[1994] 1 All ER 826
Preamble
Armstrong & Holmes Ltd v Holmes and another

LAND; Land Registration
CHANCERY DIVISION
JUDGE PAUL BAKER QC SITTING AS A JUDGE OF THE HIGH COURT
28 MAY, 17 JUNE 1993
Option – Option to purchase – Land charge – Registration as estate contract – Exercise of option – No registration of further estate contract after
exercise of option – Sale of land by grantor to third party – Whether further registration of contract of sale necessary to protect option – Land Charges
Act 1972, s 2(4).
By a written agreement dated 22 October 1986 the first defendant granted to the plaintiffs a five-year option to purchase certain land for the open market
price, which in the case of dispute was to be determined by arbitration. In March 1988 the option agreement was registered as an estate contract under s
2(4)a of the Land Charges Act 1972. On 13 October 1988 the plaintiffs purported to exercise the option but the first defendant failed to co-operate in
fixing the price and instead on 18 November contracted to sell part of the option land, the conveyance being expressed to be subject to the option so far as
it was still subsisting and capable of being enforced. The sale was completed on 9 December. On 5 October 1990 the purchasers transferred the land by
way of sale to the second defendant, who was registered as the proprietor on 28 January 1991. The plaintiffs issued a writ against the defendants seeking,
inter alia, specific performance of the option. The master granted specific performance. The second defendant appealed, contending that the agreement
resulting from the exercise of the option had not been registered as an estate contract and so was unenforceable against him.
________________________________________
a Section 2(4), so far as material, is set out at p 828 h j, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – The purpose of the 1972 Act was to give notice of contracts creating interests in land, and since the original option created an equitable interest in
land that interest had not been altered or superseded by some other and different interest on the exercise of the option. Registration of the option was
sufficient warning to a later potential purchaser from the grantor of the option and sufficient protection to the holder of the option. Further registration of
the contract of sale envisaged by the option was not required to protect the holder of the option as it would add nothing to the protection already afforded
him by registration of the option. It followed that the second defendant had no defence to the plaintiffs’ claim. The appeal would therefore be dismissed
(see p 829 f to h and p 832 d to f, post).
Spiro v Glencrown Properties Ltd [1991] 1 All ER 600 applied.
Notes
For options to purchase, see 42 Halsbury’s Laws (4th edn) para 25, and for cases on the subject, see 40 Digest (Reissue) 32–37, 123–134.
For the Land Charges Act 1972, s 2, see 37 Halsbury’s Statutes (4th edn) 404.
826

Beesly v Hallwood Estates Ltd [1960] 2 All ER 314, [1960] 1 WLR 549.
Greene v Church Comrs for England [1974] 3 All ER 609, [1974] Ch 467, [1974] 3 WLR 349, CA.
London and South Western Rly Co v Gomm (1882) 20 Ch D 562, CA.
Midland Bank Trust Co Ltd v Green [1981] 1 All ER 153, [1981] AC 513, [1981] 2 WLR 28, HL.
Mountford v Scott [1975] 1 All ER 198, [1975] Ch 258, [1975] 2 WLR 114, CA.
Mulholland’s Will Trusts, Re, Bryan v Westminster Bank Ltd [1949] 1 All ER 460.
Spiro v Glencrown Properties Ltd [1991] 1 All ER 600, [1991] Ch 537, [1991] 2 WLR 931.
Cases also cited

Shiloh Spinners Ltd v Harding [1973] 1 All ER 90, [1973] AC 691, HL.
United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd [1968] 1 All ER 104, [1968] 1 WLR 74, CA.
Appeal
The second defendant, Robert William Dodds, appealed against the order made by Mr J A Moncaster sitting as a deputy master on 18 September 1992 on
a summons issued by the plaintiffs, Armstrong & Holmes Ltd, against the first defendant, John Walter Holmes, and the second defendant whereby the
deputy master granted specific performance under RSC Ord 86 of the contract created by the plaintiffs’ exercise on 13 October 1988 of the option to
purchase certain land at Fulbrook, Lincolnshire, granted by the first defendant to the plaintiffs on 22 October 1986. The appeal was heard in chambers
but judgment was given by Judge Paul Baker QC in open court. The facts are set out in the judgment.
Michael Michell (instructed by Rutherford Wallace & Mitchell, Nottingham) for the plaintiffs.
Nigel Burroughs (instructed by Roythorne & Co, Spalding) for the second defendant.
Cur adv vult
17 June 1993. The following judgment was delivered.

Preamble
JUDGE PAUL BAKER QC. This is an appeal from Mr J A Moncaster sitting as a deputy master which I heard in chambers. It raises a point of some
practical importance, hence I am giving judgment in open court. The point is whether the contract for the sale of land which results from the exercise of
an option has to be registered as an estate contract under the Land Charges Act 1972 to preserve priority, notwithstanding that the grant of the option itself
had already been so registered as an estate contract.
The facts are not in dispute. By a written agreement dated 22 October 1986 the first defendant, Mr Holmes, granted to the plaintiffs an option to
purchase certain land at Fulbrook in Lincolnshire. The option was to run for a period of five years. In the event of its being exercised, the price was to be
that which the plot might reasonably be expected to fetch on the open market, to be determined in case of dispute by a chartered surveyor nominated by
the respective parties or an umpire in accordance with the provisions of the Arbitration Act 1950.
827
The title to the option land was unregistered. On 22 March 1988 the option agreement was registered as an estate contract under the Land Charges
Act 1972. By a letter dated 13 October 1988 the plaintiffs through their solicitors exercised the option. The first defendant has declined or neglected to
co-operate in fixing the price. There was no registration of another estate contract following the exercise of the option.
On 18 November 1988 the first defendant contracted to sell part of the option land to the trustees of a pension fund. On 9 December 1988, that
contract was completed. The conveyance was expressed to be subject to and with the benefit of the option agreement so far as it was still subsisting and
capable of being enforced. On 5 October 1990 the trustees transferred the land on sale to the second defendant, Robert William Dodds. On 28 January
1991 the second defendant was registered at HM Land Registry by way of first registration as proprietor of the property sold to him by the trustees. The
charges register states that by the conveyance of 9 December 1988—
‘the land in this title and other land was conveyed subject to the provisions of [the option agreement of 22 October 1986] but neither the original
Option Agreement nor a certified copy or examined abstract thereof was produced on first registration.’
The writ claiming specific performance of the option was issued on 13 December 1989, against the first defendant alone. The statement of claim had
to be amended and reamended and further parties added and dismissed as the subsequent transactions came to the notice of the plaintiffs. In the action as
presently constituted, the plaintiffs seek against the first defendant specific performance of the option agreement in so far as and to the extent that he
retains any part of the option land, and damages for breach of contract. Against the second defendant they seek specific performance of the option
agreement in so far as and to the extent that the option land is in his ownership. On 6 August 1992 the plaintiffs issued a summons against the defendants
for specific performance under Ord 86. It came before the deputy master on 18 September 1992, who made the orders sought.
The second defendant appealed against the order, and before me relied solely upon a point of law, that the agreement resulting from the exercise of
the option had not been registered as an estate contract and so was unenforceable against him. Before referring to the arguments I should set out the
material provisions of the Land Charges Act 1972. There are only two. Section 2 sets out the classes of registrable land charges, and includes under
Class C(iv) an estate contract, defined in the following terms in sub-s (4):
‘(iv) an estate contract is a contract by an estate owner or by a person entitled at the date of the contract to have a legal estate conveyed to him
to convey or create a legal estate, including a contract conferring either expressly or by statutory implication a valid option to purchase, a right of
pre-emption or any other like right.’
Section 4 deals with the effect of failure to register a land charge. In sub-s (6) it provides as follows:
‘An estate contract … shall be void as against a purchaser for money or money’s worth … of a legal estate in the land charged with it, unless
the 828 land charge is registered in the appropriate register before the completion of the purchase.’
Mr Burroughs for the second defendant started by observing that, if an estate contract is to prevail against a subsequent purchaser, the only thing that
matters is that it should be registered. If it is not, the purchaser takes free of it, even if he had express notice of it, nay more, that he expressly took
subject to it. Mr Burroughs is on firm ground here, supported by high authority: Midland Bank Trust Co Ltd v Green [1981] 1 All ER 153, [1981] AC
513. He went on to argue that an option is an irrevocable offer to enter into a contract for the sale of land, binding on the grantor, but the option holder is
under no obligation. It is thus not an estate contract in the normal meaning of that expression. However, the expression is given an extended meaning in
the Land Charges Act 1972 to include options as estate contracts and hence require that they be registered. When the option is exercised, a true contract
comes into existence; the grantor becomes discharged under the option agreement and assumes the rights and liabilities of a vendor. The option holder as
purchaser for the first time assumes a liability to the vendor. This new relationship is registrable as an estate contract, whether or not the option had been
registered as an earlier and different estate contract. Mr Burroughs read and adopted a passage from Barnsley’s Land Options (2nd edn, 1992) p 99:
‘The initial registration of the option does not extend to the subsequent contract for sale; the equitable interest created by the option differs from
and is superseded by that existing under the contract. If after the holder has exercised the option but before completion of the contract the grantor
conveys the land to a purchaser, he will take free from the option holder’s rights under the unprotected contract.’
Mr Michell for the plaintiffs urged me to adopt a purposive approach to the construction of the Land Charges Act 1972. The purpose of the
provision requiring registration is to protect the holders of options and others dealing with the land. It is sufficient for their protection that the option
should be registrable. The additional requirement that the contract arising from the exercise of the option should also be registrable adds nothing to that
protection, especially as in the normal course completion will quickly follow the exercise. Further, he argues that an option is not sufficiently or
exclusively to be defined as an irrecoverable offer to enter into a contract. In the context of the Land Charges Act 1972, the appropriate analysis is that of
a conditional contract. What the Act is concerned with is the obligation imposed on the land rather than the precise rights held by or obligations imposed
on the parties.
Both counsel referred to authority. Mr Burroughs pressed me with cases in which an option is analysed in terms of an offer; no contract for sale
comes into existence until it is exercised. He referred particularly to Mountford v Scott [1975] 1 All ER 198, [1975] Ch 258. The plaintiffs in that case
were seeking to enforce specifically a contract resulting from the exercise of an option granted for a token payment. In the judgment of Brightman J at
first instance we learn that the plaintiffs’ counsel conceded ‘that an option on a proper analysis is no more than an ordinary offer coupled with a promise
not to withdraw the offer during the period of the option’. In the Court of Appeal Russell LJ said ([1975] 1 All ER 198 at 201, [1975] Ch 258 at 264):
Preamble
829
‘As I have said, a valid option to purchase constitutes an irrevocable offer to sell during the period stated, and a purported withdrawal of the
offer is ineffective. When, therefore, the offer is accepted by the exercise of the option, a contract for sale and purchase is thereupon constituted,
just as if there were then constituted a perfectly ordinary contract for sale and purchase without a prior option agreement.’
Another case relied on by Mr Burroughs as supporting his analysis of an option is the decision at first instance of Buckley J in Beesly v Hallwood
Estates Ltd [1960] 2 All ER 314, [1960] 1 WLR 549. The question was whether an option to renew contained in a lease was registrable as an estate
contract. Buckley J said ([1960] 2 All ER 314 at 320, [1960] 1 WLR 549 at 555):
‘An option to purchase a legal estate in land may have the appearance of a conditional contract on the part of the grantor to convey or create that
estate, but this is not, I think, the true nature of such an option.’
From this Buckley J went on to reason that an option before its exercise was not an estate contract as defined in the first limb of the definition in the
Land Charges Act but was only brought in by the second limb. This part of the judgment was later disapproved by the Court of Appeal in Greene v
Church Comrs for England [1974] 3 All ER 609 at 613, 614, [1974] Ch 467 at 476, 478.
Mr Michell referred to two cases of great significance in this context. The first was Re Mulholland’s Will Trusts, Bryan v Westminster Bank Ltd
[1949] 1 All ER 460. A testator had leased land to a bank, the lease containing an option to purchase the freehold at a fixed price. He thereafter
appointed the bank as the executor of his will. After his death, the bank proved the will, and exercised the option, paying the proceeds of sale into the
estate. The beneficiaries sought to set aside the transaction contending that as trustees they were not allowed to place themselves in a position where their
interest and duty conflicted. Wynn-Parry J dismissed the action, holding that the bank had a pre-existing contractual right which could not be annulled by
their appointment as executor. After citing a well-known passage from the judgment of Jessel MR in London and South Western Rly Co v Gomm (1882)
20 Ch D 562 at 582 on the nature of an option to purchase land, Wynn-Parry J said ([1949] 1 All ER 460 at 464):
‘As I understand that passage, it amounts to this, that, as regards this option, there was between the parties only one contract, namely, the
contract constituted by the provisions of the lease which I have read creating the option. The notice exercising the option did not lead, in my
opinion, to the creation of any fresh contractual relationship between the parties, making them for the first time vendors and purchasers, nor did it
bring into existence any right in addition to the right conferred by the option.’
Mr Burroughs invited me to regard this case as wrongly decided and to follow the reasoning of Buckley J. I am quite unable to do that. In the first
place, that reasoning has been criticised, as we have seen. Further, and more importantly, Re Mulholland’s Will Trusts, Bryan v Westminster Bank Ltd
[1948] 1 All ER 460 has never been criticised and is manifestly just. The position of a trustee is sufficiently onerous without his having to surrender
rights which he has acquired prior to his taking up his office.
The other case to which Mr Michell referred me is of even greater significance. It contains an analysis of the nature of an option by Hoffmann J
830 which I have found most helpful. In Spiro v Glencrown Properties Ltd [1991] 1 All ER 600, [1991] Ch 537 the question was whether an
agreement creating an option to purchase land was a contract for the sale of land within s 2 of the Law of Property (Miscellaneous Provisions) Act 1989
or whether no contract for sale came into existence until the exercise of the option. If the former, the requirements of the Act were satisfied; if the latter,
they were not. Hoffmann J pointed out that in calling an option an irrevocable offer, or a conditional contract, one is using metaphors or analogies which
should not be pressed too far. The following passages show the reasoning ([1991] 1 All ER 600 at 604– 606, [1991] Ch 537 at 543–544):
‘The granting of the option imposes no obligation upon the purchaser and an obligation upon the vendor which is contingent upon the exercise
of the option. When the option is exercised, vendor and purchaser come under obligations to perform as if they had concluded an ordinary contract
of sale. And the analogy of an irrevocable offer is, as I have said, a useful way of describing the position of the purchaser between the grant and
exercise of the option … But the irrevocable offer metaphor has much less explanatory power in relation to the position of the vendor. The effect
of the “offer” which the vendor has made is, from his point of view, so different from that of an offer in its primary sense that the metaphor is of
little assistance … Thus in explaining the vendor’s position, the analogy to which the courts usually appeal is that of a conditional contract. This
analogy might also be said to be imperfect, because one generally thinks of a conditional contract as one in which the contingency does not lie
within the sole power of one of the parties to the contract. But this difference from the standard case of a conditional contract does not destroy the
value of the analogy in explaining the vendor’s position. So far as he is concerned, it makes no difference whether or not the contingency is within
the sole power of the purchaser. The important point is that his estate or interest is taken away from him without his consent … The purchaser’s
argument requires me to say that “irrevocable offer” and “conditional contract” are mutually inconsistent concepts and that I must range myself
under one or other banner and declare the other to be heretical. I hope I have demonstrated this to be a misconception about the nature of legal
reasoning. An option is not strictly speaking either an offer or a conditional contract. It does not have all the incidents of the standard form of
either of these concepts. To that extent it is a relationship sui generis. But there are ways in which it resembles each of them. Each analogy is in
the proper context a valid way of characterising the situation created by an option. The question in this case is not whether one analogy is true and
the other false, but which is appropriate to be used in the construction of s 2 of the Law of Property (Miscellaneous Provisions) Act 1989.’
I gratefully adopt that reasoning. The question for me is which analogy is appropriate to be used in construing the Land Charges Act 1972. Here,
too, I am greatly assisted by the comments of Hoffmann J. Immediately following the passage last cited he says (see [1991] 1 All ER 600 at 606, [1991]
Ch 537 at 544–545):
‘There is only one case in which, as it seems to me, the adoption of the irrevocable offer metaphor was allowed to dictate the result without
regard to the context. This was Beesly v Hallwood Estates Ltd [1960] 2 All ER 314, 831 [1960] 1 WLR 549 in which Buckley J decided that an
option was not “a contract … to convey or create a legal estate” within the meaning of that part of the definition of an estate contract in s 10(1) of
the Land Charges Act 1925. He arrived at this conclusion on the ground that the option was not a contract to convey but only an irrevocable offer.
It seems to me, with respect to Buckley J, that this was a misuse of the irrevocable offer metaphor. The purpose of including estate contracts in the
Land Charges Act 1925 was to enable a purchaser to obtain notice of contracts which created interests binding upon the land. For this purpose, as
Jessel MR pointed out in Gomm’s case (1882) 20 Ch D 562 at 581, there is no difference between an option and an ordinary contract of sale. In
both cases the land is bound by an agreement which entitles a third party, either conditionally or unconditionally, to demand a conveyance. A
purposive construction of s 10(1) therefore requires that one characterise the option from the point of view of its effect on the land in the hands of
Preamble
the grantor. For this purpose, it is more appropriate to regard it as a conditional contract than an irrevocable offer.’
In the light of these observations I accept the submissions of Mr Michell rather than those of Mr Burroughs. The purpose of the Land Charges Act
1972 is to give notice of contracts creating interests in land. The original option created an equitable interest in land; pace Professor Barnsley, I do not
see that interest being altered or superseded by some other and different interest on the exercise of the option, although no doubt the respective rights and
obligations of the grantor and option-holder change. If we look at the matter more practically, the exercise of the option does not add to the burden on the
land. Indeed, it may diminish it, as the option-holder may exercise the option well within the option period but subsequently fail to complete, so that
rescission follows. In other words, a later potential purchaser from the grantor is sufficiently warned by the registration of the option and does not require
the further registration of the contract of sale envisaged by the option.
In my judgment, the deputy master correctly found that there was no defence in this case, and hence I dismiss the appeal.
Appeal dismissed.

832
[1994] 1 All ER 833
Rees and others v Crane

COMMONWEALTH; Commonwealth countries: ADMINISTRATION OF JUSTICE; Judiciary
PRIVY COUNCIL
LORD KEITH OF KINKEL, LORD SLYNN OF HADLEY, LORD WOOLF, LORD LLOYD OF BERWICK AND SIR THOMAS EICHELBAUM
8, 9, 11 NOVEMBER 1993, 14 FEBRUARY 1994
Trinidad and Tobago – Judge – Removal from office – Suspension from judicial duties – Natural justice – Chief Justice deciding that judge should not be
rostered to sit – Chief Justice making complaint about judge to Judicial and Legal Service Commission – Commission not giving judge opportunity to
rebut complaint before making representation to President that his removal be investigated – Whether Chief Justice having power to bar judge from
sitting as part of administrative arrangements –Whether Chief Justice acted outside his administrative powers – Whether commission required to give
judge opportunity to rebut complaint before making representation to President that his removal be investigated – Constitution of the Republic of
Trinidad and Tobago (Trinidad and Tobago), s 137.
The respondent was the senior puisne judge of the High Court of Trinidad and Tobago. As a High Court judge he held office in accordance with ss 136
and 137a of the Constitution. Section 136 provided that a judge’s salary and other terms of service could not be altered to his disadvantage after his
appointment and s 137 provided that a judge could only be removed from office by the President on the advice of the Judicial Committee of the Privy
Council for inability to perform the functions of his office or misbehaviour. Section 137 further provided that where the Judicial and Legal Service
Commission considered that the removal of a judge ought to be investigated the President was required to appoint a tribunal consisting of a chairman and
not less than two members of the judiciary in some part of the Commonwealth to inquire into the matter and recommend whether the President should
refer the question of the judge’s removal to the Judicial Committee. The President had power to suspend the judge while the inquiry was taking place. In
1990 the Chief Justice decided that the respondent was not fit to carry out his duties and, with the approval of the Judicial and Legal Service Commission,
decided that he would not be listed in the roster of judges dealing with cases for the law term October 1990 to January 1991. The commission wrote to
the respondent stating that it agreed with the decision of the Chief Justice that he should cease to preside in court until further notice because of
complaints about his performance in court and doubts about his current state of health. In October the Chief Justice, who was ex officio a member of the
commission, placed before it material relating to the respondent’s performance and, having considered that material in the Chief Justice’s absence, the
commission decided to recommend to the President that the question of the respondent’s removal from office be investigated under s 137. The President
accordingly set up a tribunal of inquiry into the respondent’s ‘inability to perform the functions of his office … and/or misbehaviour’ and suspended the
respondent. The respondent applied for judicial review of the decisions made by the Chief Justice and/or the commission to prohibit the respondent from
presiding in court and by the commission to represent to the President that the question of removing 833 the respondent from office ought to be
investigated, contending that those decisions were ultra vires because he had not been given the opportunity of making representations before those
decisions were made and the decisions were vitiated by bias on the part of the Chief Justice and the commission. The respondent also issued proceedings
(the constitutional motion) seeking a declaration that the appointment of the tribunal and his suspension had infringed his rights under the constitution.
The trial judge held that the Chief Justice and the commission had acted ultra vires in suspending the respondent but refused relief on the grounds that the
decisions had been overtaken by events. On appeal by the respondent the Court of Appeal held that the suspension of the respondent was unlawful and
quashed the decisions on the grounds that there had been a breach of the rules of natural justice and of his constitutional rights and on the constitutional
motion held that the tribunal set up by the President should be prohibited for proceeding with its inquiry. The court also held that the respondent was
entitled to damages. However, the court further held that the Chief Justice and the commission had not been affected by bias in deciding that a
representation should be made to the President that the question of the respondent’s removal from office should be investigated. The Chief Justice, the
commission, the tribunal and the Attorney General appealed to the Privy Council. The respondent cross-appealed from the Court of Appeal’s finding that
the decisions of the Chief Justice and the commission were not affected by bias in making the decisions impugned.
________________________________________
a Section 137 is set out at p 837 j to p 838 f, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – (1) The Chief Justice had power to organise the procedures and sitting of the courts in such way as was reasonably necessary for the due
Preamble
administration of justice, including allocating a judge to do particular work, to take on administrative tasks, requiring him not to sit if necessary because
of the backlog of reserved judgments in the particular judge’s list, or because of such matters as illness, accident or family or public obligations or, if
allegations were made against a judge, arranging for him only to do a particular type of work for a period or not to sit on a particular type of case or even
temporarily not to sit at all. However, s 137 of the Constitution provided an exclusive procedure for the suspension of a judge or the termination of his
appointment and suspension or termination could not be carried out under the guise of administrative arrangements. The Chief Justice’s decision that the
respondent should not sit until further notice effectively barred him from exercising his functions as a judge sitting in court and went beyond a mere
administrative arrangement. The decision was therefore ultra vires the Chief Justice. Similarly, the commission’s decision purporting either to suspend
the judge or to confirm the Chief Justice’s decision to do so was ultra vires. The decision to suspend the respondent was therefore properly quashed by
the Court of Appeal (see p 840 j to p 841 g and p 850 j, post).
(2) Although natural justice would not normally require that a person be told of the complaints against him and given an opportunity to answer them
if the investigation into the complaints was purely a preliminary inquiry and the person affected was entitled to be heard at a later stage of the inquiry or
investigation, there was no universal rule to that effect. Nor did it follow that because the rules of natural justice applied to the procedure as a whole they
did not have to be applied at any individual stage. The courts were not bound by rigid rules as to when the audi alteram partem rule applied and would
have regard to all the circumstances of the case. Although the respondent would 834 have had an opportunity to answer the complaint made against
him at a later stage before the tribunal and before the Judicial Committee, fairness required that the audi alteram partem rule be applied at the commission
stage of the proceedings to suspend or dismiss a judge. The commission was not intended simply to be a conduit by which complaints were passed on by
way of representation to the President but had to be satisfied that the complaint had prima facie sufficient basis in fact and was sufficiently serious to
warrant a representation to the President, being effectively the equivalent of impeachment proceedings. Both in deciding what material it needed in order
to make such a decision and in deciding whether to represent to the President the commission was required to act fairly. In fact the commission had not
simply acted as a conduit but had asked the Chief Justice for more detailed and specific evidence in support of the respondent’s inability to perform the
functions of his office before making its decision and there was no reason why that information could not have been given to the respondent and an
opportunity given to him to reply. Given the seriousness of the charges against the respondent, including misbehaviour, the publicity surrounding the
respondent’s suspension and the appointment of the tribunal of inquiry, and the damage to the respondent’s reputation and position as a judge, the
respondent had not been treated fairly and ought to have been given the opportunity to reply to the charges before the representation was made to the
President so that suspicion and damage to his reputation would be avoided if he rebutted the charges. The appeal would therefore be dismissed (see p 844
j to p 845 a c f to j, p 846 b to p 847 f, p 848 j to p 849 a c f and p 850 j, post); dictum of Tucker LJ in Russell v Duke of Norfolk [1949] 1 All ER 109 at
118 applied.
(3) Although there was unchallenged evidence that the relationship between the Chief Justice and the respondent was acrimonious the Chief Justice
was entitled to refer the complaints against the respondent to the commission and it had not been established that there was a real danger of bias in his
doing so. Nor was there any evidence that the commission had been improperly influenced by the Chief Justice, notwithstanding his presence at the
commission’s meetings. The fact that the respondent should have been given an opportunity to make representations before the commission reached its
decision did not mean that the commission was biased. The cross-appeal would therefore be dismissed (see p 849 b c f, p 850 c to e j, post).
Notes
For the removal of a judge from office, see 8 Halsbury’s Laws (4th edn) para 1108, and for cases on the subject, see 11 Digest (Reissue) 672, 89–92.
For the Constitution and judiciary of Trinidad and Tobago, see 6 Halsbury’s Laws (4th edn reissue) para 971.

Furnell v Whangarei High Schools Board [1973] 1 All ER 400, [1973] AC 660, [1973] 2 WLR 92, PC.
Guay v Lafleur (1964) 47 DLR (2d) 226, Can SC.
Le Compte, Van Leuven and De Meyer v Belgium (1981) 4 EHRR 1, E Ct HR.
Lewis v Heffer [1978] 3 All ER 354, [1978] 1 WLR 1061, CA.
Norwest Holst Ltd v Dept of Trade [1978] 3 All ER 280, [1978] Ch 201, [1978] 3 WLR 73, CA.
835
Parry-Jones v Law Society [1968] 1 All ER 177, [1969] 1 Ch 1, [1968] 2 WLR 397, CA.
R v Birmingham City Council, ex p Ferrero Ltd [1993] 1 All ER 530, CA.
R v Gough [1993] 2 All ER 724, [1993] AC 646, [1993] 2 WLR 883, HL.
R v Panel on Take-overs and Mergers, ex p Fayed [1992] BCLC 938, CA.
Russell v Duke of Norfolk [1949] 1 All ER 109, CA.
Wiseman v Borneman [1969] 3 All ER 275, [1971] AC 297, [1969] 3 WLR 706, HL.
Appeal
Evan Rees, Garvin Scott, Mr Justice Lennox Deyalsingh (being members of a tribunal established by the President of Trinidad and Tobago on 22
November 1992 to inquire into the question whether the respondent, Richard Alfred Crane, the senior puisne judge of the High Court of Trinidad and
Tobago, should be removed from office), Chief Justice Clinton Bernard, Sir Isaac Hyatali, Guya Persaud, Kenneth Lalla, Maurice Corbin (being members
of the Judicial and Legal Service Commission) and the Attorney General of Trinidad and Tobago appealed with leave granted by the Court of Appeal of
Trinidad and Tobago on 8 March 1993 from the judgment of that court (Ibrahim and Davis JJA (Sharma J dissenting)) dated 20 November 1992 reversing
the judgment of the High Court of Trinidad and Tobago (Blackman J) dated 21 March 1991 refusing to grant the respondent relief by way of (i) judicial
review quashing the decisions (a) of the Chief Justice and/or of the commission on 19 July 1991 prohibiting the respondent from presiding in court and (b)
of the commission on 29 November 1991 to represent to the President that the question of removing the respondent from office ought to be investigated or
(ii) by way of an order prohibiting the first three appellants from proceeding as a tribunal to inquire into the question of removing the respondent as a
judge of the High Court. The Court of Appeal granted the respondent the relief sought together with damages to be assessed by a judge in chambers. The
respondent cross-appealed from the Court of Appeal’s finding that the decisions of the Chief Justice and the commission were not affected by bias in
making the decisions impugned. The facts are set out in the judgment of the Board.
Lord Lester of Herne Hill QC, Bruce Procope QC (of the Trinidad and Tobago Bar) and Mark Shaw (instructed by Charles Russell) for the Chief Justice
and the commission.
Michael de la Bastide QC and Russell Martineau SC (both of the Trinidad and Tobago Bar) (instructed by Charles Russell) for the tribunal and the
Attorney General.
Geoffrey Robertson QC and Andrew Nicol (instructed by Simons Muirhead & Burton) for the respondent.
Preamble
14 February 1994. The following judgment of the Board was delivered.
LORD SLYNN OF HADLEY. This is an appeal from a judgment of the Court of Appeal of Trinidad and Tobago dated 20 November 1992 which by a
majority reversed much of the judgment of Blackman J in proceedings in the High Court (a) for judicial review and (b) by way of motion pursuant to s
14(1) of the Constitution.
836
The respondent to the appeal is, and has been since 1978, a judge, and since 1985 has been the senior puisne judge, of the High Court of Trinidad
and Tobago.
The fourth appellant is the Chief Justice of Trinidad and Tobago and the chairman of the Judicial and Legal Service Commission appointed under s
110 of the Constitution; the fifth to eighth appellants are members of that commission. The first three appellants are members of a tribunal appointed by
the President of Trinidad and Tobago to consider the position of the respondent in circumstances which are hereinafter explained. The ninth appellant is
joined in particular to answer the claims made under the constitutional motion.
In brief the appeal is against orders of the Court of Appeal (Ibrahim and Davis JJA (Sharma JA dissenting)) that (i) on the application for judicial
review the decisions (a) of the Chief Justice and/or of the commission to prohibit the respondent from presiding in court and (b) of the commission to
represent to the President that the question of removing the respondent from office ought to be investigated, being ultra vires, should be quashed and the
commission should be prohibited from representing to the President that such question ought to be investigated and (ii) on the constitutional motion (a)
the first three appellants should be prohibited from proceeding as a tribunal to inquire into the question of removing the respondent as a judge of the High
Court and (b) damages should be assessed by a judge in chambers.
The respondent asked the Court of Appeal to find that there was actual bias on the part of the Chief Justice and that the commission was biased in
considering whether the question referred to above should be represented to the President for investigation.
Davis JA accepted that there was bias which vitiated the decision. Sharma JA roundly rejected that contention. Ibrahim JA found it unnecessary to
decide the question in view of his judgment on the other matters raised. The respondent accordingly cross-appeals against the failure or refusal of the
Court of Appeal to quash the suspension of the judge and the representation of the question on the ground of bias.
In Trinidad and Tobago judges of the High Court (part of the Supreme Court of Judicature) are appointed by the President acting in accordance with
the advice of the commission (s 104(1) of the Constitution). The commission established under s 110 is composed of the Chief Justice, the chairman of
the Public Service Commission, one person having prescribed judicial experience and two persons having legal qualifications. Its members are excluded
from those members of commissions who may be removed from office by the President.
A judge so appointed shall hold office in accordance with ss 136 and 137 of the Constitution. Section 136(1) provides an age limit at which judges
must vacate office, but it also provides that the salary and other terms of service of a judge shall not be altered to his disadvantage after his appointment
(sub-s (6)).
Section 137 lays down a special code for the removal from office of a judge, which is at the centre of the arguments in this appeal. It provides:
‘(1) A Judge may be removed from office only for inability to perform the functions of his office, (whether arising from infirmity of mind or
body or any other cause), or for misbehaviour, and shall not be so removed except in accordance with the provisions of this section.
(2) A Judge shall be removed from office by the President where the question of removal of that Judge has been referred by the President to the
837 Judicial Committee and the Judicial Committee has advised the President that the Judge ought to be removed from office for such inability
or for misbehaviour.
(3) Where the Prime Minister, in the case of the Chief Justice, or the Judicial and Legal Service Commission, in the case of a Judge, other than
the Chief Justice, represents to the President that the question of removing a Judge under this section ought to be investigated, then—(a) the
President shall appoint a tribunal, which shall consist of a chairman and not less than two other members, selected by the President, acting in
accordance with the advice of the Prime Minister in the case of the Chief Justice or the Prime Minister after consultation with the Judicial and Legal
Service Commission in the case of a Judge, from among persons who hold or have held office as a judge of a court having unlimited jurisdiction in
civil and criminal matters in some part of the Commonwealth or a court having jurisdiction in appeals from any such court; (b) the tribunal shall
enquire into the matter and report on the facts thereof to the President and recommend to the President whether he should refer the question of
removal of that Judge from office to the Judicial Committee; and (c) where the tribunal so recommends, the President shall refer the question
accordingly.
(4) Where the question of removing a Judge from office has been referred to a tribunal under subsection (3), the President, acting in accordance
with the advice of the Prime Minister in the case of the Chief Justice or the Chief Justice in the case of a Judge, other than the Chief Justice, may
suspend the Judge from performing the functions of his office, and any such suspension may at any time be revoked by the President, acting in
accordance with the advice of the Prime Minister in the case of the Chief Justice or the Chief Justice in the case of a Judge, other than the Chief
Justice, and shall in any case cease to have effect—(a) where the tribunal recommends to the President that he should not refer the question of
removal of the Judge from office to the Judicial Committee; or (b) where the Judicial Committee advises the President that the Judge ought not to
be removed from office.’
Reliance has also been placed on the provisions of the Constitution which recognise and protect fundamental human rights and freedoms, and in
particular the following provisions:
‘4 … (a) the right of the individual to life, liberty, security of the person and enjoyment of property and the right not to be deprived thereof
except by due process of law; (b) the right of the individual to equality before the law and the protection of the law ...
5 ... (2) Without prejudice to subsection (1), but subject to this Chapter and to section 54, Parliament may not ... (e) deprive a person of the right
to a fair hearing in accordance with the principles of fundamental justice for the determination of his rights and obligations ... (h) deprive a person
of the right to such procedural provisions as are necessary for the purpose of giving effect and protection to the aforesaid rights and freedoms.’
The respondent had presided in court until 27 July 1990, the end of the current legal term. He then went abroad. Even before he left, and without his
being informed, the Chief Justice decided that he would not be listed in the roster of judges dealing with cases for the law term October 1990 to January
1991. This decision was brought before the commission on 19 July 1990 and was 838 either adopted or agreed to by the commission, again without
his being informed before he left. Following his return early in September, and some two weeks before the new term was due to begin, the respondent
looked at the list assigning judges for that term. He saw that he was not assigned to any court and was the only judge not so assigned.
Preamble
He tried to meet the Chief Justice on several occasions but was unsuccessful until 8 October 1990, when he delivered a letter to the Chief Justice’s
secretary by hand and was then seen by the Chief Justice. He was told by the latter that a letter had been sent to him in August conveying a decision of
the commission, though the respondent says that he was not told its purport. Later on that day he was sent a copy of a letter dated 23 August 1990 signed
by the acting Director of Personnel Administration, and subsequently he found in a pile of mail at his home the original letter of that date. It is not in
dispute that the original letter was sent but that he had not seen it since he returned from abroad. The letter said:
‘I have to inform you that the Judicial and Legal Service Commission, having considered complaints about your performance in court and
doubts about your current state of health, has decided that you should cease to preside in court until further notice.’
The respondent by letter dated 9 October to the commission denied that there were any grounds for complaint against him, and protested that the
decision was unlawful. The commission’s reply was to change the last part of the paragraph cited above from saying that the commission ‘has decided
that’ to read ‘agreed with the decision of the Chief Justice’ that ‘you should cease to preside in court until further notice’.
At meetings on 15, 25 and 26 October 1990 the commission discussed the question of the respondent’s ability to perform his office. Mr Pierre, an
official present thereat, deposed that at the first meeting the commission decided that before it could make a representation to the President under s 137(3)
of the Constitution ‘it was necessary for the commission to have in its possession more detailed and specific evidence in support of the judge’s inability to
perform the functions of his office’. At the second meeting the Chief Justice presented statistics and records relating to the respondent’s performance in
court and then left the meeting when another member took the chair. The Chief Justice returned on 26 October when the members had had a chance to
study the material but he did not take part in the discussion.
The commission resolved that it would represent to the President under s 137(3) that ‘the question of removing the Honourable Mr. Justice Crane
from his office of Puisne Judge ought to be investigated’ and on 29 October it did so. On 22 November the President appointed the first three appellants
as members of the tribunal to inquire into the question pursuant to s 137(3)(a) of the Constitution. The respondent learned of this through a television
report on that day and only received written notice on 30 November 1990 when he was told that a hearing would take place on 3 December. By
Instrument dated 23 November 1990 the President pursuant to s 137(4) of the Constitution suspended the respondent from performing the functions of his
office of a judge of the High Court. The respondent was handed a copy of this instrument by a policeman in a public street at 4.00 pm.
Before the President made these two orders the respondent had asked for judicial review and the hearings were proceeding on these very days.
Leave was 839 granted on 23 November for him so to apply, the very day the President made his order of suspension under s 137(4) of the
Constitution. The judicial review proceedings began on 27 November pursuant to the leave given and the constitutional motion was issued on 4
December 1990.
It is not disputed that the respondent was not told of the complaints which had been made or of the statistics or records provided for the commission
at its meeting nor was he told that the commission had decided to make and had made the representation to the President.
By letter dated 3 December 1990 from the secretary to the President the respondent was told that, the commission having ‘represented to His
Excellency that the question of removing you from office for inability to perform the functions of your office and/or misbehaviour [my emphasis] ought
to be investigated’, the tribunal had been appointed to inquire into the matter. The instrument of appointment of the tribunal enclosed with that letter
referred to ‘inability to perform the functions of his office arising from infirmity of body and/or for misbehaviour’ [my emphasis].
This was the first time the respondent had been told that these two aspects were included and he was told nothing of what had been represented to the
President by the commission.
The trial judge found that the Chief Justice and the commission had acted ultra vires in suspending the respondent, yet relief was refused on this
issue because the judge thought that that act had been overtaken by the President’s order suspending the respondent. The judge also refused the rest of the
application. In the Court of Appeal the majority accepted that the suspension of the judge was unlawful and that there had been a breach of the rules of
natural justice and of his constitutional rights. They did not decide the issue of bias in his favour.
The first question which arises, chronologically, is whether the decision not to include the respondent on the list of judges sitting in court between
October 1990 and January 1991 was unlawful. This should be considered first on the basis that the decision was that of the Chief Justice (as the trial
judge found on the evidence) and that the commission merely agreed with it as they stated in their letter dated 16 October 1990. It is contended by the
appellants that to do this was wholly within the competence of the Chief Justice who was responsible for the administration of the court over which he
presided.
It is clear that the Chief Justice is not only President of the Court of Appeal (s 101(1)) and ex officio a member of the High Court (s 100(1)) but is
also the head of judicial administration of Trinidad and Tobago. By the Rules of the Supreme Court 1975, made pursuant to the Supreme Court of
Judicature Act, the Chief Justice is given certain specific powers. Thus by Ord 32, r 21 he may give directions relating to the listing of cases and by Ord
34, r 4(1)(d) he may give directions providing for a judge to hear and determine any application made with respect to the lists and to have charge of the
lists. There is an overriding provision in Ord 1, r 10(2) that where the rules do not make express provision for the giving of directions by the Chief Justice
and the Chief Justice is of the opinion that directions ought to be given, he may, subject to the provisions of the rules, give such directions as he thinks fit
with respect to any aspect of the practice or procedure followed in the Supreme Court.
Their Lordships accept that, even outside these specific provisions of the rules, the Chief Justice must have the power to organise the procedures and
sitting of the courts in such way as is reasonably necessary for the due 840 administration of justice. This may involve allocating a judge to do
particular work, to take on administrative tasks, requiring him not to sit if it is necessary because of the backlog of reserved judgments in the particular
judge’s list, or because of such matters as illness, accident or family or public obligations. It is anticipated that these administrative arrangements will
normally be made amicably and after discussion between the Chief Justice and the judge concerned. It may also be necessary, if allegations are made
against the judge, that his work programme should be rearranged so that for example he only does a particular type of work for a period, or does not sit on
a particular type of case or even temporarily he does not sit at all. Again this kind of arrangement can be and should be capable of being made by
agreement or at least after frank and open discussion between the Chief Justice and the judge concerned.
The exercise of these powers, however, must be seen against the specific provisions of the Constitution relating to the suspension of a judge’s
activities or the termination of his appointment. It is clear that s 137 of the Constitution provides a procedure and an exclusive procedure for such
suspension and termination and, if judicial independence is to mean anything, a judge cannot be suspended nor can his appointment be terminated by
others or in other ways. The issue in the present case is thus whether what the Chief Justice did was merely within his competence as an administrative
arrangement or whether it amounted to a purported suspension.
Their Lordships agree with the majority in the Court of Appeal that what happened here went beyond mere administrative arrangement. Despite the
fact that the respondent continued to receive his salary and theoretically (as has been argued) could have exercised some power, eg to grant an injunction
if approached directly to do so, the respondent was effectively barred from exercising his functions as a judge sitting in court. He was left out of the
October to January roster and there was no indication that he would thereafter sit again. It was in effect an indefinite suspension. This in their Lordships’
view was outwith the powers of the Chief Justice. Such action was not retrospectively corrected by the subsequent order of the President. The suspension
Preamble
was wrongful as long as it lasted and the majority of the Court of Appeal were entitled and right to quash the Chief Justice’s decision.
As the appellants accept, the commission had no power or function in relation to the suspension or removal of a judge other than the powers laid
down in the Constitution. Whether in this case they purported to confirm the Chief Justice’s decision or whether they purported to suspend the judge
themselves, they had no power to do so and their decision should, as the majority in the Court of Appeal considered, be set aside.
The respondent’s second line of attack—on the decision of the commission to represent to the President that the question of removing the respondent
from his office ought to be investigated, and the consequent appointment of the members of the tribunal—is based firstly under the constitutional motion
on the alleged breach of ss 4(a), (b), 5(2)(e) and (h) of the Constitution, and, secondly, on the application for judicial review, on the basis that the
commission acted unfairly and in breach of the principles of fundamental justice. They did not notify the respondent that the question of removing him
was being considered, nor did they give him any notice of the complaints made against him, nor did they give him any chance to reply to them.
Whether s 5(2) is relevant at all seems doubtful since it imposes a prohibition only on the Parliament of Trinidad and Tobago but the ‘protection of
the law’ 841 referred to in s 4(b) upon which the respondent also relies would include the right to natural justice. A claim under the constitutional
motion and on the application for judicial review thus in substance raise the same issue.
The appellants contend that proceedings under s 137 are in three parts which in combination are intended to protect, and sufficiently to protect, the
independence of the judiciary. The commission, however, merely initiates the process—it does no more than to represent to the President that a question
ought to be investigated. It makes no decision or determination; it finds no facts; it does not even state an opinion. The tribunal may ‘recommend’ that
the question of removal of the judge from office be referred to the Judicial Committee of the Privy Council, but it has no further power. It is only the
latter which can advise the President that the judge ought to be removed from office when the President must act on that advice (s 137(2)).
Accordingly, it is said if the commission represents to the President that a question of a judge’s removal be investigated it is two stages away from
the final advice which if in favour of removal inexorably leads to removal of the judge from office. When the commission makes its representation
whether the judge will be removed is unknown—the tribunal may recommend that the question of removal from office be not referred to the Privy
Council and the Privy Council itself may decide that the judge be not removed.
It is, thus, contended by the appellants that the real inquiry and fact finding come after the commission has passed out of the picture and there is no
causal link between the commission’s representation and the subsequent stages. The fact that the judge is suspended is not a penalty and implies no
culpability. Moreover the decision suspends him not from office but from ‘performing the functions of his office’. Such a course, it is said, is necessary
in the public interest and the procedures should not be delayed by any obligation on the commission to tell the judge that they are investigating his ability
or behaviour, or to tell him what are the complaints made against him, or to give him a chance to deal with them. Moreover, there was no holding out to
the respondent in this case that he would be given notice of any complaints or that he would be given an opportunity to deal with them so that no
legitimate expectation of his can be said to be violated.
Their Lordships accept that s 137(3) envisages three stages, before the commission, the tribunal and the Judicial Committee of the Privy Council, and
indeed there may be a prior stage since it is likely that complaints will have originated with or been channelled through the Chief Justice.
It is also correct, as the appellants contend, that in a number of cases to which they refer it has been decided that in certain preliminary or initiating
procedures there was no right on the part of an individual to know of complaints or to be allowed to answer them. That right may arise at a later stage and
the appellants accept that a judge being investigated has a right to know of complaints, and to have an opportunity to deal with them, before the tribunal
and before the Judicial Committee of the Privy Council. It thus falls to be decided whether in this case the right to be informed and to reply at a later
stage dispenses with the obligation or duty to inform at the commission stage.
Lord Lester QC, for the appellants, cited many decisions of English and Commonwealth courts and of the European Court of Human Rights. It is
sufficient to refer to examples of these. Thus in Lewis v Heffer [1978] 3 All ER 354, [1978] 1 WLR 1061 officers of a constituency political party were
suspended pending an inquiry. The Court of Appeal held that the rules of natural justice 842 did not apply since suspension was a holding operation
pending inquiry and ‘the suspension in such a case is merely done by way of good administration’ (see [1978] 3 All ER 354 at 364, [1978] 1 WLR 1061
at 1073 per Lord Denning MR). Geoffrey Lane LJ regarded what happened in that case as ‘an administrative action which had to be taken immediately’
(see [1978] 3 All ER 354 at 368–369, [1978] 1 WLR 1061 at 1078). He continued:
‘In most types of investigation there is in the early stages a point at which action of some sort must be taken and must be taken firmly in order
to set the wheels of investigation in motion. Natural justice will seldom if ever at that stage demand that the investigator should act judicially in the
sense of having to hear both sides. No one’s livelihood or reputation at that stage is in danger. But the further the proceedings go and the nearer
they get to the imposition of a penal sanction or to damaging someone’s reputation or to inflicting financial loss on someone the more necessary it
becomes to act judicially, and the greater the importance of observing the maxim, audi alteram partem.’ (Geoffrey Lane LJ’s emphasis.)
In Furnell v Whangarei High Schools Board [1973] 1 All ER 400, [1973] AC 660 their Lordships’ Board held by a majority (Viscount Dilhorne and
Lord Reid dissenting) that when a sub-committee reported to a school board the result of its investigation, and the board suspended the teacher concerned
without giving him an opportunity to deal with the charges made against him, there was no breach of natural justice. The teacher knew that he might be
suspended ‘pending the determination of the charges against him’. Lord Morris of Borth-y-Gest, in giving the advice of the majority, said ([1973] 1 All
ER 400 at 412, [1973] AC 660 at 679):
‘It has often been pointed out that the conceptions which are indicated when natural justice is invoked or referred to are not comprised within
and are not to be confined within certain hard and fast and rigid rules (see the speeches in Wiseman v Borneman [1969] 3 All ER 275, [1971] AC
297). Natural justice is but fairness writ large and juridically. It has been described as “fair play in action”. Nor is it a leaven to be associated only
with judicial or quasi-judicial occasions.’
In Wiseman v Borneman the House of Lords held that where s 28 of the Finance Act 1960 laid down a procedure which enabled the Commissioners
of Inland Revenue by a certificate to refer to the tribunal, constituted for the purposes of the section, the question whether there was a prima facie case for
proceeding against a taxpayer, natural justice did not require that the taxpayer should have the right to be represented by counsel at the tribunal’s
determination of that question or to see the commissioner’s certificate.
Lord Lester relies on what was said by Lord Reid ([1969] 3 All ER 275 at 277–278, [1971] AC 297 at 308):
‘It is, I think, not entirely irrelevant to have in mind that it is very unusual for there to be a judicial determination of the question whether there
is a prima facie case. Every public officer who has to decide whether to prosecute or raise proceedings ought first to decide whether there is a
prima facie case but no one supposes that justice requires that he should first seek the comments of the accused or the defendant on the material
843 before him. So there is nothing inherently unjust in reaching such a decision in the absence of the other party.’
Lord Morris of Borth-y-Gest stressed the importance of observing the rules of natural justice (see [1969] 3 All ER 275 at 278, [1971] AC 297 at 309).
Preamble
He added:
‘The principles and procedures are to be applied which, in any particular situation or set of circumstances, are right and just and fair.’
He continued:
‘... we were referred to many decisions. I think that it was helpful that we should have been. But ultimately I consider that the decision depends
upon whether in the particular circumstances of this case the tribunal acted unfairly so that it could be said that their procedure did not match with
what justice demanded.’
Lord Guest said ([1969] 3 All ER 275 at 279, [1971] AC 297 at 310):
‘It is reasonably clear on the authorities that where a statutory tribunal has been set up to decide final questions affecting parties’ rights and
duties, if the statute is silent upon the question, the courts will imply into the statutory provision a rule that the principles of natural justice should
be applied.’
Moreover he took the view that a tribunal required to decide a preliminary point, which might affect parties’ rights, like a tribunal entrusted with a final
decision ought to be required to apply the rules of natural justice. On this latter point, Lord Wilberforce took a similar approach to that of Lord Guest (see
[1969] 3 All ER 275 at 285, [1971] AC 297 at 317). He too stressed that the test was one of fairness in the circumstances.
The decision in Wiseman v Borneman has been applied in many cases, eg R v Birmingham City Council, ex p Ferrero Ltd [1993] 1 All ER 530 (on
the basis of the need for immediate action in order to protect third parties), Norwest Holst Ltd v Dept of Trade [1978] 3 All ER 280, [1978] Ch 201 (where
it was held that there was no right to appear before the Secretary of the State on the question whether inspectors should be appointed under s 165 of the
Companies Act 1948), Parry-Jones v Law Society [1968] 1 All ER 177, [1969] 1 Ch 1 (where it was accepted that a solicitor had no right to know what
complaints were made under the Accounts Rules before a notice requiring him to produce documents for inspection was served) and R v Panel on
Take-overs and Mergers, ex p Fayed [1992] BCLC 938 (where the decision of the executive of the Panel on Take-overs and Mergers to institute
disciplinary proceedings on the basis of a prima facie case, was held not to require the giving of notice).
By way of illustration from other jurisdictions their Lordships refer also to Guay v Lafleur (1964) 47 DLR (2d) 226 and Le Compte, Van Leuven and
De Meyer v Belgium (1981) 4 EHRR 1 at 18–19 (para 51).
It is clear from the English and Commonwealth decisions which have been cited that there are many situations in which natural justice does not
require that a person must be told of the complaints made against him and given a chance to answer them at the particular stage in question. Essential
features leading the courts to this conclusion have included the fact that the investigation is purely preliminary, that there will be a full chance adequately
to deal with the complaints later, that the making of the inquiry without observing the audi alteram partem maxim is justified by urgency or administrative
844 necessity, that no penalty or serious damage to reputation is inflicted by proceeding to the next stage without such preliminary notice, that the
statutory scheme properly construed excludes such a right to know and to reply at the earlier stage.
But in their Lordships’ opinion there is no absolute rule to this effect even if there is to be, under the procedure, an opportunity to answer the charges
later. As de Smith’s Judicial Review of Administrative Action (4th edn, 1980) p 199 puts it:
‘Where an act or proposal is only the first step in a sequence of measures which may culminate in a decision detrimental to a person’s interests,
the courts will generally decline to accede to that person’ s submission that he is entitled to be heard in opposition to this initial act, particularly if
he is entitled to be heard at a later stage.’ (My emphasis.)
In considering whether this general practice should be followed, the courts should not be bound by rigid rules. It is necessary, as was made clear by
Tucker LJ in Russell v Duke of Norfolk [1949] 1 All ER 109 at 118 (as approved by Lord Guest in Wiseman v Borneman [1969] 3 All ER 275, [1971] AC
297 and by Lord Morris of Borth-y-Gest in Furnell v Whangarei High Schools Board [1973] 1 All ER 400, [1973] AC 660) to have regard to all the
circumstances of the case:
‘There are, in my view, no words which are of universal application to every kind of inquiry and every kind of domestic tribunal. The
requirements of natural justice must depend on the circumstances of the case, the nature of the inquiry, the rules under which the tribunal is acting,
the subject matter that is being dealt with, and so forth. Accordingly, I do not derive much assistance from the definitions of natural justice which
have been from time to time used, but, whatever standard is adopted, one essential is that the person concerned should have a reasonable
opportunity of presenting his case.’
Plainly in the present case there would have been an opportunity for the respondent to answer the complaint at a later stage before the tribunal and
before the Judicial Committee. That is a pointer in favour of the general practice but it is not conclusive. Section 137 which sets up the three-tier process
is silent as to the procedure to be followed at each stage and as a matter of interpretation is not to be construed as necessarily excluding a right to be
informed and heard at the first stage. On the contrary its silence on procedures in the absence of other factors indicates, or at least leaves open the
possibility, that there may well be circumstances in which fairness requires that the party whose case is to be referred should be told and given a chance to
comment. It is not a priori sufficient to say, as the appellants in effect do, that it is accepted that the rules of natural justice apply to the procedure as a
whole but they do not have to be followed in any individual stage. The question remains whether fairness requires that the audi alteram partem rule be
applied at the commission stage.
One thing is abundantly plain in this case, namely that the appellants cannot rely on urgency or administrative necessity to justify not telling the
respondent what was being complained of. The Chief Justice reached the opinion that the respondent should not continue to sit on 19 July but allowed
him to continue to sit until 27 July. The question of a representation was not discussed by the commission until 15 October and not decided until 26
October; the President did not act on it until 22 November. The respondent was back in Trinidad by 845 18 September 1990; there is no evidence that
he could not have been contacted whilst he was abroad or that in the period between 18 September and 15 October the Chief Justice was not able to
contact him. On the contrary they met on 8 October when the respondent was not told of the matters the commission was to consider.
It is also in their Lordships’ view clear that the commission is not intended simply to be a conduit pipe by which complaints are passed on by way of
representation. The commission may receive isolated complaints of a purely administrative nature which they consider can be dealt with adequately
through administrative action by the Chief Justice. Then they would no doubt not make a representation that the question of removal be considered.
Indeed it may well in the public interest be desirable that such matters be dealt with quickly by the Chief Justice rather than that the full panoply of
representation, tribunal and the Judicial Committee be set in motion. The commission before it represents must, thus, be satisfied that the complaint has
Preamble
prima facie sufficient basis in fact and must be sufficiently serious to warrant representation to the President, effectively the equivalent of impeachment
proceedings. Both in deciding what material it needs in order to make such a decision and in deciding whether to represent to the President, the
commission must act fairly.
In the present case the commission did not simply act as a conduit pipe. On the contrary when it met on 15 October it decided that it needed ‘more
detailed and specific evidence in support of the judge’s inability to perform the functions of his office’. When they received the information on 25
October they adjourned ‘to allow members to fully acquaint themselves with the material made available to them by the Chief Justice’ (see the affidavit of
Nigel Pierre).
It has not been shown that it was not possible for this material to be given to, and replied to by, the respondent or that unacceptable delay would have
followed had such a course been taken.
Nor is it right to say that the commission’s action is analogous to the decision of a police officer to charge a defendant in a criminal process. The
composition of the commission and the nature of the process made what happened here more akin to a quasi-judicial decision.
The nature of the broad categories of complaint made in the present case is also a relevant factor in deciding what fairness demanded. It has been
said that the commission represented that the question of removal arose from ‘inability to perform the functions of his office’ which itself derived ‘from
infirmity of body and/or misbehaviour’.
These are both serious charges. They might in whole or in part have been capable of rebuttal if the respondent had known what the precise
complaints were. If it was said that he was physically ill, what was the illness, had it passed, what were its consequences for his ability to work, are all
questions which might have been dealt with briefly and conclusively by the respondent’ s doctor or by an independent doctor. If the complaints were of
his adjournment of cases, had he done so at the parties’ request? Or was there a good reason for doing so? These are questions which could have been
responded to by the judge and perhaps his associate or Registrar.
It is true, as the appellants contend, that a decision to make a representation is not itself a punishment or penalty and that the eventual dismissal
requires two further investigations. That, in their Lordships’ view, is too simplistic an approach in resolving the present questions. There was obviously
considerable publicity for the decision to make a representation even if the detailed charges 846 were not publicised. Indeed it was reported on the
television news on 22 November that the President had appointed a tribunal to investigate whether the respondent should be removed as a judge,
apparently even before the respondent received from a policeman in the street a copy of the President’s decision suspending him from office.
The fact that a representation was made, a tribunal appointed and the respondent suspended on the basis of bodily infirmity and misbehaviour were
bound to raise suspicion or conviction that the commission and even the President were satisfied that the charges were made out, in a way which
subsequent revocation of the suspension would not necessarily dissipate. If the respondent had had a chance to reply to such charges and had been given
the opportunity to do so before the representation was made this suspicion and damage to his reputation might have been avoided. If he gave no adequate
reply then the matter could have gone forward without justifiable complaint on his part.
Moreover even in the absence of bias, the fact that the complaints were being made by a member of the commission itself requires that particular
attention should be paid to the need for fairness. It is indeed surprising that as between two colleagues, even accepting the need for the Chief Justice to
take decisive action, if the circumstances required it, for the proper administration of his court, no indication of the complaints or opportunity to reply was
given to the respondent before the commission took its decision.
The consideration of these factors and their Lordships’ conclusion on them are not based specifically on the nature of the judicial function or the fact
that the respondent is a judge. A similar approach would apply mutatis mutandis to other persons who could rely on the same considerations. But a
judge, though by no means uniquely, is in a particularly vulnerable position both for the present and for the future if suspicion of the kind referred to is
raised without foundation. Fairness, if it can be achieved without interference with the due administration of the courts, requires that the person
complained of should know at an early stage what is alleged so that, if he has an answer, he can give it.
Their Lordships have been referred to the Report of the Committee of Investigation to the Canadian Judicial Council ((1982) 28 McGill LJ 380) and
a report of the Senate Judiciary Committee hearing allegations against a judge in 1984 in the United States, in both of which inquiries a judge was given,
even during a preliminary inquiry, the opportunity to rebut what was being said against him. Reference has also been made to the rules of procedure of
the Wisconsin Judicial Commission (see [1976] Wis LR 563 at 575), which it is said are typical of the rules in many states of the United States, where
there is a clear requirement that, in the course of a preliminary investigation, and before a formal charge is made or hearing held, the judge be given an
opportunity to respond either by making a personal appearance or by letter.
It might indeed be thought to be in the interests of the good administration of justice that such a course should be taken before unjustified charges are
laid before the tribunal with its inevitable publicity not just for the judge but for the court system as a whole. As it is put by Sir William Wade in
Administrative Law (6th edn, 1988) pp 496–497:
‘As the authorities will show, the courts took their stand several centuries ago on the broad principle that bodies entrusted with legal power
could not validly exercise it without first hearing the person who was going to suffer. This principle was applied very widely to administrative as
well as to 847 judicial acts, and to the acts of individual ministers and officials as well as to the acts of collective bodies such as justices and
committees. The hypothesis on which the courts built up their jurisdiction was that the duty to give every victim a fair hearing was just as much a
canon of good administration as of good legal procedure. Even where an order or determination is unchallengeable as regard its substance, the
court can at least control the preliminary procedure so as to require fair consideration of both sides of the case. Nothing is more likely to conduce
to good administration.’ (My emphasis.)
Again (at p 570):
‘Natural justice is concerned with the exercise of power, that is to say, with acts or orders which produce legal results and in some way alter
someone’s legal position to his disadvantage. But preliminary steps, which in themselves may not involve immediate legal consequences, may lead
to acts or orders which do so. In this case the protection of fair procedure may be needed throughout, and the successive steps must be considered
not only separately but also as a whole. The question must always be whether, looking at the statutory procedure as a whole, each separate step is
fair to the persons affected.’
The appellants concede that if the respondent had a right to be heard he was not heard. They do however rely on a number of earlier incidents to
show that he must have known what was being said against him. Thus in December 1986 the Chief Justice complained that the respondent had dealt with
an application by the Director of Public Prosecutions for a warrant of arrest and committal addressed to the Commissioner of Police when it ought to have
been dealt with by a judge of the Civil Chamber Court. The respondent was required to make a full report in his own handwriting on the matter, which he
did. In 1989 the Chief Justice complained that in matrimonial proceedings the respondent had allowed counsel, who was ready and willing, to proceed in
the place of another counsel who was ill. The respondent explained what had happened on the face of it satisfactorily.
In November 1989 there was a complaint that the respondent had not told the Chief Justice promptly that he had been taken to hospital. Again in
Preamble
June 1990 the Chief Justice insisted on the respondent trying a divorce case even though it seems that both parties had applied to the respondent for the
hearing to be adjourned in the hope of disputes as to property being settled.
It is said that in all these incidents the respondent had sufficient notice of the allegations, or at any rate of the kind of allegations, made against him
so that he knew perfectly well the sort of matters the commission would take into account. Their Lordships do not accept this. In the first place if the
respondent’s version is correct he gave a satisfactory explanation in respect of a number of the incidents. In the second place it cannot be assumed that
these were the, let alone the only, matters relating to the respondent’s ability and behaviour of which complaint was made in August 1990. If natural
justice required that he be given notice of the complaints before the commission and an opportunity to deal with them, the way in which these various
incidents were dealt with was not a compliance with that obligation.
Having considered all the points raised by counsel for both sides and the judgments and writings referred to therein, their Lordships are satisfied that
in all the circumstances the respondent was not treated fairly. He ought to have 848 been told of the allegations made to the commission and given a
chance to deal with them—not necessarily by oral hearing, but in whatever way was necessary for him reasonably to make his reply. Their Lordships
accordingly agree with the decisions of the majority of the Court of Appeal on this issue.
The third issue raised relates to bias. The respondent contends that the various decisions taken were, in any event, vitiated by bias. In view of their
conclusions on the first two issues which have been referred to, their Lordships deal more briefly with this allegation.
The allegation is in two parts. In the first place it is contended that there was personal animosity on the part of the Chief Justice which predisposed
him against the respondent. There is certainly evidence of an acrimonious relationship between the two men and, if the respondent’s account (which was
not challenged or answered) is accepted, the Chief Justice showed from time to time between 1986 and 1990 hostility towards the respondent. It is indeed
unsatisfactory that the respondent was not told by the Chief Justice of his decision to suspend the respondent and to raise with the commission the
question of referring the matter to a tribunal. It is also curious to say the least that the respondent on his return had such difficulty in seeing the Chief
Justice.
On the other hand it is to be assumed that the Chief Justice either accepted that the complaints made to him were sufficiently established or that, at
any rate, he considered that they were sufficiently serious to warrant reference to the commission. If he so thought, he was entitled to refer the matter to
the commission. He had, even if in a hostile way, given the respondent an opportunity to deal with earlier complaints. The Chief Justice must have
realised the seriousness of these complaints for the respondent and even if he failed to deal fairly with the respondent, by giving him notice of them and a
chance to deal with them, it is not lightly to be assumed that he would allow personal hostility to colour his decision to suspend the respondent or to
recommend to the commission that the matter be referred to a tribunal. Having considered all the material before them, including the judgments of
Blackman J and the Court of Appeal, and despite the forthright views expressed by Davis J, their Lordships are not satisfied that ‘a real danger’ of bias
has been established (R v Gough [1993] 2 All ER 724, [1993] AC 646).
In the second place, it is said that the commission was biased in considering whether there should be a representation to the President. This claim
was made partly because of the presence of the Chief Justice at their meeting, but also because, when the members came to consider whether there should
be such a representation to the President, their minds were affected by the fact that they had already approved or authorised the suspension of the
respondent from sitting in court, so that in effect they had prejudged the issue.
The respondent contends that, whilst the commission had not considered that a representation to the President was necessary in July, by October the
commission was so satisfied, and yet nothing had happened in the meantime on which reliance could be placed in order to justify a representation. True
on 15 October the commission asked for more detailed and specific evidence ‘in support of the judge’s inability to perform the functions of his office’
(my emphasis). Davis JA concluded:
‘There was undue haste in the making and communicating of the decision in question, and this undue haste was motivated by a desire to
frustrate any attempt that [the respondent] might have made to challenge 849 in court the first decision of the Commission, that is, the decision
to interdict him.’
There is some force in these contentions and it is particularly curious that the reference to ‘misbehaviour’ came only in the letter of 3 December
1990.
It has to be remembered however, that the Chief Justice was ex officio a member of the commission and that, if complaints were made about a judge
by others, it was not surprising or unusual that the Chief Justice should be the conduit pipe for the transmission of these complaints to the commission.
The commission were right to ask for more information if they were not satisfied at the 15 October meeting as to the case against the judge and their
Lordships do not attach significance in this context to the fact that they applied for material in support of his ‘inability’ to perform the functions of his
office. Even though the respondent should have been given the chance to deal with this material and to show his ‘ability’ to perform the functions of his
office it does not follow that there was bias. The commission ensured that the Chief Justice did not continue as chairman and there is no reason to assume
that this was a charade. They also spent time in considering whether there should be a representation. Their professional backgrounds are such that an
assumption of bias should not lightly be made, and the fact that they had agreed to the suspension does not mean that, on an investigation of fuller
material, they were not capable of looking at the question of a representation afresh and fairly. Nor is it to be assumed that the Chief Justice unduly
influenced them even though his view must have had considerable weight. In the absence of personal malice on his part there is no real evidence that they
were improperly influenced. In all the circumstances their Lordships are not satisfied that the allegation of bias is made out. The cross-appeal therefore
fails.
In the circumstances it is not necessary to deal with the alternative claim made by the respondent that his legitimate expectations were violated. Nor
is it necessary to consider whether the fact that, in respect of decisions by other commissions set up under the Constitution, different rules were adopted
should have an influence on the decision in this case in the respondent’s favour.
The appellants contend that the respondent’s claim for damages should not be allowed. It was not available on the application for judicial review and
is not specifically included in the claim on the constitutional motion. The respondent replies that damages can be claimed on an application for judicial
review and the necessary particulars of the civil claim are sufficiently found in the allegation that constitutional freedoms were violated. Although in the
Court of Appeal it was claimed that damages were, for those reasons, sufficiently set out so as to allow the Court of Appeal to give such relief, an
application was made that the notice of appeal be amended so as to include specifically an order for damages.
The majority in the Court of Appeal accepted that the respondent was entitled to damages for the breaches of his rights which have been established
and ordered that the case be remitted to the High Court for damages to be assessed. Their Lordships consider that the question of damages should be
remitted to the High Court in accordance with the Court of Appeal’s order.
Their Lordships accordingly dismiss the appeal and cross-appeal. The appellants must pay the respondent’s costs before their Lordships’ Board.
Appeal and cross-appeal dismissed.

Preamble
850
[1994] 1 All ER 851
Forsythe International (UK) Ltd v Silver Shipping Co Ltd and others

The Saetta
SHIPPING: SALE OF GOODS
QUEEN’S BENCH DIVISION (ADMIRALTY COURT)

CLARKE J
20, 21, 22 APRIL, 19 MAY 1993
Shipping – Time charterparty – Withdrawal of vessel for non-payment of hire – Ownership of bunkers on board at time of withdrawal – Charterparty
providing that on redelivery ‘whether … at the end of the charter period or on earlier termination’ shipowners to accept and pay for all bunkers on board
– Charterparty also providing that charterers would pay for certain quantities of bunkers on delivery and ‘about same quantities and prices [would
apply] on redelivery’ – Whether property in bunkers passing to shipowners on termination of charterparty.
Sale of goods – Passing of property – Vendor retaining property in goods – Bunkers on board time-chartered vessel – Contract for supply of bunkers to
charterer reserving vendor’s title until bunkers paid for – Charterer not paying for bunkers – Shipowner terminating charterparty for non-payment of hire
and thereby obtaining possession of bunkers not paid for by charterer – Shipowner subsequently consuming bunkers – Whether possession of bunkers
obtained by charterers with consent of vendors – Whether bunkers delivered by charterers to shipowners – Whether shipowners deriving good title to
bunkers – Factors Act 1889, s 1(2) – Sale of Goods Act 1979, ss 25(1), 61(1).
The plaintiffs contracted with the charterers to supply bunkers for a vessel which was on a time charter from the owners. The charterparty provided by cl
53 that the charterers would pay for certain quantities of bunkers on delivery and ‘about the same quantities and same prices [would apply] on redelivery’
and by cl 15 that the owners ‘shall on redelivery (whether it occurs at the end of the charter period or on earlier termination) accept and pay for all
bunkers on board’. Before the expiry of the charter the vessel was withdrawn by the owners from the charterers for non-payment of hire. At the time of
the withdrawal of the vessel it was carrying bunkers for which the plaintiffs had not been paid. The plaintiffs brought an action against the charterers
claiming, under a retention of title clause in the contract for the supply of bunkers, the price of the bunkers supplied to the charterers, and also against the
shipowners, who had assumed possession of the bunkers when the charter was terminated, claiming that they had converted the bunkers when they had
consumed them after termination of the charter. It was accepted that property in the bunkers had not passed to the charterers as they had not paid for them
and that therefore any assumption of ownership by the owners would be a conversion. However, the owners contended that any conversion occurred at
the date of termination of the charterparty, at which time they acquired good title to the bunkers by virtue of s 25(1)a of the Sale of Goods Act 1979,
which provided that a buyer in possession of goods with the consent of the seller could confer good title by 851 delivery or transfer to any person
receiving them in good faith without notice of any lien or other right of an original seller, since (i) the charterers had agreed to buy the bunkers from, and
obtained possession with the consent of, the plaintiffs, (ii) termination of the charterparty resulted in delivery or transfer of the bunkers by the charterers
to the owners and (iii) the owners had received the bunkers in good faith without notice of any lien or other right of the plaintiffs in respect of the bunkers.
By s 61(1)b of the 1979 Act ‘delivery’ meant ‘voluntary transfer of possession from one person to another’ and by s 1(2)c of the Factors Act 1889 a
person was deemed to be in possession of goods where they were in his actual custody or ‘held by another subject to his control or for him or on his
behalf’. It was accepted that the owners knew that the bunkers had not been paid for when they withdrew the vessel under the charterparty but that they
were unaware of the retention of title clause in the contract between the plaintiffs and the charterers. The plaintiffs contended that the conversion
occurred when the bunkers were consumed by the owners and not on termination of the charterparty, because by cl 53 of the charterparty property in the
bunkers had not passed to the owners on termination as they were unascertained goods and were never appropriated to the charterparty, or because cll 15
and 53 did not apply where a charterparty was terminated before the end of its term.
________________________________________
a Section 25(1) is set out at p 859 j to p 860 b, post
b Section 61(1), so far as material, is set out at p 860 b c, post
c Section 1(2) is set out at p 860 d, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – (1) Property in the bunkers on board the vessel passed from the owners to the charterers on delivery under the charterparty and (so far as they
owned them) from the charterers to the owners on termination, even though the termination occurred during the currency of the charterparty, since the
termination amounted to redelivery for the purposes of cl 15 of the charterparty. Accordingly, subject to the effect of s 25(1) of the 1979 Act, the owners
had converted the bunkers on termination of the charterparty and again later when they had consumed them (see p 858 c to j and p 859 c to d g h, post);
Stellar Chartering and Brokerage Inc v Efibanca-Ente Finanziario Interbancario SpA, The Span Terza (No 2) [1984] 1 WLR 27 considered.
(2) In order for s 25(1) of the 1979 Act to apply, it had to be proved, inter alia, that the charterers had obtained possession of the bunkers with the
consent of the plaintiffs, that the charterers had delivered them to the owners and that the owners had received them in good faith without notice of any
lien or right of the plaintiffs in respect of them. The plaintiffs had undoubtedly consented to delivery of the bunkers to the charterers and the charterers
Preamble
had thereby obtained possession. The owners had also obtained possession of the bunkers on delivery to the charterers since ‘possession’ had the same
meaning in s 25(1) as in s 1(2) of the 1889 Act, namely that the goods were in actual or constructive custody, and possession of bunkers on board a vessel
vested in the shipowners as bailees subject to the master’s duty as to the safety of the ship and the owners’ duty to procure that they were used by the
master in carrying out the orders of the charterer authorised by the charterparty. However, delivery of the bunkers by the charterers to the owners under s
25(1) had to be voluntary by virtue of s 61(1) of the 1979 Act. On the facts, the transfer was involuntary since it had been brought about by the owners’
termination of the charterparty for non-payment of hire, not by an act of the charterers. It followed that s 25(1) of 852 the 1979 Act did not apply and
therefore it was unnecessary to consider whether the goods had been received by the owners in good faith and without notice. Accordingly, the owners
were liable to the plaintiffs for conversion. The plaintiffs were also entitled to judgment against the charterers, who had contracted to pay the price of the
bunkers but had not done so (see p 861 d e g to p 862 a g h, p 863 b c j to p 864 b, p 866 h to p 867 a and p 869 d e, post); dicta of Branson J in City Fur
Manufacturing Co Ltd v Fureenbond (Brokers) London Ltd [1937] 1 All ER 799 at 802, of Megaw LJ in Worcester Works Finance Ltd v Cooden
Engineering Co Ltd [1971] 3 All ER 708 at 713 and of Lord Diplock in Stellar Chartering and Brokerage Inc v Efibanca-Ente Finanziario Interbancario
SpA, The Span Terza (No 2) [1984] 1 WLR 27 at 31 applied.
Notes
For disposition of goods by a buyer in possession after sale, see 41 Halsbury’s Laws (4th edn) paras 752–753, and for cases on the subject, see 39(2)
Digest (Reissue) 337–339, 2625–2631.
For the Factors Act 1889, s 1, see 1 Halsbury’s Statutes (4th edn) (1989 reissue) 45.
For the Sale of Goods Act 1979, s 25, see 39 Halsbury’s Statutes (4th edn) 129.

Archivent Sales and Developments Ltd v Strathclyde Regional Council (1984) 27 Build LR 98, Ct of Sess.
Baker (G L) Ltd v Medway Building and Supplies Ltd [1958] 2 All ER 532, [1958] 1 WLR 1216.
Bank of New South Wales v Palmer [1970] 2 NSWR 532, NSW SC.
By Appointment (Sales) Ltd v Harrods Ltd (trading as Rackhams) [1977] CA Transcript 465.
City Fur Manufacturing Co Ltd v Fureenbond (Brokers) London Ltd [1937] 1 All ER 799.
Feuer Leather Corp v Frank Johnstone & Sons [1981] Com LR 251.
Four Point Garage Ltd v Carter [1985] 3 All ER 12.
Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236, Aust HC.
Ladbroke Leasing (South West) Ltd v Reekie Plant Ltd 1983 SLT 155, Ct of Sess.
NZ Securities and Finance Ltd v Wrightcars Ltd (Warmington, third party) [1976] 1 NZLR 77, NZ SC.
Newtons of Wembley Ltd v Williams [1964] 3 All ER 532, [1965] 1 QB 560, [1964] 3 WLR 888, CA.
Nicholson v Harper [1895] 2 Ch 415, [1895–9] All ER Rep 882.
Saint Anna, The [1980] 1 Lloyd’s Rep 180.
Stellar Chartering and Brokerage Inc v Efibanca-Ente Finanziario Interbancario SpA, The Span Terza (No 2) [1984] 1 WLR 27, HL.
Worcester Works Finance Ltd v Cooden Engineering Co Ltd [1971] 3 All ER 708, [1972] 1 QB 210, [1971] 3 WLR 661, CA.
Action
The plaintiffs, Forsythe International (UK) Ltd, by a writ dated 4 April 1991, claimed from the first defendants, Silver Shipping Co Ltd, the charterers of
the vessel Saetta, and the second defendants, Petroglobe International Ltd, the owners of the vessel, damages for conversion of bunkers supplied to the
first 853 defendants. The owners counterclaimed damages against the plaintiff for wrongful arrest of the vessel. The facts are set out in the judgment.
Alex Charlton (instructed by Thomas Cooper & Stibbard) for the plaintiffs.
Robert Bright (instructed by Hughes Hooker & Co) for the owners.
The charterers were not represented.
Cur adv vult
19 May 1993. The following judgment was delivered.
CLARKE J. The plaintiffs, Forsythe International (UK) Ltd, are and were at the material time in 1990 and 1991 traders in bunker oils. In about
November 1990 they entered into a contract with the second defendants, Petroglobe International Ltd, to supply bunkers to the motor vessel Saetta, which
was owned by the first defendants, Silver Shipping Co Ltd. The Saetta was at that time chartered by the first defendants to the second defendants under a
time charter in substantially the Shelltime 4 form dated 10 July 1990. I will call the first defendants ‘the owners’ and the second defendants ‘the
charterers’.
The plaintiffs procured the supply of the bunkers to the vessel in accordance with the contract but they have not been paid for them. They bring this
action in an attempt to recover the price (or the value) of the bunkers from the owners and the charterers. Only the owners were represented at the trial.
The plaintiffs say that they are entitled to recover the price of the bunkers from the charterers in contract and that they are entitled to recover the value of
the bunkers from the owners as damages for conversion. No one suggests that the value of the bunkers was different from the contract price, which was
$US79,395·98. The plaintiffs do not say that they were in contractual relations with the owners.
Most of the facts are not in dispute. The charterparty contained, inter alia, the following terms:
‘7. Charterers shall provide and pay for all fuel …

15. Charterers shall accept and pay for all bunkers on board at the time of delivery and Owners shall on redelivery (whether it occurs at the end
of the charter period or on earlier termination of this charter) accept and pay for all bunkers remaining on board. (See clause 53) [The remainder of
cl 15 in the printed form was deleted except for the last sentence:] Owners shall give charterers the use and benefit of any fuel contracts they may
have in force from time to time, if so required by Charterers, provided suppliers agree …
53. BUNKER ON DELIVERY/REDELIVERY CLAUSE
Bunkers on delivery about 250/350 tons Fuel Oil and about 70/150 tons MDO to be paid by Charterers at price of US$80 and US$165
respectively, together with first hire. About same quantities and same prices on redelivery.’
Preamble
In August and September 1990 the plaintiffs supplied bunkers to the vessel pursuant to two separate contracts between themselves and the charterers.
I am satisfied that each of those contracts was on the plaintiffs’ terms and conditions of sale. At the time of the first contract a copy of those terms was
sent to the charterers. It is not suggested that the owners were parties to either of those contracts.
854
On 19 November 1990 Mrs Brewer telephoned the plaintiffs on behalf of the charterers and asked them to supply bunkers for the vessel. On 22
November the plaintiffs sent a telex to the charterers which purported to be addressed to the ‘owners and or master MV Saetta and Petroglobe
International (the buyer)’ and was marked for the attention of Mrs Brewer. It recited that the nomination placed on 19 November had been accepted and
it confirmed that the plaintiffs’ physical suppliers had been instructed accordingly. It contained reference to the quantities and prices and it asserted that
the responsible account was the ‘master and or owners MV Saetta and Petroglobe International’. Payment was to be in US dollars within 45 days of the
date of delivery according to invoice instructions against telex invoice. It contained no provision for a guarantee of payment as both the earlier contracts
had done. The telex expressly stated that the agreement was subject to the plaintiffs’ general terms and conditions of sale ‘already known to you’.
Although the telex contained reference to the owners it is common ground that the telex was sent to the charterers and not to the owners and that the
owners are not a party to the contract for the supply of bunkers.
On 27 November 349·779 mt of fuel oil and 50 mt of diesel oil were delivered to the vessel pursuant to the contract. The bunkers were physically
supplied by Baytur Trading SA (Baytur), with whom the plaintiffs had in turn contracted. The receipt of the bunkers was acknowledged in writing by the
master.
The plaintiffs say that their contract with the charterers was subject to their terms and conditions. The owners accept that that is so. In my judgment
they are right to do so and in any event I find that the contract was indeed so subject. Those conditions contain the following clause:
‘8. Retention of Title.

Notwithstanding that delivery has taken place, the Marine Fuels shall remain the sole and absolute property of the Seller as legal and equitable
Owner until such time as the Buyer shall have paid to the Seller the agreed price together with all interest, costs and expenses which may have
accured [sic] due and together with the full price of any other fuel the subject of any other contract with the Seller. Both the Owner of the vessel
and the buyer acknowledge that they are in possession of the Marine Fuels solely as bailee for the Seller until such time as all foregoing sums have
been paid to the Seller. The Buyer’s right to possession of the Marine Fuels ceases if he does anything or fails to do anything which would entitle a
Receiver to take possession of any assets or which would entitle any person to present a Petition for winding up. The Seller may for the purpose of
recovery of its Marine Fuels enter upon any premises or the vessel where they are stored and may re-possess the same. If Marine Fuels the property
of the Seller are admixed or co-mingled with Marine Fuels the property of the Buyer the product thereof shall become and/or shall be deemed to be
the sole and exclusive property of the Seller. If Marine Fuels the property of the Seller are admixed or co-mingled with Marine Fuels the property
of any person other than the Buyer the product thereof shall become or shall be deemed to be owned in common with such other person(s).’
The contract between the plaintiffs and their suppliers Baytur also contained a retention of title clause which I do not need to set out but which had
the effect that property in the bunkers did not pass from Baytur to the plaintiffs until the plaintiffs paid for them. The plaintiffs did not in fact pay for the
bunkers until 855 27 December. Thus until then the bunkers were owned by Baytur. Thereafter they were owned by the plaintiffs at least until 11
January 1991, when the owners withdrew the vessel from the service of the charterers under the charterparty.
It is I think common ground between the plaintiffs and the owners that nothing turns on the fact that Baytur remained owners of the bunkers until 27
December or on the further fact that the bunkers delivered on 27 November became mixed in due course with bunkers which were already on board the
vessel.
It is common ground that the quantities of bunkers on board on various dates were as follows:
31 July 1990, the date of delivery of the vessel under the charterparty: 300·6 mt of FO and 112·7 mt of DO.
27 November 1990, before bunkering: 318·8 mt of FO and 71·6 mt of DO.
27 November 1990, at the end of the day: 652·5 mt of FO and 113·3 mt of DO.
11 January 1991, on withdrawal of the vessel: 328 mt of FO and 6·3 mt of DO.
I turn to consider the events which led to the withdrawal of the vessel from the service of the charterers under the charterparty on 11 January 1991.
Hire was due on 31 December 1990. It was not paid by the charterers, whose excuse was that the owners were in breach of cl 67 of the charterparty,
which provided as follows:
‘Owners to confirm names of major oil companies with whom vessel approved to trade and likewise those oil companies who do not approve
vessel for their cargoes. Owners advise vessel BP approved, but not Exxon or Shell approved, but vessel will be inspected by Shell and Exxon.’
On 19 December the charterers complained to the owners by telex that although the vessel had been at Augusta from 5 until 17 December they had
failed to have the vessel inspected by Exxon or Shell in breach of cl 67. They said that as a result they had had to turn down a cargo to be loaded at Esso
Augusta. The owners replied that they had made every effort to arrange inspections by Exxon and Shell and that they were not in breach of the
charterparty. The vessel was in fact inspected by Shell but not by Exxon on 20 December. The charterers sent the owners a further telex of complaint on
2 January 1991.
On 3 January 1991 the owners gave the charterers notice under cl 9 of the charterparty that failing payment of hire together with interest within
seven days they would withdraw the vessel under the charterparty. On the same day the charterers replied that the owners were in breach of the
charterparty. They said that they insisted that the owners must rectify all their breaches of the charterparty and ‘return the ship to us after she is in
conformity with owners obligations under the charterparty’. They did not pay the hire and on 11 January the owners sent a telex to the charterers
exercising their right to withdraw the vessel.
In the meantime there had been some correspondence as to payment for the bunkers. Under the contract between the plaintiffs and the charterers
payment was due on 11 January because of the 45 days’ credit clause. On 10 January Miss Mather, who worked for the plaintiffs and who with Jackie
Vasper was 856 responsible for bunker trading in London, learnt for the first time that there was a dispute between the owners and the charterers. She
gave evidence before me and impressed me as a very straightforward witness. She received a copy of a letter from the charterers to Mr Cohen of their
brokers Blidberg Metcalf & Co Ltd (for passing on to the owners) in which they said that as the owners had decided to go ahead with their unlawful
withdrawal they were requested to pay for the bunkers direct. She also received a fax to the same effect from Mrs Brewer. She ascertained through Mr
Cohen that the owners did not agree to pay for the bunkers and after taking advice from the plaintiffs’ solicitors and discussing the matter with their head
Preamble
office in Holland she gave instructions that the vessel should be arrested. I will return to this aspect of the case briefly when I consider the owners’
counterclaim for damages for wrongful arrest.
There was some evidence and some discussion as to precisely what documents had been sent to the owners’ brokers and what had become of them,
but, since it is common ground that the owners were unaware of the express provisions of the plaintiffs’ terms and conditions when they withdrew the
vessel on 11 January, it is not necessary to consider it. It is accepted on behalf of the owners that they or their agents knew that the charterers had not
paid for the bunkers before they withdrew the vessel under the charterparty. On the other hand it is accepted on behalf of the plaintiffs that the owners
were unaware of the retention of title clause which is contained in cl 8 of the terms and conditions and which is set out above.
It is also common ground that the retention of title provision in cl 8 had the effect, as between the plaintiffs and the charterers, that property in the
bunkers did not pass until they were paid for and that since the bunkers were not paid for the property in them never passed to the charterers. It follows
(as is again common ground) that any assumption of ownership of the bunkers by the owners would amount to a conversion of them which would entitle
the plaintiffs to damages for conversion unless the owners are entitled to rely upon s 25(1) of the Sale of Goods Act 1979.
However the plaintiffs do not accept that withdrawal of the vessel under the charterparty had the effect of transferring any title which the charterers
had in the bunkers to the owners. They say that the conversion did not occur at that stage but later when the owners consumed the bunkers for their own
benefit. The reason why they advance this argument is that the owners say that they obtained a good title to the bunkers on 11 January by reason of s 25
of the 1979 Act. If there was in principle no transfer of ownership from the charterers to the owners at that time there can have been no transfer of
possession and no delivery of the bunkers by the charterers to the owners within the meaning of s 25 and the owners’ reliance upon it would be bound to
fail.
I shall therefore consider first what if any effect the withdrawal of the vessel had on the property in the bunkers and the right to possession of the
bunkers before considering the position under s 25 of the 1979 Act. It is common ground between the plaintiffs and the owners that the charterparty came
to an end as a result of the owners’ notice on 11 January. As I see it the charterparty thus came to an end not as a result of the owners accepting any
breach of the charterparty by the charterers as a repudiatory breach of the contract but as a result of the owners exercising their contractual right to
terminate the charterparty for non-payment of hire. The only other possibility is that the owners’ withdrawal was itself a repudiatory breach of the
charterparty which the charterers subsequently accepted as bringing the charterparty to an end. I do not think 857 that the evidence which I have seen
justifies such a conclusion and in any event it is not part of the owners’ case that the charterparty came to an end in that way.
There is an issue between the plaintiffs and the owners as to the true construction of cll 15 and 53 of the charterparty read together. It is submitted
by Mr Charlton on behalf of the plaintiffs that the property in the bunkers on board did not pass to the owners as a result of the termination so that there
was no conversion of them, at least at that stage. He says that the bunkers were unascertained goods and that they were never appropriated to the contract,
that is to the sale contained in the charterparty. He says that that conclusion follows from the terms of cl 53. I cannot accept that submission.
In my judgment cll 15 and 53 make sense if they are understood as follows. On delivery under the charterparty it was the owners’ obligation to have
on board between 250 and 350 tons of fuel oil and between 70 and 150 tons of marine diesel oil. The charterers were obliged to take over and pay for all
bunkers on board at the prices of $US80 and $US165 per ton respectively. If there was either less or more fuel or diesel oil than those quantities on board
on delivery the owners would be in breach of the charterparty and they would be liable in damages for any loss suffered by the charterers as a result.
It was suggested by Mr Charlton that the clauses could not operate where the charterparty came to an end in the middle of its intended term.
However I can see no reason why the express terms of both cll 15 and 53 should not be given full effect. Thus, in my judgment, on 11 January 1991 there
was ‘earlier termination of this charter’ within the meaning of cl 15. The effect of that earlier termination was the reverse of the position which had
obtained on delivery as discussed above.
Thus it was owners’ obligation to ‘accept and pay for all bunkers remaining on board’. The effect of that was that property in any bunkers which had
been the property of the charterers passed to the owners. Also in so far as the charterers had any right to possession of those bunkers during the
charterparty that right was extinguished.
Clause 53 worked in the same way as on delivery. That is the charterers warranted that there would be between 250 and 350 tons of fuel oil and
between 70 and 150 tons of diesel oil on board for which the owners would pay $US80 and $US165 per ton respectively. If there was any less or more of
either on board and the owners suffered a loss as a result the charterers would be liable in damages. Whether any loss was sustained in those
circumstances would depend upon the market value of fuel and diesel oil at the time.
Thus I hold that when the charterparty came to an end on 11 January the property in all the bunkers on board passed from the charterers (in so far as
they had property in them) to the owners. I also hold that any right to possession of the bunkers which was vested in the charterers passed to the owners.
At the same time the owners became under an obligation owed to the charterers to pay for the bunkers. They subsequently purported to do so by way of
set off against sums which they claimed were due to them.
I was referred to the decision of the House of Lords in Stellar Chartering and Brokerage Inc v Efibanca-Ente Finanziario Interbancario SpA, The
Span Terza (No 2) [1984] 1 WLR 27. The House of Lords was there considering the NYPE form of charterparty, in which the relevant clause provided
that ‘the Charterers at the port of delivery and the Owners at the port of redelivery shall take over and pay for all fuel remaining on board [at current
prices in the respective port] …’ It 858 was held that the clause had no application where the charterparty had been cancelled during its currency.
However that part of the decision does not assist here because cl 15 of the instant charterparty expressly applies to ‘earlier termination of this charter’. It
follows that there is nothing in that part of the decision which conflicts with the views I have expressed above.
The first part of the decision is however of importance in the present case. It was held that under the NYPE form of charterparty and under the
equivalent provisions of the Shelltime 3 charterparty (which Sheen J had been considering in the earlier case of The St Anna [1980] 1 Lloyd’s Rep 180)
the property in the bunkers which were on board at the time of delivery under the charterparty passed to the charterers at that time. It follows in my
judgment that under the Shelltime 4 charterparty with which I am at present concerned the property in the bunkers on board passed from the owners to the
charterers on delivery and (so far as they owned them) from the charterers to the owners on termination, even where that termination occurred during the
currency of the charterparty.
The decision in Stellar Chartering and Brokerage Inc v Efibanca-Ente Finanziario Interbancario SpA, The Span Terza (No 2) [1984] 1 WLR 27 is
also of assistance in considering the rights to possession of the bunkers during the period of the charterparty. Lord Diplock said (at 31):
‘Possession of all bunkers once they are on board the vessel is no doubt vested in the shipowners as bailees who are under a duty to procure that
they are used by the master in carrying out the orders which the charterers are authorised by the charterparty to give him as to the employment of
the vessel.’
Subject to any question involving the safety of the vessel the charterers could have directed the master to deliver the bunkers to them during the
currency of the charterparty. They thus had an immediate right to the possession of the bunkers at that time. In my judgment when the charterparty came
to an end on 11 January that right to possession was extinguished or was transferred to the owners, where in a sense it became merged with their physical
possession of the bunkers which they had had since the bunkers were put on board. In any event the owners thereafter treated the bunkers as their own
and consumed them in the operation of the vessel for their own benefit.
Preamble
In these circumstances, subject to the effect of s 25 of the 1979 Act, the owners were guilty of conversion of the bunkers when they assumed
ownership and full possession of them on 11 January. They were further guilty of conversion of them shortly thereafter when they consumed them.
I turn therefore to the owners’ case that they obtained a good title to the bunkers on 11 January by reason of s 25(1) of the 1979 Act. Sections 24, 25
and 61 of that Act provide, so far as material, as follows:
‘24. Seller in possession after sale. Where a person having sold goods continues or is in possession of the goods, or of the documents of title to
the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title under any sale, pledge,
or other disposition thereof, to any person receiving the same in good faith and without notice of the previous sale, has the same effect as if the
person making the delivery or transfer were expressly authorised by the owner of the goods to make the same.
25. Buyer in possession after sale.—(1) Where a person having bought or agreed to buy goods obtains, with the consent of the seller, possession
of 859 the goods or the documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the
goods or documents of title, under any sale, pledge, or other disposition thereof, to any person receiving the same in good faith and without notice
of any lien or other right of the original seller in respect of the goods, has the same effect as if the person making the delivery or transfer were a
mercantile agent in possession of the goods or documents of title with the consent of the owner …
61. Interpretation.—(1) In this Act, unless the context or subject matter otherwise requires … “delivery” means voluntary transfer of possession
from one person to another …
(3) A thing is deemed to be done in good faith within the meaning of this Act when it is in fact done honestly, whether it is done negligently or
not …’
There is no definition of ‘possession’ in the 1979 Act but s 1 of the Factors Act 1889 provides, inter alia:
‘For the purposes of this Act … (2) A person shall be deemed to be in possession of goods, or the documents of title to goods, where the goods
or documents are in his actual custody or are held by another subject to his control or for him or on his behalf …’
Sections 24 and 25(1) of the 1979 Act are in the same terms as s 25(1) and (2) of the Sale of Goods Act 1893 respectively. By s 26 of the 1979 Act,
mercantile agent is given the same meaning as in s 1(1) of the Factors Act 1889, that is to say a mercantile agent having in the customary course of his
business as such agent authority to sell goods or to consign goods for the purposes of sale or to buy goods or to raise money on the security of goods.
The owners do not say that they obtained possession of any document of title to the goods, nor do they say that anyone who was in fact a mercantile
agent was involved. For the purposes of the owners’ case s 25(1) can thus be rewritten as follows:
‘Where a person having bought or agreed to buy goods obtains, with the consent of the seller, possession of the goods … the delivery … by that
person … of the goods … under any sale … to any person receiving the same in good faith and without notice of any lien or other right of the
original seller in respect of the goods, has the same effect as if the person making the delivery … were a mercantile agent in possession of the goods
… with the consent of the owner.’
The owners put their case in this way. The persons who agreed to buy the goods were the charterers who had agreed to buy the bunkers from the
plaintiffs. The charterers obtained possession of the bunkers with the consent of the plaintiffs because they were delivered to the vessel by Baytur at the
plaintiffs’ request and, although they did not have actual custody of them while they were on board the vessel, they were held by the owners subject to the
charterers’ control or for them or on their behalf within the meaning of s 1(2) of the Factors Act 1889. The termination of the charterparty and the
consequent transfer of possession of the bunkers was a delivery of them to the owners by the charterers. The delivery was under the sale provided for in
the charterparty. The owners received the bunkers in good faith without notice of any lien or other right of the plaintiffs in respect of the goods. That
delivery had the same 860 effect as if the charterers had been mercantile agents in possession of the goods, that is to say it conferred a good title upon
the owners.
It is necessary to examine each of the steps in that argument in turn.
Step 1
Did the persons who bought or agreed to buy the goods, that is the charterers, obtain possession of the goods with the consent of the seller?
In order to answer that question it is first necessary to analyse what happened when Baytur delivered the bunkers to the vessel on 27 November
1990. Baytur delivered the bunkers direct to the vessel, but they did so at the request of the plaintiffs as sellers. In making that request it seems to me
that the plaintiffs were doing so at the request of their buyers, namely the charterers.
In Four Point Garage Ltd v Carter [1985] 3 All ER 12 Simon Brown J held that where a seller delivers goods to a sub-buyer of his buyer at the
request of his buyer he at the same time effects a delivery of constructive possession to his buyer and a second delivery of possession to the sub-buyer. In
the present case there is a further stage because the bunkers were physically delivered not to the sub-buyer (the charterers) but at the charterers’ request to
the owners.
Assuming that there was a delivery of possession to the charterers within the meaning of s 25 there can I think be no doubt that that delivery occurred
with the consent of the plaintiffs as sellers.
Apart from the further stage referred to above the instant case is different from the Four Point Garage case because in that case it was the delivery to
the sub-buyer which was held to amount to the delivery of possession by the buyer (as buyer in possession) to the sub-buyer who was held thereby to
have obtained a good title under s 25. Here the owners do not say that they obtained a good title on 27 November. They say that they did so on 11
January 1991 as a result of the operation of the charterparty clauses. Thus their case involves saying that the charterers remained in possession as buyers
from the plaintiffs from 27 November until 11 January. The argument as I understand it is that on 27 November the owners obtained possession of the
bunkers because they obtained actual custody of them but so did the charterers because the bunkers were held by the owners subject to their control or on
their behalf.
That argument raises two questions, namely whether the owners did hold the bunkers subject to the charterers’ control and on their behalf and, if so,
whether that amounted to possession by the charterers within the meaning of s 25(1) of the 1979 Act.
In my judgment the answer to both those questions is Yes. As to the first, it seems to me that, although the bunkers were, as Lord Diplock said in
Stella Chartering and Brokerage Inc v Efibanca-Ente Finanziario Interbancario, The Span Terza (No 2) [1984] 1 WLR 27 at 31, in the possession of the
owners as bailees, they were also in the possession of the charterers because the charterers had an immediate right to possession of them subject only to
the master’s overriding duty for the safety of the vessel. Lord Diplock said in the passage quoted above that the owners were under a duty to procure that
the bunkers were used by the master in carrying out the orders which the charterers were authorised to give the master under the charterparty. The
Preamble
charterers could have ordered the master to deliver the bunkers to them or to another vessel. In these circumstances it seems to me that the bunkers can
fairly be said to have been held by the owners subject to the charterers’ control or on their behalf.
861
It follows that the charterers were in possession of the bunkers within the meaning of s 1(2) of the Factors Act 1889. The question is whether that
amounts to possession within the meaning of s 25 of the 1979 Act.
It has been held that the equivalent provisions of the Sale of Goods Act 1893 and the Factors Act 1889 should be construed together. As Megaw LJ
put it in Worcester Works Finance Ltd v Cooden Engineering Co Ltd [1971] 3 All ER 708 at 713, [1972] 1 QB 210 at 220:
‘It is well known that the Factors Acts of 1889 and 1890 and the Sale of Goods Act 1893 must for many purposes be treated as one code.’
In my judgment that view makes good sense in the light of the fact that the origins of s 25 of the Sale of Goods Act 1893 and therefore of ss 24 and
25 of the 1979 Act were ss 8 and 9 of the Factors Act 1889.
It is further supported both by Benjamin’s Sale of Goods (4th edn, 1992) p 328, para 7-073 and by City Fur Manufacturing Co Ltd v Fureenbond
(Brokers) London Ltd [1937] 1 All ER 799 at 802, where Branson J said:
‘I think it is perfectly plain by a reference to the Factors Act, 1889, s. 1(2), that it is sufficient in that Act that possession is possession by
another person on behalf of the person whose possession is material, and I see no reason why the same kind of construction should not be put upon
the words “in possession of the goods” in sect. 25(1) of the Act of 1893. Possession by an agent, possession by a warehouseman or mercantile
agent, is a perfectly well known form of possession in the business world, and I can see no reason for confining the meaning of it to personal
possession or actual possession of the person who has sold the goods.’
The views of Branson J accord with those of Lord Mayfield in the Court of Session in Archivent Sales and Development Ltd v Strathclyde Regional
Council (1984) 27 Build LR 98 and of the majority of the High Court of Australia in Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale
Australia Pty Ltd (1987) 163 CLR 236.
In so far as there are statements in some of the cases to the effect that possession is limited to actual physical possession I prefer the proposition
already stated, namely that the word ‘possession’ in s 25(1) of the 1979 Act should be given the same meaning as it is given by s 1(2) of the Factors Act
1889.
It follows that for the above reasons I hold that the charterers were in possession of the bunkers between 27 November 1990 and 11 January 1991.
Step 1 of the owners’ argument therefore succeeds.
Step 2
Step 2 is that on 11 January 1991 there was delivery of the bunkers by the charterers to the owners. It is submitted by Mr Bright that there was such
delivery when the owners withdrew the vessel because the effect of doing so was that the possession which had vested in the charterers was now
transferred or delivered to the owners. It is submitted by Mr Charlton on the other hand that the section requires some voluntary act of delivery by the
charterers whereas here there was no such act. All that happened, he says, was that the owners exercised a contractual right without any participation of
the charterers. In reply Mr Bright says that if any act on the part of the charterers was required there was such an act, or at least an omission, namely the
failure of the charterers to pay the hire. He further says that all that is required is voluntary 862 acquiescence and in this regard he relies in particular
upon the decision of the Court of Appeal in Worcester Works Finance Ltd v Cooden Engineering Co Ltd [1971] 3 All ER 708, [1972] 1 QB 210.
The question for decision is one of construction of s 25(1) of the 1979 Act. The section requires ‘the delivery … by that person … of the goods …
under any sale … to any person …’ and ‘delivery’ is defined by s 61(1) as the ‘voluntary transfer of possession from one person to another’.
Possession must of course have the same meaning in this part of the section as in the part of the section discussed under step 1 above. It thus has the
meaning given to it in s 1(2) of the Factors Act 1889. It follows that delivery of possession cannot be limited to the transfer of actual custody of the
goods. In so far as there are cases which have limited the meaning of delivery in that way I do not think that they should be followed, except of course if
they are binding upon me.
I was referred to a decision of North J in Nicholson v Harper [1895] 2 Ch 415, [1895–9] All ER Rep 882, in which he appears to have held that there
cannot be a delivery of possession without a transfer of physical possession, although it is fair to say that in Gamer’s Motor Centre (Newcastle) Pty Ltd v
Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236 at 249 Mason CJ treated him as having decided no more than that there must be a delivery in
addition to the sale. I was also referred to a decision in New Zealand and a decision in New South Wales to the effect that there must be a transfer of
physical possession. They were NZ Securities and Finance Ltd v Wrightcars Ltd [1976] 1 NZLR 77 and Bank of New South Wales v Palmer [1970] 2
NSWR 532.
In so far as those cases so decide they are not consistent with the decision of the High Court of Australia in the Gamer’s Motor Centre case. In that
case it was held by the majority that the delivery could be either actual or constructive. In reaching his conclusion Mason CJ relied in part upon the
following passage from Chalmers’ Sale of Goods Act 1893 (5th edn, 1902) p 118 where Sir Mackenzie Chalmers said:
‘Delivery may be actual or constructive. Delivery is constructive when it is effected without any change in the actual possession of the thing
delivered, as in the case of delivery by attornment or symbolic delivery. Delivery by attornment may take place in three classes of cases. First, the
seller may be in possession of the goods, but after sale he may attorn to the buyer, and continue to hold the goods as his bailee. Secondly, the goods
may be in the possession of the buyer before sale, but after sale he may hold them on his own account. Thirdly, the goods may be in the possession
of a third person, as bailee for the seller. After sale such third person may attorn to the buyer and continue to hold them as his bailee.’
Mason CJ concluded that ‘delivery’ in the New South Wales equivalent of s 25 included constructive delivery and that the question for decision on
the facts of that case was whether there was a change in the character of the relevant possession which amounted to a constructive delivery to the third
party, who in that case was Natwest (see 163 CLR 236 at 250). On this point the reasoning of Brennan and Dawson JJ, who were the other members of
the majority, seems to me to have been substantially to the same effect.
In my judgment that reasoning is correct. Thus ‘possession’ has the meaning attributed to it in s 1(2) of the Factors Act 1889 and ‘delivery’ includes
constructive delivery. However it does not seem to me to follow from that that 863 the mere change of possession from the buyer in possession to a
third party is sufficient to comply with the requirements of the section because the section contemplates that there will be a delivery ‘by that person’ (who
in this case was of course the charterers) and s 61(1) provides that it should be a ‘voluntary transfer of possession’.
It appears to me that if that part of s 25 as defined in s 61(1) is given its ordinary and natural meaning construed in its context there must be some
voluntary act by the buyer in possession. That is, on the facts of this case, there must have been some voluntary act by the charterers transferring
Preamble
possession to the owners.
So for example in Ladbroke Leasing (South West) Ltd v Reekie Plant Ltd 1983 SLT 155 at 158 Lord Grieve said in the Court of Session:
‘For delivery to be effected for the purposes of that Act [ie the 1979 Act] there must be a voluntary transfer—in my opinion transfer in that
context means “handing over possession of the goods by one person to another”. This is the primary meaning given to the word “transfer” in the
Oxford English Dictionary.’
This does not seem to be a point which has been considered separately in the authorities, but in my judgment none of them is inconsistent with the
conclusion which I would reach by simply construing the section. In each of the cases to which I was referred where s 25 or its equivalent has been
successfully relied upon there was some act which could fairly be regarded as a voluntary act on the part of the buyer.
Thus for example in Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236 the facts were these. In
July 1979 the appellant defendants (Gamer’s) agreed to sell eight motor vehicles to retail dealers. On or about 14 July the dealer took delivery of seven of
the vehicles and at the same time the dealers received and signed an invoice for them. The contract between Gamer’s and the dealers contained a
retention of title clause by which Gamer’s retained title in the vehicles until they were paid for them. On 17 July the eighth vehicle was delivered and an
invoice signed in the same way. The dealers had previously entered into a contract with Natwest by which Natwest agreed to finance the dealers’
operations as follows. Natwest was to purchase vehicles acquired by the dealers. It was to pay 90% of the price of a vehicle on completion of the sale to
Natwest and the remainder when the vehicle was disposed of by the dealers. It was an express term of the agreement between the dealers and Natwest
that they would retain possession of the vehicles as bailee for Natwest. The dealers completed and signed in respect of each of the eight vehicles a receipt
which they sent to Natwest acknowledging that they took delivery of the vehicles in accordance with the terms of the agreement with Natwest.
Gamer’s seized the vehicles because they were not paid by the dealers and Natwest sued Gamer’s in detinue and conversion seeking the return of the
vehicles or their value relying upon the New South Wales equivalent of s 25(1) of the 1979 Act. The principal issue between the parties when the case
came before the High Court of Australia was whether or not the reference to delivery in the section was limited to physical delivery. The majority held
that it was not. Mason CJ concluded his judgment in this way (at 250):
‘… it seems that the dealer, having agreed to buy and having taken possession of the vehicles from Gamer, then delivered the receipts to 864
Natwest against which cheques were subsequently drawn in favour of the dealer … I see no difficulty in regarding the handing over of the delivery
receipt as serving the dual purpose already mentioned, namely an acknowledgment that the dealer holds the vehicle to which it relates for Natwest
pursuant to the agreement of sale contemporaneously made and as an acknowledgment that it holds, or will hold, as bailee pursuant to the
Agreement. The receipt, though it evidences the terms of sale, is not itself the sale or the agreement for sale. The delivery of the receipt is
something apart from the sale so that the constructive delivery which it evidences is something more than a mere change in the right of possession
arising from the sale from the dealer to Natwest.’
The other two members of the majority, that is Brennan and Dawson JJ, emphasised the acknowledgment by the dealers of the passing of the control
of the vehicles from the dealers to Natwest (see 163 CLR 236 at 255 per Brennan J and esp at 263 per Dawson J).
Thus the delivery of the receipts by the dealers to Natwest was a voluntary delivery by them of the goods as buyers in possession to Natwest and
Natwest was held to be entitled to rely upon the section.
Equally it appears to me that there was a voluntary act by the buyers in possession in both Four Point Garage Ltd v Carter [1985] 3 All ER 12 and in
Archivent Sales and Development Ltd v Strathclyde Regional Council (1984) 27 Build LR 98, both of which are referred to above. However it is
submitted by Mr Bright that there is no need for any act by the buyer in possession and he relies upon the decision of the Court of Appeal in Worcester
Works Finance Ltd v Cooden Engineering Co Ltd [1971] 3 All ER 708, [1972] 1 QB 210.
In that case the facts were these. In June 1966 the defendants sold a car to Griffiths for £525. Griffiths gave them a cheque for that sum, took
delivery of the car and was registered as owner. Subsequently Griffiths made an agreement with one Millerick whereby Millerick was to obtain the car
from a finance company, the plaintiffs, to whom Griffiths was to sell the car. Griffiths invoiced the car to the plaintiffs for £645 less an initial payment of
£195. The plaintiffs paid the difference of £450 to Griffiths and let the car on hire purchase to Millerick. In fact Millerick never took possession of the
car or paid any of the instalments. In the meantime Griffiths’s cheque for £525 was dishonoured. The defendants took possession of the car with the
consent of Griffiths. For a time Griffiths kept up payment of Millerick’s instalments owed to the plaintiffs but after a time stopped doing so, at which
time the amount outstanding to the plaintiffs was £315. The plaintiffs brought an action claiming that the car was theirs and claiming £315 as damages
for conversion.
The defendants relied upon s 25(1) of the Sale of Goods Act 1893, which was the forerunner of s 24 of the 1979 Act. It was held by the Court of
Appeal that Griffiths was a person who ‘having sold goods continues … in possession’ of them and that there was delivery by him of them to the
defendants under a ‘disposition’ within the meaning of the section. The argument addressed to the Court of Appeal focused upon the meaning of the two
phrases ‘continues … in possession’ and ‘disposition’. However Mr Bright relies upon the following statement of Lord Denning MR ([1971] 3 All ER
708 at 712, [1972] 1 QB 210 at 218):
‘The next question is whether the retaking by Cooden was “the delivery or transfer” by Mr Griffiths of the goods to Cooden under a
“disposition” 865 thereof. Mr Griffiths did not actually deliver or transfer the car to Cooden. But he acquiesced in their retaking it. That was, I
think, tantamount to a delivery or transfer by him. But was it under a “disposition” thereof?’
Lord Denning MR then went on to decide that it was under a ‘disposition’. Mr Bright says, in reliance on that passage, that mere acquiescence is
sufficient to constitute a delivery. However those views of Lord Denning MR must be set in their context. The facts are more fully described by
Phillimore LJ as follows ([1971] 3 All ER 708 at 713, [1972] 1 QB 210 at 219):
‘On the second point it seems to me that counsel for the plaintiffs was quite right when he said that, of course, to constitute a disposition the
dealing with the goods must go beyond the mere transfer or delivery of it; there must be some disposal which involves transfer of property. I think
that is clearly the case here and the learned judge was indeed entitled to infer, as he did, that what had really happened here was that there had been
a resale by Mr Griffiths, although he had, of course, no right to do so—there had been a resale by him to the defendants. It is perfectly clear that at
that time, when the defendants collected the car, it was understood that if they retook the car, they would not attempt to pursue Mr Griffiths in
regard to the cheque; and it was on this basis that Mr Griffiths cheerfully handed over the key and probably the log book as well.’
Megaw LJ described the car as ‘having been given up voluntarily by Mr Griffiths’ (see [1971] 3 All ER 708 at 714, [1972] 1 QB 210 at 220).
In these circumstances it cannot fairly be said that Griffiths did nothing. While it can in one sense be said that he did not actually deliver the car to
Preamble
the defendants (as Lord Denning MR put it), it is clear from the judgment of Phillimore LJ that he did not simply stand by. On the contrary he ‘cheerfully
handed over the key’. That seems to me not to be mere acquiescence but to amount to a voluntary act of constructive delivery of the car. I therefore
conclude that the decision of the Court of Appeal in that case does not alter the view which I have already expressed from a consideration of the section
itself. That is that under s 25(1) of the 1979 Act there must be some voluntary act by the buyer in possession amounting to delivery, although it need not
amount to an act of physical delivery of the goods. Mere inaction would not in my judgment be sufficient.
I turn therefore to the facts. The transfer of possession from the charterers to the owners was not in my judgment achieved by any act or even
acquiescence on the part of the charterers. It was achieved by the exercise by the owners of their right to terminate the charterparty for non-payment of
hire. The charterers did nothing. They did not cheerfully hand over the key like Mr Griffiths, they merely failed to pay the hire. It was not the failure of
the charterers to pay the hire that had the effect of transferring their right to possession of the bunkers to the owners, it was the owners’ action in bringing
the charterparty to an end. It would in my opinion be an abuse of language to say that there was a delivery of the bunkers by the charterers to the owners,
let alone a voluntary delivery. In my judgment the transfer was involuntary. For these reasons I have reached the conclusion that the owners have not
made out step 2 of their argument under s 25(1) and that they are not therefore entitled to rely upon that section in order to defeat the plaintiffs’ claim for
damages for conversion.
866
That conclusion makes it unnecessary to consider the other steps in the owners’ argument, but since they were debated in some detail before me I
will shortly state my conclusion upon them.
Step 3
Step 3 is that the owners received the bunkers in good faith and without notice of any lien or other right of the original seller in respect of the goods.
Those are in reality two steps because the owners must establish both that they received the bunkers in good faith and that they did so without the relevant
notice. I will consider them together because they are to some extent related on the facts.
By s 61(3) of the 1979 Act a thing is deemed to be done in good faith ‘when it is in fact done honestly, whether it is done negligently or not’. So far
as notice is concerned it was accepted by both parties that the relevant principles were correctly set out by Neill J in Feuer Leather Corp v Frank
Johnstone & Sons [1981] Com LR 251 at 253 as follows:
‘… (2) For this purpose the court is concerned with actual notice and not with constructive notice. (3) In deciding whether a person in the
position of the defendants had actual notice: (a) the court will apply an objective test and look at all the circumstances; (b) if by an objective test
clear notice was given liability cannot be avoided by proof merely of the absence of actual knowledge; (c) a person will be deemed to have had
notice of any fact to which it can be shown that he deliberately turned a ‘blind eye’ … (d) on the other hand the court will not expect the recipient
of goods to scrutinise commercial documents such as delivery notes with great care; (e) there is no general duty on a buyer of goods in an ordinary
commercial transaction to make inquiries as to the right of the seller to dispose of the goods; (f) “the question becomes: looking objectively at the
circumstances which are alleged to constitute notice, do those circumstances constitute notice? This must be a matter of fact and degree to be
determined in the particular circumstances of the case” (see Scarman LJ in [By Appointment (Sales) Ltd v Harrods Ltd (trading as Rackhams)
[1977] CA Transcript 465]). (4) The burden of proving a bona fide purchase for value without notice rests on the person who asserts it. Such a rule
seems to me to be logical and is in accordance with the judgment of Danckwerts J in G L Baker Ltd v Medway Building Ltd ([1958] 2 All ER 532 at
535, [1958] 1 WLR 1216 at 1220).’
The state of mind of the owners must be judged as at 11 January 1991, that is when they withdrew the vessel. It is common ground that they or their
agents knew at that time that the charterers had not paid for the bunkers but that they did not know that the plaintiffs’ terms and conditions included cl 8,
the retention of title clause.
It is submitted by Mr Charlton that the owners have not proved that they took the bunkers in good faith and that they had notice of a ‘right of the
original seller in the goods’. Mr Bright relies upon the statements of Mr Glibbery and of Mr Papachronis which were put in evidence under the Civil
Evidence Act 1968 in support of his submission that the owners took the bunkers in good faith. Both those witnesses were employed not by the owners
themselves but by Drytank SA, who were the managers of the vessel. Mr Papachronis was thus the operations manager of the managers of the vessel. He
was the person who was dealing with the matter on behalf of the owners from 1 January 1991, on 867 which date he took over from Mr Glibbery. In
these circumstances it appears to me to be a reasonable inference that they are in a position to give evidence of the state of mind of the owners
themselves.
Mr Papachronis says that he was unaware of the retention of title clause and that the owners accepted the bunkers from the charterers in good faith.
He further says that he would not say that retention of title clauses were customary in the bunker trade. Mr Charlton draws attention to the fact that the
statements of Mr Papachronis and Mr Glibbery are in crucial respects word for word the same and submits that their evidence is unsatisfactory. He says
that the owners knew that the charterers had not paid for the bunkers, that they must have been aware that bunker suppliers would be likely to have either
a retention of title clause or something similar in their standard terms and conditions and that in these circumstances the owners turned a blind eye to the
rights of the plaintiffs.
I heard some expert evidence as to practice in the trade. In the end the parties prepared an agreed schedule setting out the practice of leading bunker
suppliers. It is I think a fair summary of that schedule to say that some suppliers have a retention of title clause not unlike cl 8, that some suppliers have a
maritime lien clause which purports to give them a maritime lien over the vessel until payment, that some suppliers have both and that a few suppliers
have neither.
In these circumstances it would in my judgment be wrong to hold that the owners must have had notice of ‘any lien or other right of the original
seller in respect of the goods’. It is not clear what is meant by ‘lien’ in the section. I would construe ‘other right’ as meaning some right in relation to the
goods themselves such as a right of ownership or possession. But whatever the true meaning there seems to me to be such variation in practice that I
would hold that the owners did not have notice of any such right of the plaintiffs given the fact that they were unaware of the retention of title clause in
the contract.
While there is some force in the criticism which Mr Charlton makes of the evidence in the statements there is in my judgment no proper basis for
holding that the owners did not receive the bunkers in good faith. I would therefore hold that the owners’ argument under step 3 succeeded.
Step 4
This step raises the question what is meant by the last part of s 25(1). If the owners satisfied the first three steps the section provides that the delivery
of the goods—
‘has the same effect as if the person making the delivery or transfer were a mercantile agent in possession of the goods … with the consent of
Preamble
the owner.’
There has been some discussion in the cases as to what this part of the section means. Unassisted by authority I would have held that it was
concerned only with the effect of the delivery and that it did not introduce any further requirement beyond those in steps 1 to 3. That is the view which
has found favour in Australia and New Zealand: see Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR
236 at 259 per Dawson J and the cases there cited; see also Benjamin’s Sale of Goods (4th edn, 1992) p 333, para 7-081.
However in Newton of Wembley Ltd v Williams [1964] 3 All ER 532, [1965] 1 QB 560 the Court of Appeal took a different view in relation to the
construction of 868 s 9 of the Factors Act 1889. It was there held that the transaction would, as Pearson LJ put it, only be validated ‘if this buyer is
doing something which would constitute acting in the ordinary course of business if he were a mercantile agent’ (see [1964] 3 All ER 532 at 539, [1965] 1
QB 560 at 579). I am bound by that decision. So the question here is whether the charterers were doing something which would constitute acting in the
ordinary course of business if he were a mercantile agent.
In my judgment, if (contrary to the conclusion which I have reached under step 2) there was here a delivery by the charterers to the owners pursuant
to a sale, the charterers were acting in the ordinary course of their business as charterers and were doing something (namely delivering goods pursuant to
a sale) which would constitute acting in the ordinary course of business if they were mercantile agents. It follows that the requirement propounded by
Pearson LJ is satisfied and that I would uphold the owners’ arguments under step 4.
However for the reasons which I have already given I hold that the owners are not entitled to rely upon s 25(1) of the 1979 Act because there was no
delivery by the charterers of the bunkers to the owners as contemplated by the section. It follows that the owners are liable to the plaintiffs for damages
for conversion. It is not in dispute that the quantum of those damages is the value of the bunkers, namely $US79,395·98d.
________________________________________
d Subsequent to the handing down of the judgment herein it was drawn to his Lordship’s attention by the parties that there was an error in the way the quantum of
damages for conversion awarded in favour of the plaintiffs had been calculated. Whilst the agreed quantum of the loss suffered by the plaintiffs was the invoice value
of the bunkers ($US79,395·98), conversion only took place by the charterers when they assumed ownership and full possession of the bunkers on board the vessel on 11
January 1991. It therefore followed that the damages properly recoverable were the value of the bunkers on board the vessel at that date, which were agreed as being
328mt of fuel oil at $US178·50 per ton ($US58,548·00) plus 6·3mt of diesel oil at $US329 per ton ($US2,072·70), a total of $US60,620·70. By a direction dated 20 July
1993 his Lordship therefore ordered that the associate certificate perfected on 4 June and the judgment entered herein dated 19 May and perfected on 9 June 1993 be
amended accordingly.
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
I turn to the liability of the charterers. They did not appear at the trial, but the plaintiffs seek judgment against them for the price of the bunkers on
the ground that they were liable to pay the price under the contract and that they have not done so. There is no answer to that claim; so it follows that the
plaintiffs are entitled to judgment against the charterers for the same sum.
The only remaining matter which I should mention briefly is the owners’ counterclaim for damages for wrongful arrest. The plaintiffs arrested the
vessel in Naples on 26 January 1991. On the hypothesis that they are not liable in damages to the plaintiffs the owners say that the plaintiffs wrongfully
arrested the vessel. It is conceded by the owners that in order to succeed they would have to show (in the old terminology) either male fides or crassa
negligentia. In my judgment even if the owners are not liable to the plaintiffs they can show neither. It is not I think suggested that there was bad faith. I
am satisfied, having heard the evidence of Miss Mather, that she was not acting with crassa negligentia. I accept her evidence that the retention of title
clause was in the plaintiffs’ mind at the time of the arrest and that she (and they) took the view that the owners, having used the plaintiffs’ bunkers which
had not been paid for, were liable to pay for them. She took the advice of the plaintiffs’ solicitors before the vessel was arrested. Even if the view which
I have expressed above is wrong and the owners are not liable to the plaintiffs I do not think that the 869 plaintiffs or their solicitors could fairly be
said to be acting with crassa negligentia in taking a different view. I would therefore hold that the counterclaim failed.
Judgment for plaintiffs against owners and charterers. Counterclaim dismissed.

[1994] 1 All ER 870
Lonrho plc v Fayed and others (No 4)

CIVIL PROCEDURE

POPPLEWELL J
28 MAY, 23 JUNE 1993

SIR THOMAS BINGHAM MR, LEGGATT AND ROCH LJJ
6, 7, 26 OCTOBER 1993
Discovery – Privilege – Production contrary to public interest – Documents relating to tax affairs of party – Communications passing between party or
his tax advisers and Inland Revenue relating to party’s tax affairs – Whether public interest immunity attaching to tax communications in hands of party –
Whether party entitled to withhold production of tax communications – Whether public interest in disclosure of communications outweighing public
interest in non-disclosure.
Discovery – Production of documents – Order for production – Consent order – Undertaking given when order made – Variation – Consent order for
production made against plaintiff on defendants undertaking not to disclose documents to themselves or anyone other than their legal advisers and expert
witnesses – Defendants given liberty to apply for variation when consent order made – Defendants seeking removal of restriction on their personal access
to documents – No change in circumstances since consent order made – Whether restriction on defendants’ personal access to documents should be
Preamble
removed.
In 1984 the defendants purchased 29·9% of the shares of a public company from the plaintiff. In 1985, at a time when the plaintiff was still subject to an
undertaking it had given to the Secretary of State not to purchase any more shares in the company, the defendants purchased the remainder of the shares.
The plaintiff alleged that it had been deprived of the opportunity to acquire the shares by fraudulent misrepresentations made by the defendants to the
Secretary of State, the board and shareholders of the company and certain regulatory authorities about the defendants’ personal background and means
and in particular the source of the funds available to them to purchase the shares. The plaintiff brought an action against the defendants claiming that they
had thereby committed the torts of wrongful interference with the plaintiff’s business interests and conspiracy to injure by unlawful means. In compliance
with orders for discovery the defendants disclosed communications passing between them or their tax advisers and the Inland Revenue relating to their tax
affairs and the plaintiff by consent disclosed confidential documents 870 relating to its financial affairs on the defendants’ undertaking that unless a
prior order of the court was obtained (for which they were given liberty to apply), those documents would only be disclosed to their legal advisers and
expert witnesses and would not be disclosed to the defendants personally or any other person. The defendants claimed that they were entitled to withhold
production of the documents they had disclosed on the grounds of public interest immunity and also sought the removal of the restriction on their personal
access to the documents disclosed by the plaintiff. The judge rejected the defendants’ claim to withhold production of the documents they had disclosed,
holding that, although public interest immunity attached to them, the public interest in withholding them was outweighed by the public interest in their
production. The judge also dismissed the defendants’ application for the removal of the restriction on their personal access to the documents disclosed by
the plaintiff, holding that there had been no change in circumstances since the defendants had given their undertaking which justified their being released
from it. The defendants appealed to the Court of Appeal.
Held – (1) (Roch LJ dissenting) Public interest immunity attached to docu-ments in the hands of the Inland Revenue relating to a taxpayer’s tax affairs in
the absence of consent to disclosure by the taxpayer, since as a matter of public policy the state should not by compulsory powers obtain information from
a citizen for one purpose and then use it for another. The court would only order production of such documents if the public interest in the administration
of justice outweighed the public interest in preserving the confidentiality of the documents. However (Roch LJ concurring), no such immunity attached to
documents held by a taxpayer or his agents relating to the taxpayer’s tax affairs. In any event, even if public interest immunity did attach to such
documents in the hands of the defendants or their advisers, the public interest in non-disclosure was, on the facts, outweighed. It followed that the
defendants’ appeal from the order for production of the documents relating to their tax affairs would be dismissed (see p 887 c to e, p 888 c, p 889 b c, p
891 b to g, p 896 d e and p 897 c e, post); dictum of Lord Reid in Conway v Rimmer [1968] 1 All ER 874 at 884 applied.
(2) If a party elected to give an undertaking in order to avoid the grant of relief to the other party, he could not ordinarily and in the absence of
changed circumstances reopen the matter later if he concluded on reconsideration that he could have defeated the application for that relief. However, if a
party reserved a right to apply or an undertaking was given until further order, he was entitled to return to court to vary the order or undertaking if reason
for doing so was shown, and where disclosure of documents was initially ordered on a restricted basis the court might at a later stage permit wider
disclosure. On the facts and having regard to the terms of the undertaking, the defendants ought not to be prevented from seeking a variation; having seen
the documents their advisers were much better placed to consider which documents the defendants should see in order fairly to defend the action and give
instructions, and in that respect the situation differed from that existing when the undertaking was given. Nevertheless, it would be unfair to the plaintiff
simply to relax the restriction which the defendants had then accepted, since the plaintiff’s case on the merits of the application for discovery had not been
heard and it might be that some restriction should continue to apply in relation to some documents if not all, and were the court simply to remove the
restriction the defendants 871 might achieve a result they could not have achieved had the matter been fully contested before the judge. Accordingly,
the defendants’ appeal from the judge’s decision not to allow a variation of their undertaking would be allowed (see p 890 b to d g h, p 891 f to g and p
897 e f, post); dictum of Buckley LJ in Chanel Ltd v F W Woolworth & Co Ltd [1981] 1 All ER 745 at 751 and Warner-Lambert Co v Glaxo Laboratories
Ltd [1975] RPC 354 applied.
Notes
For withholding production of documents on the ground of public interest immunity, see 13 Halsbury’s Laws (4th edn) para 86, and for cases on the
subject, see 18 Digest (2nd reissue) 203–219, 1822–1879.
For setting aside consent orders, see 26 Halsbury’s Laws (4th edn) para 562, and for a case on the subject, see 30 Digest (2nd reissue) 339, 3515.

Air Canada v Secretary of State for Trade (No 2) [1983] 1 All ER 910, [1983] 2 AC 394, [1983] 2 WLR 494, HL; affg [1983] 1 All ER 161, [1983] 2 AC
394, [1983] 2 WLR 494, CA; rvsg [1983] 1 All ER 161.
Ankin v London and North Eastern Rly Co [1930] 1 KB 527, [1929] All ER Rep 65, CA.
Brown’s Trustees v Hay (1897) 35 SLR 340, 3 TC 598, Ct of Sess.
Chanel Ltd v F W Woolworth & Co Ltd [1981] 1 All ER 745, [1981] 1 WLR 485, Ch D and CA.
Chatterton v Secretary of State for India in Council [1895] 2 QB 189, [1895–9] All ER Rep 1035, CA.
Conway v Rimmer [1968] 1 All ER 874, [1968] AC 910, [1968] 2 WLR 998, HL.
Crane v Johannesburg Stock Exchange Committee 1949 (4) SA 835, SA App Div.
D v National Society for the Prevention of Cruelty to Children [1977] 1 All ER 589, [1978] AC 171, [1977] 2 WLR 201, HL.
Duncan v Cammell Laird & Co Ltd [1942] 1 All ER 587, [1942] AC 624, HL.
Gray v Wyllie (1904) 6 F 448, Ct of Sess.
H v H (1980) 52 TC 454.
Hargreaves (Joseph) Ltd, Re [1900] 1 Ch 347, CA.
Henderson v M‘Gown 1916 SC 821, Ct of Sess.
Home v Lord Bentinck (1820) 2 Brod & Bing 130, 129 ER 907, Ex Ch.
IRC v National Federation of Self-Employed and Small Businesses Ltd [1981] 2 All ER 93, [1982] AC 617, HL.
Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627, HL.
Macdonald v James Hedderwick & Sons (1901) 3 F 674, Ct of Sess.
Macmillan Inc v Bishopsgate Investment Trust Ltd [1993] 4 All ER 998, [1993] 1 WLR 837, CA.
Makanjuola v Comr of Police of the Metropolis [1992] 3 All ER 617, CA.
Marais v Lombard 1958 (4) SA 224, East Cape Div.
Marcel v Comr of Police of the Metropolis [1991] 1 All ER 845, [1992] Ch 225, [1991] 2 WLR 1118.
Marks v Beyfus (1890) 25 QBD 494, CA.
Preamble
Mitchell v Koecker (1849) 11 Beav 380, 50 ER 863.

Multi Guarantee Co Ltd v Cavalier Insurance Co Ltd (1986) Times, 24 June.
Pooraka Holdings Pty Ltd v Participation Nominees Pty Ltd (1989) 52 SASR 148, S Aust Full Ct.
Robertson v Hamilton 1915 2 SLT 195, Ct of Sess.
872
Rogers v Secretary of State for the Home Dept [1972] 2 All ER 1057, [1973] AC 388, [1972] 3 WLR 279, HL.
Science Research Council v Nassé [1979] 3 All ER 673, [1980] AC 1028, [1979] 3 WLR 762, HL.
Shaw v Kay (1904) 12 SLT 495, 5 TC 74, Ct of Sess.
Stroyan v M‘Whirter (1901) 9 SLT 242, Ct of Sess.
Warner-Lambert Co v Glaxo Laboratories Ltd [1975] RPC 354, CA.

A-G v Guardian Newspapers Ltd (No 2) [1988] 3 All ER 545, [1990] 1 AC 109, HL.
Barlow Clowes Gilt Managers Ltd, Re [1991] 4 All ER 385, [1992] Ch 208.
Crompton (Alfred) Amusement Machines Ltd v Customs and Excise Comrs (No 2) [1973] 2 All ER 1169, [1974] AC 405, HL.
Home Office v Harman [1982] 1 All ER 532, [1983] 1 AC 280, HL.
Moss v Chesham UDC (16 January 1945, unreported), KBD.
Oudman v Warren [1962] NSWLR 1047, NSW SC Full Ct.
Riddick v Thames Board Mills Ltd [1977] 3 All ER 677, [1977] QB 881, CA.
Sankey v Whitlam (1978) 142 CLR 1, Aust HC.
Summons
By a summons dated 18 May 1993 the plaintiffs, Lonrho plc (Lonrho), applied to the High Court for an order that the first to fourth defendants, Mohamed
Fayed, Salah Fayed, Ali Fayed and House of Fraser Holdings plc (House of Fraser), should forthwith produce for inspection and copying by Lonrho
letters and other written communications and documents passing between the Fayeds or their advisers on the one hand and the Inland Revenue on the
other relating to the tax affairs of the Fayeds and documents, notes, drafts and memoranda prepared or coming into existence in relation to such affairs.
The summons was heard in chambers but judgment was given by Popplewell J in open court at Luton. The facts are set out in the judgment.
Gordon Pollock QC and Victor Lyon (instructed by Denton Hall Burgin & Warrens) for Lonrho.
Jonathan Sumption QC and Alastair Walton (instructed by Herbert Smith) for the defendants.
Cur adv vult
23 June 1993. The following judgment was delivered.
POPPLEWELL J. This application was heard in chambers but, because the decision is of more general importance, I have adjourned into open court for
the purpose of giving judgment.
The background
In March 1985 the first three defendants (the Fayeds) acquired Harrods. The plaintiffs (Lonrho), who were rival contenders, alleged, inter alia, that
the Fayeds’ acquisition of Harrods was based on fraudulent misrepresentations and misstatements, in particular in relation to the source of their funding.
The Revenue investigated the tax affairs of the Fayeds on two occasions between November 1984 and 1985 and between November 1988 and September
1990. As 873 a result there came into existence a number of documents relating to the Fayeds’ tax affairs which are in their possession.
Pursuant to an order of 13 November 1992, made by Swinton Thomas J, the Fayeds supplied a second supplemental list of documents. In Sch 1, Pt 2
para 4 they referred to:
‘… letters and other written communications and documents passing between the Fayeds or their advisers on the one hand and the Inland
Revenue on the other relating to the tax affairs of the Fayeds and documents notes drafts and memoranda prepared or coming into existence in
relation to such affairs.’
The Fayeds objected to producing the documents on the ground that—
‘the said documents are by reason of their contents or the class of documents to which they belong to be withheld from production on the
ground that production of the same would be injurious to the public interest.’
The application
This is an application by Lonrho that the Fayeds should produce these documents for inspection and copying, and that public interest immunity does
not attach to them.
The plaintiffs properly notified the Revenue by letter dated 14 May 1993 and invited them to confirm whether it was a matter in which they wished
to become involved. The position of the Revenue is clear. They do not wish to be involved in the determination of the claim. They neither support nor
oppose it, and are not seeking themselves to claim public interest immunity in respect of any of their documents in the possession of the Fayeds.
The arguments
I am concerned with class documents and not with content. The documents are plainly relevant. There is no claim for protection against production
on the ground of possible self-incrimination. There is no need for me to examine the documents, and I have not done so.
Two issues appear to arise on this summons. First, does public interest immunity attach to the documents at all in the hands of the taxpayer?
Second, if it does, how is that public interest against disclosure to be balanced against the public interest in the informed determination of the facts in the
Preamble
course of the administration of justice?
Mr Sumption QC’s contention for the Fayeds on the first issue is a simple one. He contends there is a well-established public interest in the
non-disclosure of communications passing between the taxpayer and the Revenue, which disclose the financial affairs of the taxpayer. Thus a subpoena
addressed to the Revenue will be set aside on the ground of public interest immunity. In Conway v Rimmer [1968] 1 All ER 874 at 884, [1968] AC 910 at
946 Lord Reid said:
‘In Re Joseph Hargreaves, Ltd. ([1900] 1 Ch 347), the Inland Revenue objected to producing documents submitted to them in connexion with
income tax. That seems to me to have nothing to do with candour. If the State insists on a man disclosing his private affairs for a particular
purpose, 874 it requires a very strong case to justify that disclosure being used for other purposes.’
In IRC v National Federation of Self-Employed and Small Businesses Ltd [1981] 2 All ER 93 at 98–99, [1982] AC 617 at 633 Lord Wilberforce said:
‘The structure of the legislation relating to income tax, on the other hand, makes clear that no corresponding right is intended to be conferred on
taxpayers. Not only is there no express or implied provision in the legislation on which such a right could be claimed, but to allow it would be
subversive of the whole system, which involves that the commissioners’ duties are to the Crown, and the matters relating to income tax are between
the commissioners and the taxpayer concerned. No other person is given any right to make proposals about the tax payable by any individual; he
cannot even inquire as to such tax. The total confidentiality of assessments and of negotiations between individuals and the Revenue is a vital
element in the working of the system. As a matter of general principle I would hold that one taxpayer has no sufficient interest in asking the court
to investigate the tax affairs of another taxpayer or to complain that the latter has been underassessed or overassessed; indeed there is a strong
public interest that he should not.’
That public interest immunity attaches to tax documents in the hands of the Revenue is not seriously challenged by Mr Pollock QC for Lonrho.
The next step in Mr Sumption’s argument is that, as the documents in the hands of the Revenue are properly the subject of public interest immunity,
it can make no difference from whom disclosure is sought and therefore it necessarily follows that those same documents in the hands of the taxpayer are
similarly protected.
The fact that this is a novel proposition which has wide-ranging consequences did not of itself make the submission untenable. In personal injury
litigation it is commonplace for the plaintiff’s tax documents to be disclosed. They may affect the credibility of the plaintiff in relation to his pre-accident
income, as to whether he was employed or self-employed, the extent or otherwise of his employment since the accident and so on. No one has ever
sought to take the point, to my knowledge, that they should not be disclosed by reason of public interest immunity. Mr Sumption contends that it is open
to a party to disclose these documents if he so wishes. He is not thereby waiving his immunity, which he has no right to do, but simply removing the
condition for its existence. In other cases he says the evidence may be obtained from other sources and the amount of money involved may not make
litigation on this issue worth while. It has equally been the practice in matrimonial proceedings for the parties to be required to disclose their income tax
documents. Indeed, it is scarcely possible for the financial arrangements in a matrimonial dispute to be resolved without the parties’ tax returns.
In support of his submission that copies of documents to which public interest immunity attaches may not be disclosed or relied on, and secondary
evidence of their contents may not be given, Mr Sumption cited a number of authorities. In Chatterton v Secretary of State for India in Council [1895] 2
QB 189, [1895–9] All ER Rep 1035 the plaintiff alleged he had been libelled by the defendant. The statement complained of was made by the Secretary
of State to the Parliamentary Under-Secretary in order to enable him to answer a question asked in the House of Commons with regard to the personal
reputation of the 875 plaintiff. Kay LJ said ([1895] 2 QB 189 at 194, cf [1895–9] All ER Rep 1035 at 1037):
‘What was said in that case [ie Home v Lord Bentinck (1820) 2 Brod & Bing 130, 129 ER 907] appears to me authority for the proposition that a
document such as that upon which this action is founded is one which cannot form the subject-matter of an action, because, on the ground of public
policy, the Court cannot allow it to be given in evidence, or secondary evidence of it to be given.’
A L Smith LJ said ([1895] 2 QB 189 at 195, cf [1895–9] All ER Rep 1035 at 1037–1038):
‘But there is a second ground upon which the defendant’s counsel relied, and which, I think, is conclusive of the matter—namely, that the libel
complained of is a document of state, it having been brought into existence by the defendant in the course of his duty as a state official for a state
purpose, and therefore it cannot be produced in evidence in a court of justice, it being contrary to the public interest that it should be so produced.
The cases have gone the length of holding that, even if no objection were taken to the production of such a document by the person in whose
custody it was, it would be the duty of the judge at the trial to intervene, and to refuse to allow it to be produced: and it has further been held that, if
an attempt were made to get round that difficulty by giving secondary evidence of its contents, the judge ought also to prevent that from being
done.’
In Ankin v London and North Eastern Rly Co [1930] 1 KB 527, [1929] All ER Rep 65 the plaintiff claimed damages for personal injury alleging
negligence against the defendants while travelling as a passenger on their railway line. By the Regulation of Railways Act 1871 the defendants were
obliged to make a report to the Minister of Transport about the accident. The defendants objected to producing their copy of the document and the
minister deposed that it would be against the public interest to produce that document. Strutton LJ said ([1930] 1 KB 527 at 533, [1929] All ER Rep 65 at
68):
‘Here if the Minister says it would be against the public interest to produce a particular document the Court accepts his statement upon his
responsibility. In my opinion, if it is contrary to the public interest to produce an original document, it must equally be contrary to the public
interest to produce a copy which the maker of the document has kept for his own information.’
In Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627 the House of Lords was concerned with documents which came into existence in
connection with the inquiry then being carried out by Mr Bingham QC. Discovery was sought of those documents for the purpose of an arbitration. The
Lord Privy Seal provided a certificate against disclosure on the ground of public interest immunity. The House of Lords upheld the decision of Robert
Goff J that the public interest against disclosure relied on by the minister outweighed the general public interest in the administration of justice. Mr
Sumption relied on this case as showing that a private person is entitled to invoke the immunity in response to an application for an order for inspection
directed against him rather than against the authority.
876
Preamble
Mr Pollock observes that in all the cases that have been cited to me there has been a specific claim by the authority for public interest immunity
supported by a certificate from the appropriate minister. In the instant case that is not the position. The Revenue have taken a neutral stance. They have
not claimed in the instant case public interest immunity in respect of their documents, although they would have done so if a subpoena had been directed
to them. A subpoena has not been directed to them. Mr Sumption said that makes no difference. It is the duty of the court to take the point. For that
proposition he relies on what was said in Rogers v Secretary of State for the Home Dept [1972] 2 All ER 1057 esp at 1060, 1066, [1973] AC 388 esp at
400, 407 per Lord Reid and Lord Simon, where the latter said:
‘It is not a privilege which may be waived—by the Crown (see Marks v. Beyfus (1890) 25 QBD 494 at 500) or by anyone else. The Crown has
prerogatives, not privilege. The right to procure that admissible evidence be withheld from, or inadmissible evidence adduced to, the courts is not
one of the prerogatives of the Crown.’
A more recent exposition of the principle is to be found in Makanjuola v Comr of Police of the Metropolis [1992] 3 All ER 617 (a decision not
referred to by counsel) which admirably sets out the current position. Bingham LJ said (at 623):
‘Where a litigant asserts that documents are immune from production or disclosure on public interest grounds he is not (if the claim is well
founded) claiming a right but observing a duty. Public interest immunity is not a trump card vouchsafed to certain privileged players to play when
and as they wish. It is an exclusionary rule, imposed on parties in certain circumstances, even when it is to their disadvantage in the litigation. This
does not mean that in any case where a party holds a document in a class prima facie immune he is bound to persist in an assertion of immunity
even where it is held that, on any weighing of the public interest, in withholding the document against the public interest in disclosure for the
purpose of furthering the administration of justice, there is a clear balance in favour of the latter. But it does, I think, mean: (1) that public interest
immunity cannot in any ordinary sense be waived, since, although one can waive rights, one cannot waive duties; (2) that, where a litigant holds
documents in a class prima facie immune, he should (save perhaps in a very exceptional case) assert that the documents are immune and decline to
disclose them, since the ultimate judge of where the balance of public interest lies is not him but the court …’
Thus, says Mr Sumption, it would be open to the Fayeds if they were so minded to deliver up the documents voluntarily because they would not be
waiving their immunity but would be removing the condition for its existence. Once public interest immunity attaches to the documents in the hands of
the Revenue, the immunity precludes disclosure without the consent of the taxpayer. The Revenue have obtained this information by coercive means on
the basis of confidentiality. Public interest immunity attaches to those documents even if such immunity is not expressly claimed by the Revenue, and
evidence of copies of documents to which public interest immunity attaches is inadmissible and therefore the documents are not disclosable. That
summarises I hope fairly Mr Sumption’s submissions.
877
The extent to which public interest immunity may evaporate was considered by Knox J in Multi Guarantee Co Ltd v Cavalier Insurance Co Ltd
(1986) Times, 24 June:
‘It was accepted that although public interest immunity could not be waived, it was capable of evaporating if the relevant consent of persons
involved in the giving and receiving of the information were given to its disclosure. What was in issue was just what consents were needed for the
immunity to disappear.’
In H v H (1980) 52 TC 454 Balcombe J had to consider the case where a wife had subpoenaed the Controller of the Capital Taxes Office to give
evidence and produce the original and any corrective affidavit concerning her husband’s deceased grandfather. The Revenue claimed public interest
immunity on the grounds that documents contained information relating to the financial affairs of the deceased grandfather, which information was held
by the Board solely for the proper discharge of their statutory functions. They undertook to withdraw the objection relating to those documents if, and to
the extent, that consent was given by the administrator. It was held that claim for public interest immunity would be upheld.
In Macmillan Inc v Bishopsgate Investment Trust Ltd [1993] 4 All ER 998, [1993] 1 WLR 837 the plaintiff company had brought an action to
recover assets which had been transferred to the defendant. The second defendant company called as a witness a Mr Haas, who was an employee of one
of its associated companies. He was asked to produce copies of transcripts which were in his possession of his examination in private under s 236 of the
Insolvency Act 1986. Millett J said ([1993] 4 All ER 998 at 1001–1002, [1993] 1 WLR 837 at 840–841):
‘Thirdly, there is a public interest immunity which operates in favour of persons in the position of Mr Haas, which would prevent the disclosure
of the transcripts to third parties such as Macmillan without their consent … all that is left under the second and third objections are the facts that
the transcripts were obtained by the liquidator by the exercise of the coercive powers of the court under s 236 of the Insolvency Act 1986 and ought
not to be used for any purpose other than that for which the transcripts were obtained, and that there may be a public interest immunity which
operates in favour of such witnesses to prevent compulsory disclosure. In my judgment, the former might be material should any attempt be made
to obtain from the liquidator his copies of the transcripts, but it is entirely beside the point when it comes to obtaining from Mr Haas his own copies
of the evidence which he gave the liquidator … The underlying purpose of r 9.5 [of the Insolvency Rules 1986, SI 1986/1925] is to protect the
witness from the use by the liquidator of material obtained by him by the use of the court’s coercive powers otherwise than for the limited purpose
for which that material was obtained, namely the beneficial winding up of the company in liquidation. That is not an absolute prohibition. It must
yield to countervailing considerations which outweigh the importance of that principle, and the court, therefore, has an ultimate discretion whether
to permit the use of the material for extraneous purposes … All those considerations are applicable only to the use to be made by the liquidator of
the material which he has obtained either by the use of the court’s coercive powers or under promise of confidentiality. In the present case what is
sought is a compulsory production from the witness himself of a 878 document which he has in his own possession, and which he is free to
make use of as he chooses. Mr Haas in this respect is his own man. He has been released from any promise of confidentiality which the liquidator
imposed on him, and he is free to publish the document if he is minded to do so. The question is whether he is compellable. In my judgment, that
raises an entirely different question. He is indeed compellable, but under the ordinary rules of the court.’
Mr Pollock relies on this decision as supporting his contention that documents in the possession of the private individual are not subject to the public
interest immunity claim. He also drew my attention to the decision of the Supreme Court of South Australia in Pooraka Holding Pty Ltd v Participation
Nominees Pty Ltd (1989) 52 SASR 148. It held that there is no rule of the common law attaching privilege from disclosure to copies of income tax
returns on grounds of public interest.
Preamble
King CJ, with whose judgment the other judges agreed, said (at 156–157):
‘I think that the authorities fall far short of establishing the existence at common law of a privilege against disclosure of copies of or the
contents of income tax returns on the grounds of public interest. I see no reason why the court should acknowledge any such rule. The public
interest in the courts’ access to all material evidence in the course of the administration of justice is generally the paramount consideration. It is not
lightly to be assumed that any other interest has primacy over it. Copies of tax returns differ little from the financial records upon which they are
based and which are clearly not the subject of privilege. There are no grounds for supposing that, under modern conditions, taxpayers would be
discouraged from making full disclosure in their tax returns by the knowledge that the contents of their returns are subject to inspection in legal
proceedings, in sufficient numbers or on a sufficient scale to constitute a threat to the revenue of sufficient magnitude to justify withholding
relevant information from courts. I have reached the clear conclusion that there is no rule of the common law which attaches privilege from
disclosure to copies of income tax returns on grounds of public interest.’
That authority is naturally relied on by Mr Pollock.

I confess that I would like to follow the decision in the Pooraka case because it seems wholly to accord with common sense. I am, however,
satisfied that as the law presently stands, even if the Revenue themselves are not claiming public interest immunity, nevertheless public interest immunity
attaches to these documents. In the light of the authorities to which reference has already been made, I am bound by authority so to hold. It may well be
the development of the law in relation to public interest immunity, which clearly is in favour of disclosure, would now result in a higher court taking a
different view. But, whatever my personal view, I have loyally to follow decisions of superior courts, and, although the South Australian case is of
persuasive authority, it is not binding on me. I therefore conclude that public interest immunity does attach to these documents.
I turn to the second question, which is to determine whether there is public interest in production of the documents, and then to consider the
balancing of the public interest in withholding the documents against the public interest in producing them. It is accepted that once public interest
immunity has been 879 properly raised the burden is on the applicant for production to show that the documents should be produced.
It is accepted also that in determining whether there is a public interest in production of the documents the court shall have regard to the relevance of
the matters in question, and the necessity for disposing fairly of the case. The matter is best set out in the judgment of Bingham J in Air Canada v
Secretary of State for Trade (No 2) [1983] 1 All ER 161 at 166:
‘2. If the court is satisfied that the party seeking to withhold the documents has made a valid claim for public interest immunity the next step is
to determine whether the party seeking production is able to show a public interest in production. To do so, such party must show not only that the
documents are relevant … but that they are necessary for disposing fairly of the cause or matter or (to put it in a different way) are necessary for the
due administration of justice [the Court of Appeal differed from the judge on the phrase “due administration of justice”: see [1983] 1 All ER 161 at
181, 187, [1983] 2 AC 394 at 411, 418–419] … If it appears to the court that the documents are likely to be necessary for the due administration of
justice the court is confronted by a second aspect of the public interest, fit to be weighed in the balance against the first. 3. If the court is satisfied
that there is a public interest both in production and in non-disclosure it must consider the relative substance of each claim with a view to forming a
judgment whether, on balance, the public interest will be better served by the withholding of the documents or by their production … But the task
of the court is to weigh the harm which production would cause to the business of government or public administration against the harm which
non-disclosure would do to the just determination of the particular case and decide where the balance of public interest lies.’
Mr Sumption does not quarrel with that general proposition. That case was concerned with inspection of documents and was regarded as a fishing
expedition. In the House of Lords Lord Fraser said in relation to the question of inspection ([1983] 1 All ER 910 at 917, [1983] 2 AC 394 at 435):
‘My Lords, I do not think it would be possible to state a test in a form which could be applied in all cases. Circumstances vary greatly. The
weight of the public interest against disclosure will vary according to the nature of the particular documents in question; for example, it will in
general be stronger where the documents are Cabinet papers than when they are at a lower level. The weight of the public interest in favour of
disclosure will vary even more widely, because it depends on the probable evidential value to the party seeking disclosure of the particular
documents, in almost infinitely variable circumstances of individual cases.’
That passage is germane to the court’s discretion in the balancing exercise. The background to this case has already been set out. The issue to which
this discovery goes relates primarily to the question of the provision of funds to enable the Fayeds to purchase Harrods and also to the background of the
Fayeds. The Fayeds have already deposed that they have and have had no relevant documents in their position relating to contracts with oil companies
which they say are the source of their capital.
It is thus clear that the central issue in this case will very likely be resolved by the production of these documents. The Revenue have not themselves
sought 880 to claim public interest immunity. It can therefore fairly be said that they will not be affected by disclosure in this particular case. Nor is
the fact that these documents are disclosed likely hereafter to affect the proper function of the Revenue in collecting information which a taxpayer is in
any event required by law to give. There is no question of any abuse of power as was suggested might have occurred in Marcel v Comr of Police of the
Metropolis [1991] 1 All ER 845 at 851, 856, [1992] Ch 225 at 234, 240 per Browne-Wilkinson V-C). There is no question of any claim against
self-incrimination. The Serious Fraud Office investigated the tax affairs of the Fayeds for a period of three years, and decided that no prosecution should
be brought. The fact that this is a claim essentially alleging fraud does not of itself tell against disclosure.
In the Air Canada case the Court of Appeal differed from Bingham J in his application of the balancing exercise. Lord Denning MR said ([1983] 1
All ER 161 at 180–181, [1983] 2 AC 394 at 410–411):
‘In all the cases it is said that the courts are required to have regard to the public interest in the “due administration of justice”. But I would
point out that this depends on the nature of the issue between the parties. In some cases it means simply ascertaining the truth, finding out what in
fact happened, and then adjusting the rights and liabilities of the parties on the faith of it … I hold that when we speak of the “due administration of
justice” this does not always mean ascertaining the truth of what happened. It often means that, as a matter of justice, the party must prove his case
without any help from the other side. He must do it without discovery and without putting him into the box to answer questions.’ (Lord Denning
MR’s emphasis.)
In this case it seems to me the balancing exercise quite clearly falls in favour of the public interest in the administration of justice. Unlike the Air
Canada case, in which it was held that it was not established that the documents would be likely to assist the applicant’s case, there is every reason to
believe that these documents will play a very important, if not the most important, part in the court’s decision. It goes essentially to the heart of the case.
Preamble
The ascertainment of the truth of what happened in this case seems to me to be of such paramount importance as wholly to outweigh any supposed benefit
in suppressing the documents at the hands of the taxpayer.
This branch of the law has changed beyond recognition. The history of that change is fully and admirably set out by Lord Denning MR in his
judgment in the Air Canada case [1983] 1 All ER 161 at 178–181, [1983] 2 AC 394 at 407–410. The modern approach to litigation can properly be
described as ‘cards on the table’. The absence of any other documents hitherto disclosed by the Fayeds about their financial affairs makes these
documents even more important.
The public interest in the immunity from production of these documents in the taxpayers’ hands is based on the argument there is a public interest
against production of documents in the Revenue’s hands. As the Revenue expressly declined to take the point, that does not seem to me a very substantial
argument in favour of non-disclosure. This is not just a piece of small private litigation with no interest to anyone other than the parties. It is a case
where there has been considerable public concern, in which the Department of Trade, the Serious Fraud Office and ministers of the Crown have been
involved at one time or another. Nor is the fact that income tax returns are regularly before the court 881 without any apparent damage to the
administration of Revenue laws an argument in favour of non-disclosure.
As Professor Sir William Wade says in Administrative Law (6th edn, 1988) p 843:
‘Nothing will eliminate the conflict between public interest and private right which arises in situations such as these. But it is clear that a much
fairer balance between them is being struck, now that the courts have asserted their control and are willing to weigh all claims in the scales of
justice.’
I have no hesitation in deciding that in this case the balance comes down firmly on the side of disclosure.
For those reasons I shall order discovery of these documents and their production for inspection. I give leave to appeal and grant a stay. I shall order
the defendants to pay Lonrho’s costs. I give a certificate for two counsel. I will indicate to the Court of Appeal that this case is of great urgency.
The hearing of the main trial has been fixed for January and is estimated to last some five to six months. Any delay therefore will have a very
serious effect of the timetable for obvious reasons.
I am grateful to both parties for the quality of presentation and preparation.
Order accordingly. Leave to appeal to the Court of Appeal granted.
On 16 July 1993 Popplewell J dismissed another application by the defendants, Mohamed Fayed, Salah Fayed, Ali Fayed and House of Fraser Holdings
plc, John MacArthur and Kleinwort Benson Ltd, for an order that they be under no further or other obligation in respect of certain documents referred to
in a consent order for discovery made by Swinton Thomas J on 27 January 1993 than they were under in relation to any other documents of which
discovery had been or might be given by the plaintiffs, Lonrho plc.
Interlocutory appeals
The first, second, third and fourth defendants appealed.
Jonathan Sumption QC and Alastair Walton (instructed by Herbert Smith) for the Fayeds and House of Fraser.
Sydney Kentridge QC and Victor Lyon (instructed by Denton Hall Burgin & Warrens) for Lonrho.
Cur adv vult
SIR THOMAS BINGHAM MR. The first to fourth defendants (the Fayeds) appeal with leave against two orders of Popplewell J in favour of the
plaintiff (Lonrho). One order, made on 23 June 1993, rejected a claim by the Fayeds to withhold certain documents from production on grounds of public
interest immunity. The documents in question are communications between the Fayeds and their tax advisers and the Revenue and relate to the Fayeds’
tax affairs. The second order, made on 16 July 1993, refused the Fayeds a relaxation of the terms on which they had obtained disclosure of confidential
documents 882 relating to the financial affairs of Lonrho. The fifth and sixth defendants have played no part in these appeals.
The events giving rise to this action, and the nature of the action itself, are so well known that no detailed recital of the facts and issues is necessary
for purposes of this appeal. It is enough to record in bare outline how the appeals arise.
In November 1984 the Fayeds bought 29·9% of the shares of House of Fraser plc from Lonrho by private treaty. Pursuant to a public offer
announced in March 1985 they bought the remainder of the shares. Lonrho claims that it would itself have wished to buy the House of Fraser
shareholding had it not been precluded from doing so by an undertaking previously given to the Secretary of State for Trade and Industry. The thrust of
Lonrho’s case in this action (begun in March 1987) is that the Fayeds deprived it of the opportunity to acquire the House of Fraser shareholding by a
number of deliberate and fraudulent misrepresentations made to the Secretary of State, the board and shareholders of the company and certain regulatory
authorities. These misrepresentations are said to have concerned the Fayeds’ personal backgrounds and means, and in particular the source of the funds
available to them to buy the shareholding. Lonrho lays its claim in tort, alleging that the facts relied on show wrongful interference with its business
interests and actionable conspiracy to injure by unlawful means.
In their defence the Fayeds plead that the sum (of £571m) needed to finance the House of Fraser acquisition was found from their own resources.
Lonrho has been concerned to trace the source of that money and to discover how it was earned. These questions were not answered by the Fayeds’
initial discovery given in January 1992. No documents appear to survive bearing on that important question. Lonrho accordingly issued a summons
seeking additional discovery of a number of classes of documents including documents relating to the Fayeds’ tax affairs. After a contested hearing in
September 1992, Swinton Thomas J ordered the Fayeds to disclose (among many other documents) the following:
‘All documents, relating to the period 1st January 1983 to 31st March 1987 including correspondence, memoranda, notes of meetings, copy
bank statements, copy returns to any tax authority anywhere in the world relating to the wealth and business interests of the first, second and third
defendants or one or more of them and to any of their firms or companies received by the said defendants from, or held by the following as agents
for the said defendants: (a) Peat Marwick Mitchell; and (b) any person, firm or entity anywhere in the world giving tax and accounting advice to the
said defendants and/or to their firm and companies.’
In January 1993 the Fayeds made affirmations verifying a further list of documents. In Pt 2 of Sch 1 to their list the Fayeds disclosed:
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‘… letters and other written communications and documents passing between the Fayeds or their advisers on the one hand and the Inland
Revenue on the other relating to the tax affairs of the Fayeds and documents notes drafts and memoranda prepared or coming into existence in
relation to such affairs.’
The Fayeds claimed:
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‘… the said documents are by reason of their contents or the class of documents to which they belong to be withheld from production on the
ground that production of the same would be injurious to the public interest.’
Lonrho challenged this claim. In May 1993 it issued a summons for production of the Fayeds’ taxation documents. This summons gave rise to
Popplewell J’s ruling on the Fayeds’ claim to public interest immunity which is the subject of their first appeal.
Meanwhile, in January 1993, the Fayeds had issued a summons seeking specific discovery by Lonrho of wide-ranging financial documentation
bearing on Lonrho’s ability to bid for the House of Fraser and the probable results if it had done so. Lonrho’s response was that this documentation was
very sensitive, commercially and politically; it had not been made available to shareholders and Lonrho did not wish the Fayeds personally to have access
to it. Lonrho was accordingly willing to consent to an order for discovery but only on terms that the documents were disclosed to the Fayeds’ legal
advisers and expert witnesses and not to the Fayeds themselves.
At the hearing of the summons, shortly after issue, on 27 January 1993 a compromise was reached and an order for discovery made by consent on—
‘… the First to Fourth Defendants by their Counsel undertaking that without a prior order of the Court (for the making of which order they are
to be at liberty to apply) (i) they will not cause or permit any of the documents falling within paragraph 11 of Schedule A to this Order to be
disclosed to themselves or to any other persons except their legal advisers or any expert instructed by them herein where that expert has previously
furnished to their solicitors an undertaking in writing to the Plaintiff that he will not use any of the information contained therein for any purpose
outside the scope of this action and (ii) they will forward any such written undertaking to the Plaintiff upon service of such expert’s report herein.’
Paragraph 11 of Sch A listed under general headings the financial documents in question.
There matters rested until, by summons of 8 July 1993, the Fayeds sought an order that the restriction on their personal access to the documents be
removed. As defendants, the Fayeds wished to be informed of the detail of the documents in order to be able to give full instructions on the conduct of
their case, and they challenged the grounds relied on for denying them access.
This application, dismissed by Popplewell J on 16 July 1993, gives rise to the Fayeds’ second appeal. The judge did not give detailed reasons for his
decision, but appears to have thought that there had been no change of circumstances since the Fayeds gave their undertaking in January 1993 which
would justify releasing them from it.
A. THE PUBLIC INTEREST IMMUNITY APPEAL

Before the judge three issues were argued. The first was whether public interest immunity attaches to documents in the hands of the Revenue
relating to a taxpayer’s tax affairs in the absence of consent to disclosure by the taxpayer. The Fayeds argued that it does. Lonrho did not seriously
challenge that contention. The judge held that immunity does attach in these circumstances.
The second issue was whether immunity attaches to documents held by a taxpayer and his agents relating to the taxpayer’s tax affairs where the
884 documents came into existence with specific reference to the taxpayer’s tax liabilities and the taxpayer does not consent to disclosure. The
Fayeds argued that the immunity which attaches to such documents in the hands of the Revenue similarly attaches to such documents in the hands of the
taxpayer and his agents. Lonrho challenged that proposition, but the judge held, somewhat reluctantly, that he was bound to accept it.
The third issue was whether, balancing the public interest in non-disclosure against the public interest in disclosure, the Fayeds should be ordered to
produce the tax documents for inspection. The judge held without hesitation that they should.
Before this court the same three issues have been argued, although on the first (whether public interest immunity attaches to a taxpayer’s documents
in the hands of the Revenue) Mr Sydney Kentridge QC, on behalf of Lonrho, advanced a more robust challenge to the Fayeds’ argument than appears to
have been advanced by leading counsel then appearing for Lonrho. And a further question arose on the third issue, as to whether the judge had correctly
directed himself on it.
The first issue

Mr Kentridge argued that while the Revenue were bound to seek to protect the confidentiality of documents relating to a taxpayer’s tax affairs, it was
a duty resting on confidentiality alone and high authority showed that confidentiality would not on its own found a claim for public interest immunity.
That the duty did rest on confidentiality alone was shown both by Lord Reid’s explanation of Re Joseph Hargreaves Ltd [1900] 1 Ch 347 in Conway v
Rimmer [1968] 1 All ER 874 at 884, [1968] AC 910 at 946, and by the fact that the Revenue’s duty did not on any showing survive the taxpayer’s consent
to disclosure. Thus, he argued, documents of this kind enjoyed no immunity, but the Revenue were obliged to protect their confidentiality subject to any
order of the court in the ordinary course of discovery just as the employers were in Science Research Council v Nassé [1979] 3 All ER 673, [1980] AC
1028 in relation to the documents there in issue, which were confidential but not covered by public interest immunity.
In his argument for the Fayeds Mr Jonathan Sumption QC rejected this contention as inconsistent with binding authority and with the accepted
practice of the Revenue over many years.
The modern law of public interest immunity dates from Conway v Rimmer. The cases decided since then have shown the public interest which earns
immunity to be more complex than had hitherto been thought. While documents containing state secrets or confidential communications at the higher
levels of government are without doubt entitled to immunity, material falling well outside these categories may be protected if a genuine public or
national interest in non-disclosure can be demonstrated. If disclosure would significantly injure ‘the proper functioning of the public service’ (Viscount
Simon LC’s famous phrase in Duncan v Cammell Laird & Co Ltd [1942] 1 All ER 587 at 595, [1942] AC 624 at 642), that is a ground for claiming
immunity, but unless that expression is read in a very expansive way it could scarcely embrace cases such as Rogers v Secretary of State for the Home
Dept [1972] 2 All ER 1057, [1973] AC 388 or D v National Society for the Prevention of Cruelty to Children [1977] 1 All ER 589, [1978] AC 171. I do
not therefore regard it as an objection in principle to Mr Sumption’s argument that the immunity claimed for the Revenue lapses on the taxpayer
consenting to disclosure, whereas consent to 885 disclosure of inter-ministerial correspondence by those participating would not necessarily
undermine a departmental claim for immunity. That may only show that the public interest takes many forms.
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Those concerned with the administration of the public revenue are obliged, as they have been for many years, to make a solemn declaration that they
will not disclose information acquired in the course of their duties save for specified purposes, which include compliance with legal requirements (see s 6
of and Sch 1 to the Taxes Management Act 1970). This obligation is reinforced by criminal penalties, now contained in s 182 of the Finance Act 1989,
formerly contained in s 2 of the Official Secrets Act 1911. There can be no doubt of Parliament’s intention, subject to specified exceptions, to prohibit
disclosure by the Revenue of a taxpayer’s affairs.
I am satisfied that the courts have in the past treated claims by the Revenue to withhold documents from disclosure as claims for Crown privilege or,
in modern parlance, public interest immunity. In Brown’s Trustees v Hay (1897) 3 TC 598 the Outer House of the Court of Session treated a claim to
withhold documents made by the Lord Advocate on behalf of the Commissioners of Inland Revenue as in effect conclusive. In Shaw v Kay (1904) 5 TC
74, another Scots authority, the same result followed in so far as production by the Revenue of the taxpayer’s income tax returns was concerned. In
Henderson v M‘Gown 1916 SC 821 the Court of Session did not regard the Revenue’s objection to producing the taxpayer’s returns as conclusive, but did
regard the objection as one appropriately made on the public interest grounds advanced.
Authority south of the border is more sparse but not inconsistent with that to the north. In Re Joseph Hargreaves Ltd the Board of Inland Revenue
supported the objection of a surveyor of taxes to production of documents relating to a taxpayer company on the grounds that production would be
‘prejudicial and injurious to the public interests and service’. Wright J treated this objection as in effect conclusive. The Court of Appeal declined to
interfere with the judge’s exercise of discretion without in any way criticising his legal approach to the case.
This authority was one of many considered by the House of Lords in Conway v Rimmer. Lord Reid explained it. He said ([1968] 1 All ER 874 at
884, [1968] AC 910 at 946):
‘In Re Joseph Hargreaves, Ltd. ([1900] 1 Ch 347), the Inland Revenue objected to producing documents submitted to them in connexion with
income tax. That seems to me to have nothing to do with candour. If the State insists on a man disclosing his private affairs for a particular
purpose, it requires a very strong case to justify that disclosure being used for other purposes.’
This passage, brief though it is, is important for two reasons. First, it had previously been thought (and in some cases held) that the privilege recognised
as attaching to taxpayers’ documents in the hands of the Revenue rested at least in part on the consideration that taxpayers would be encouraged to ‘come
clean’ with the Revenue, and so greatly assist the Revenue in their task of assessment and collection, if they could be sure that information given to the
Revenue for that purpose would not be passed to any other government department or any other third party for unrelated purposes. This view of the
ground of the privilege, not an untenable view in my opinion, would to some extent assimilate this class of case with that in which the ground of the
privilege is to 886 encourage an uninhibited flow of information to a body exercising public functions. But Lord Reid discountenanced that view, and
since 1968 his approach has been accepted and followed by the Revenue. It is important to note, second, that neither Lord Reid in the passage quoted nor
Lord Morris ([1968] 1 All ER 874 at 898, [1968] AC 910 at 967) threw any doubt on the treatment of this class of case as one of public interest immunity.
There is only one modern English authority directly touching on this issue: H v H (1980) 52 TC 454, a decision of Balcombe J at first instance. On
objection taken by the Revenue to production of documents relating to administration of a deceased’s estate without the consent of the administrator, the
judge treated the claim as one for public interest immunity and carried out the balancing exercise required by Conway v Rimmer.
In my judgment Mr Sumption’s argument on this first issue is correct. I think that a claim made by the Revenue to withhold documents relating to a
taxpayer’s tax affairs from production without his consent is properly to be regarded as a claim for public interest immunity. But what matters more than
the label is the practice, and in this instance the practice seems to me to be very clear. For the reasons which Lord Reid gave, the courts will give very
great weight to preserving the confidentiality of such documents in the hands of the Revenue. They will override that confidentiality only if, according to
settled principles, the applicant shows very strong grounds for concluding that on the facts of the particular case the public interest in the administration of
justice outweighs the public interest in preserving the confidentiality of the documents.
The second issue

Mr Sumption’s argument on the second issue was admirably simple. Once it was accepted (a) that a taxpayer’s documents in the hands of the
Revenue were entitled to public interest immunity unless he consented to disclosure and (b) that that immunity was founded on the undesirability of
documents compulsorily created for tax purposes being disclosed for any other purpose, it necessarily followed that such immunity necessarily extended
to documents of the same kind held by the taxpayer himself. Any other ruling would, he said, undermine the very interest the immunity existed to
protect. Authority showed that, if an original document was immune from production, a copy in other hands was similarly immune and secondary
evidence of its contents was similarly inadmissible. Mr Sumption relied on Chatterton v Secretary of State for India in Council [1895] 2 QB 189,
[1895–9] All ER Rep 1035, where it was held that if a document was immune from production secondary evidence of its contents could not be given, and
Ankin v London and North Eastern Rly Co [1930] 1 KB 527, [1929] All ER Rep 65, where objection was successfully made to production by a railway
company of a copy of a privileged accident report made to the Ministry of Transport.
There are some fields in which, if immunity covers a document in the hands of party A, it would be absurd to order production of a copy in the hands
of B or to permit oral evidence of the contents of the document by C. In fields such as national security or the conduct of international relations,
production of B’s copy or the admission of C’s evidence would injure the very public interest which the immunity exists to protect. But it does not follow
that that need be so in all fields. It all depends on the facet of the public interest which is in 887 question. Mr Sumption was, I think, right to pose the
question: what is for present purposes the relevant public policy?
The answer to that question must be that which Lord Reid gave in commenting on Re Joseph Hargreaves Ltd. The state must not, backed by
compulsory powers, obtain information from the citizen for one purpose and use that information for another. It does not matter whether this is seen as a
principle of good administration or statutory construction or ordinary morality or all three. That is the ratio which Lord Reid gave, as I understand him,
and I do not think it bears on whether the taxpayer himself can be required to produce the documents or not. If that is so, it fatally weakens Mr
Sumption’s submission on this issue.
But I think there are other grounds, which Mr Kentridge gives, for rejecting it. They include the following.
(1) While statute imposes clear and carefully drawn obligations of confidentiality on the Revenue (as noted above), there is no indication that any
protection is intended to be given to documents or information in the hands of the taxpayer.
(2) In certain fields of litigation, notably personal injury claims and matrimonial causes, production of tax returns is routinely ordered. Objection is
never taken. These cannot realistically be seen as cases in which the party is entitled to refuse production on grounds of public interest immunity but
none the less consents. It is unnecessary to comment on the practical consequences to the conduct of litigation if any other view were taken.
(3) In a series of Scottish cases production has been ordered against the taxpayer (see Macdonald v James Hedderwick & Sons (1901) 3 F 674,
Stroyan v M’Whirter (1901) 9 SLT 242 and Robertson v Hamilton 1915 2 SLT 195). In Gray v Wyllie (1904) 6 F 448 the court would have been willing
to order production against the taxpayer had it not held the documents to be irrelevant. In some of these cases, it is true, the documents in question appear
to have been no more than receipts, but in the first case cited these were treated as containing the taxpayer’s own statement about his income and profits,
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and it is possible from a receipt alone to draw inferences as to the assessment on which the tax charge was based.
(4) In H v H (1980) 52 TC 454 Balcombe J assumed that production of the documents could have been obtained from the administrator.
(5) Commonwealth authority lends no support to Mr Sumption’s argument. In Crane v Johannesburg Stock Exchange Committee 1949 (4) SA 835 a
stockbroker who asserted public interest immunity as a ground for withholding his tax documents from disclosure under the rules of the Johannesburg
Stock Exchange was held to have no ground for doing so. This authority was followed, on different facts, in Marais v Lombard 1958 (4) SA 224. A
similar decision was reached, reversing earlier authority, by the Supreme Court of South Australia in Pooraka Holdings Pty Ltd v Participation Nominees
Pty Ltd (1989) 52 SASR 148. These decisions were reached against a statutory background quite different from our own, and some of the reasoning may
be open to criticism, but in general I find these authorities a persuasive refutation of Mr Sumption’s argument on this issue.
(6) The Revenue have been at pains to adopt a neutral stance on this application, neither supporting the Fayeds’ argument nor opposing it. No
application is made against the Revenue and they are content to await the outcome. This is a very proper position. But, if the Revenue regarded Lonrho’s
888 application, if successful, as capable of injuring any public interest in the fair and efficient operation of the tax system, I would not expect the
Revenue to be neutral. This neutrality is in my view an indication that it is the Fayeds’ private right and not any public right which is in issue here. But,
as Lord Scarman pointed out in Science Research Council v Nassé [1979] 3 All ER 673 at 697, [1980] AC 1028 at 1087, public interest immunity raises
issues of public law, not private right.
I conclude that on this second issue Lonrho is right. In this conclusion I differ from the judge. But it is the conclusion he favoured and would have
reached if he had felt free to do so.
This conclusion, if correct, makes it unnecessary to consider the third issue, since on this basis there is no public interest available to the Fayeds to
put in the scales to weigh against the public interest in the administration of justice. I shall, however, briefly state my opinion on the third issue in case I
am wrong on the second.
The third issue

Mr Sumption criticised the judge’s self-direction when carrying out the balancing exercise in two main respects. First, he said, the judge appeared to
give no weight to the public interest represented (on this hypothesis) by the need to preserve the confidentiality of the Fayeds’ tax affairs. Second, he
submitted that the judge did not, as the majority decision in Air Canada v Secretary of State for Trade (No 2) [1983] 1 All ER 910, [1983] 2 AC 394
required, ask himself whether the documents if produced would be likely to help Lonrho or (if he did ask that question) give reasons for concluding that
they would. There is some force in these criticisms. The judge may well have regarded the answer as clear and therefore have recorded his thought
processes less fully than he would otherwise have done. But I would myself have reached the same conclusion.
Lonrho’s central charge in this action is that when the Fayeds bought the House of Fraser shares they were unable to finance the purchase out of their
own resources and were dishonest when they represented to the Secretary of State and others that they could and would. The source of the funds used for
the purchase is therefore crucial, and the credibility of the Fayeds on that matter is directly in issue. Discovery has thrown little or no light on the issue,
since it is the Fayeds’ practice (so it is said) to dispose of documents which they receive. It appears that more than one explanation has at different times
been given of where the money came from. On various occasions since 1987 the money has been said, in large part, to represent the proceeds of secret oil
trading, but Department of Trade and Industry inspectors did not accept this account and little detail has been forthcoming to support it.
It is not possible for a party to demonstrate with any precision how a document which he has not seen will help him. That is a weakness, as some
might think, of the majority Air Canada test. It does, however, seem intrinsically unlikely that the Fayeds declared the sums brought to this country to
effect the purchase to the Revenue as the proceeds of oil trading. It seems more likely that communications with the Revenue, and documents exchanged
between the Fayeds and their advisers, either omitted reference to oil trading or pointed towards a different explanation. If the documents supported the
Fayeds’ case, they would have no reason to withhold their consent to production.
889
The public interest in non-disclosure which I assume to exist must be respected and given weight. But it is in my opinion, as in the judge’s,
outweighed here: without contemporary documentation the judge’s task in reaching a reliable conclusion on this issue may be well-nigh impossible.
I would dismiss the Fayeds’ appeal.
B. THE FINANCIAL DOCUMENTS APPEAL

There are two principles of law relevant to this appeal.
The first is that, if a party elects to give an undertaking in order to avoid the grant of an injunction, it cannot ordinarily and in the absence of changed
circumstances reopen the matter some months later if it concludes on reconsideration that it could have defeated the application for an injunction (see
Chanel Ltd v F W Woolworth & Co Ltd [1981] 1 All ER 745 at 751, [1981] 1 WLR 485 at 492 per Buckley LJ).
The second principle is that if a party reserves a right to apply, or an undertaking is given until further order, it is entitled to return to court to vary
the order or undertaking if reason for doing so is shown (see the Chanel case), and where disclosure of documents is initially ordered on a restricted basis
the court may at a later stage permit wider disclosure (see Warner-Lambert Co v Glaxo Laboratories Ltd [1975] RPC 354 per Buckley LJ).
In the present case, it is said by Mr Sumption for the Fayeds, the judge gave full weight to the first principle (although wrongly holding that there
had been no change of circumstances), but gave no weight to the second.
Mr Sumption submitted that the procedure adopted was a sensible one, intended to avoid a long wrangle over documents the significance of which,
until they were seen, could not be assessed. The form of the undertaking expressly included a liberty to apply, and so signalled that the Fayeds might
apply to vary the undertaking once their advisers had seen the documents. Mr Lyon, for Lonrho, submitted that the possibility of varying the undertaking
had not been raised at the hearing when it was given; had it been, Lonrho would have fought out the summons on the merits there and then.
Given the terms of the undertaking, I do not think the Fayeds should be shut out from seeking a variation. Having seen the documents their advisers
are much better placed to consider which documents their clients should see in order fairly to defend the action and give instructions. In that respect the
situation today differs from that in January when the undertaking was given. It would, however, be unfair to Lonrho simply to relax the restriction which
the Fayeds then accepted: Lonrho’s case on the merits of the application has not been heard; and it may be that some restriction should continue to apply
in relation to some documents even if not all. Were this court simply to remove the restriction, the Fayeds might achieve a result they could not have
achieved had the matter been fully contested before the judge.
I would therefore allow the Fayeds’ appeal and order that this summons be reconsidered by the judge in the light of this judgment. The Fayeds’
advisers should consider carefully which of these documents it is really necessary for them personally to see in order fairly to defend themselves. Both
sides will, I am sure, bear in mind the strict rules governing the use which may be made of documents disclosed on discovery, even in the absence of an
express undertaking, and the sanctions available to the court if misuse is shown.
890
LEGGATT LJ. Apart from his own honest instincts, a person makes a truthful tax return not on the faith that the Revenue will keep it confidential but
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because if he gives false information or conceals any part of his income he can be prosecuted. The confidentiality is itself exacted by statute. So there is
no need to introduce the concept of what is now called public interest immunity with its cornucopia of legal argument. But, because for nearly a century
communications with the Revenue have been regarded as the subject of immunity, it is convenient to continue doing so, and it may indeed be too late for
this court to put the clock back.
What then is the scope of the immunity? It is plain that in the hands of the taxpayer tax returns have never been treated as privileged, whereas in the
hands of the Revenue they always have, unless the taxpayer consents to their production. The immunity therefore only protects a taxpayer’s tax papers in
the hands of the Revenue in fulfilment of their obligation to keep such documents secret in default of consent. Though the court can override the
immunity, it will not ordinarily do so.
In the present case the Fayeds’ tax documents in their accountants’ hands are outwith the scope of the immunity; they must be produced for
inspection; and the judge was right to order their production, even though he only did so in the supposed exercise of his discretion. Certainly, if it had
come to that, it would be difficult to envisage any class of documents more liable to damage the Fayeds’ case, and so benefit Lonrho’s; and on balance I
consider that in the circumstances to which Sir Thomas Bingham MR and Roch LJ have referred such documents would be likely to do both. The fact
that they might also damage the Fayeds’ credit is no reason for not ordering their production.
About the appeal relating to Lonrho’s financial documents there is nothing that I wish to add. So I agree that for the reasons given by Sir Thomas
Bingham MR that appeal should be allowed, and the appeal relating to public interest immunity dismissed.
ROCH LJ. With regard to the financial documents appeal I agree that the Fayeds’ appeal should be allowed and that there should be an order in the
terms proposed by Sir Thomas Bingham MR.
Equally I would dismiss the Fayeds’ appeal against the order of Popplewell J that the Fayeds produce communications between them and their tax
advisers and them and their tax advisers and the Revenue relating to their tax affairs. I adopt the statement of the facts of the case in the judgment of Sir
Thomas Bingham MR. However, my reasons for dismissing this appeal are different from those of Sir Thomas Bingham MR and Leggatt LJ. In my
judgment these documents do not attract public interest immunity.
The second submission made on behalf of the Fayeds by Mr Sumption QC was that documents which have public interest immunity have that
immunity in whoever’s hands they happen to be. Further, the immunity is such that secondary evidence of their contents cannot be given. The principles
were stated by Bingham LJ in Makanjuola v Comr of Police of the Metropolis [1992] 3 All ER 617 at 623 in these words:
‘Where a litigant asserts that documents are immune from production or disclosure on public interest grounds he is not (if the claim is well
founded) claiming a right but observing a duty. Public interest immunity is not a trump card vouchsafed to certain privileged players to play when
and as 891 they wish. It is an exclusionary rule, imposed on parties in certain circumstances, even where it is to their disadvantage in the
litigation. This does not mean that in any case where a party holds a document in a class prima facie immune he is bound to persist in an assertion
of immunity even where it is held that, on any weighing of the public interest in withholding the document against the public interest in disclosure
for the purpose of furthering the administration of justice, there is a clear balance in favour of the latter. But it does, I think, mean: (1) that public
interest immunity cannot in any ordinary sense be waived, since, although one can waive rights, one cannot waive duties; (2) that, where a litigant
holds documents in a class prima facie immune, he should (save perhaps in a very exceptional case) assert that the documents are immune and
decline to disclose them, since the ultimate judge of where the balance of public interest lies is not him but the court; and (3) that, where a
document is, or is held to be, in an immune class, it may not be used for any purpose whatever in the proceedings to which the immunity applies,
and certainly cannot, (for instance) be used for the purposes of cross-examination.’
The Fayeds’ counsel recognise that a taxpayer may consent to production of his tax returns. Further, it is accepted that orders for production of such
documents by the taxpayer are routinely made in personal injury cases where the plaintiff is self-employed, and in matrimonial property disputes. This
raises the question whether the protection which is accorded to these documents is truly public interest immunity. In the skeleton argument submitted on
behalf of the Fayeds the Fayeds’ counsel deal with this point in this way:
‘The [Fayeds] do not dispute that they would be entitled if they wished to deliver up the documents voluntarily, thereby consenting to
disclosure. There is no inconsistency between this state of affairs and the existence of a public interest immunity. The reason is that in
circumstances such as these the immunity precludes disclosure without the consent of the taxpayer. If the taxpayer does consent, then [he] is not
waiving the immunity (for he has no right to do that); he is simply removing a condition for its existence.’
The difficulty that I find with this analysis is that if it is a condition precedent to the immunity existing that the taxpayer does not consent to the
production of the documents then it is not a public but a private immunity. If it were a true instance of public interest immunity, it would involve the
taxpayer being able to say, ‘I do not consent to the production of these documents and therefore I am now under a duty to claim immunity for them and so
is the Inland Revenue.’ If the taxpayer can consent to the disclosure of the documents, what he is doing in reality is waiving the immunity whatever that
immunity might be. If the taxpayer can waive it, it is not public interest immunity.
The second reason why I have reached the conclusion that this is not a case of public interest immunity is that examination of the decided English
cases shows that there is no decision binding on this court that such documents are the subject of public interest immunity. The oldest case is Mitchell v
Koecker (1849) 11 Beav 380, 50 ER 863. In that case disclosure of tax documents was not ordered, but there the taxpayer objected that those documents
might incriminate him.
The second case is Re Joseph Hargreaves Ltd [1900] 1 Ch 347. This was an application by the liquidator of a company in proceedings for
misfeasance against directors and auditors of the company for an order that the court should 892 summon before it the surveyor of taxes as a person
whom the court deemed capable of giving information concerning the trading and dealings of the company and require the surveyor of taxes to produce
documents in the Board’s custody relating to the company, namely balance sheets of the company delivered to the surveyor for the purpose of assessing
the company’s liability to pay income tax. The application was made under s 115 of the Companies Act 1862, which opened with the words: ‘The Court
may, after it has made an Order for winding up the Company, summon before it …’ It was therefore clear that s 115 gave the court a discretion whether
to make an order or not. The secretary to the Commissioners of Inland Revenue filed an affidavit stating that the following resolution had been passed by
the commissioners sitting as a Board (see [1900] 1 Ch 347 at 348):
‘In the opinion of the Board of Inland Revenue, who have duly considered the question, the production of the documents referred to in the
summons … would be prejudicial and injurious to the public interests and service.’
In his judgment Wright J as a first observation pointed out that s 115 gave the court a discretion (at 350). He treated the affidavit as sufficient
evidence that in the opinion of the Board of Inland Revenue the public service would suffer by the production of these documents and he decided that
Preamble
very strong grounds ought to be shown before the court would be justified in going behind the certificate of the board. He gave a separate ground for his
decision to refuse to make an order namely (at 351):
‘… even if I had power to overrule the objection, I ought not to do so in the exercise of the discretion invested in the Court by s. 115.’
The Court of Appeal upheld this decision on this second and separate ground. Lindley MR began his judgment by saying that it was in his opinion
quite unnecessary for the court and indeed would not be in accordance with the usual practice of the court to decide a speculative case which was not
before them (at 351). It is true that Vaughan Williams LJ said (at 352–353):
‘It is not, as I understand, denied the communications made to the Board of Inland Revenue are documents which come within the rule which
enables the heads of Government departments to object on their own responsibility to their production. At all events, if this were disputed, it seems
to me that there is ample authority that such a contention would be ill-founded.’
Nevertheless that part of Vaughan Williams LJ’s judgment shows that the point of Crown privilege as it was then known was not argued before the Court
of Appeal.
Mr Sumption submitted that it must have been implicit in the judgments of the Court of Appeal that the members of the court accepted that this class
of documents was the subject of public interest immunity. That may be so, but there was no argument on the point nor was the point decided by the Court
of Appeal nor was a decision on that point necessary to support the conclusion that the court reached.
The third case is H v H (1980) 52 TC 454, a decision of Balcombe J. This was an application for financial provision by a wife against her husband.
The wife subpoenaed the Controller of the Capital Taxes Office to give evidence and 893 produce the originals of any affidavit together with any
other documents relating to the letters of administration concerning the husband’s deceased grandfather. The wife did not subpoena the administrator of
the estate, the husband’s brother, to give evidence or to produce all or any of the documents, nor did she obtain the administrator’s authority for the
Revenue to produce any of the documents. The Chairman of the Board of Inland Revenue objected by affidavit to the Controller of the Capital Taxes
Office giving evidence of the contents of or producing except by order of the court documents which were either the affidavits or correspondence or other
documents passing between the Estate Duty Office and the administrator’s solicitors or the Estate Duty Office’s internal papers. Balcombe J refused to
make the orders for which the wife applied. The judge clearly thought that this was a case of public interest immunity (see the last paragraph of his
judgment (at 457)). It may be that the internal papers of the Estate Duty Office would be the subject of public interest immunity. However it is clear that
Balcombe J considered that the other documents sought by the wife could be obtained by serving the administrator with a subpoena either ad
testificandum or duces tecum or both (at 457). That suggests that Balcombe J did not consider that the affidavits and correspondence and other
documents passing between the Estate Duty Office and the administrator’s solicitors were the subject of public interest immunity, strictly so called.
It is necessary to examine the basis of public interest immunity of classes of documents to see whether that basis or justification applies to the class
of documents with which this court is concerned in this case. The leading authority is Conway v Rimmer [1968] 1 All ER 874, [1968] AC 910. Cases
decided before Conway v Rimmer are of doubtful validity because as Lord Reid observed ([1968] 1 All ER 874 at 882, [1968] AC 910 at 943):
‘So it appears to me that the present position is so unsatisfactory that this House must re-examine the whole question in light of the authorities.’
Lord Reid said ([1968] 1 All ER 874 at 888, [1968] AC 910 at 952):
‘There may be special reasons for withholding some kinds of routine documents, but I think that the proper test to be applied is to ask, in the
language of LORD SIMON in [Duncan v Cammell Laird & Co Ltd [1942] 1 All ER 587 at 595, [1942] AC 624 at 642], whether the withholding of
a document because it belongs to a particular class is really “necessary for the proper functioning of the public service”.’
Thus there are two reasons for documents being accorded public interest immunity which overlap: first, that the documents contain information which in
the public interest should be kept secret and, second, that the document belongs to a class of documents production of which should not normally be
ordered because the keeping secret of the documents is necessary for the proper functioning of a public service. There is no suggestion in this case that
the documents which the Lonrho seek fall into the first category.
The decided cases show that the courts will, in relation to the second head of public interest immunity, look critically at claims that privilege from
disclosure is necessary because without that private individuals will not be frank and candid with public services. Thus in commenting on the decision in
Re Joseph Hargreaves Ltd Lord Reid in his opinion in Conway v Rimmer [1968] 1 All ER 874 at 884, [1968] AC 910 at 946 said:
894
‘That seems to me to have nothing to do with candour. If the State insists on a man disclosing his private affairs for a particular purpose, it
requires a very strong case to justify that disclosure being used for other purposes.’
Lord Upjohn in his opinion said ([1968] 1 All ER 874 at 915, [1968] AC 910 at 994–995):
‘The tests to be applied to claims for Crown privilege in class cases I think should be as follows: There are some documents which, apart
altogether with the alleged necessity for candour, fall within the claim of protection; and probably at the same time, though not necessarily, within
the “contents” class. I have already given some examples and do not repeat them; the judge still has, though I should be surprised if it were ever
necessary to exercise it, the rights I have mentioned in the “contents” cases. Then within the “class” cases we come to the “candour” cases pure and
simple. For my part I find it difficult to justify this, when those in other walks of life which give rise to equally important matters of confidence in
relation to security and personnel matters as in the public service can claim no such privilege.’
Thus the factor whether the maker of a report or the provider of information will or will not be candid of itself is not a reason for according a class of
documents a public interest immunity. On the other hand if it is necessary for the proper functioning of a public service that information should not be
disclosed or the identity of the informant should not be disclosed then there will be public interest immunity (see D v National Society for the Prevention
of Cruelty to Children [1977] 1 All ER 589, [1978] AC 171).
It can be observed that taxpayers might be more candid in making their tax returns if those tax returns were published. I am not advocating that the
present statutory rules on confidentiality in relation to tax returns should be abrogated. I am merely observing that the present statutory rules of
confidentiality are not likely to render a taxpayer’s tax return more complete and candid. It is the taxpayer’s statutory obligations and the consequences
Preamble
of not meeting those obligations which persuade taxpayers who need persuading to be candid in making their tax returns.
In Science Research Council v Nassé [1979] 3 All ER 673, [1980] AC 1028 the House of Lords decided that while no principle of public interest
immunity protected confidential documents such documents were not immune from discovery by reason of confidentiality alone. The court has a
discretion to order discovery of confidential documents in the exercise of which it would have regard to the fact that the documents are confidential and
that discovery will be a breach of confidence so that the mere fact that the documents were relevant to an issue between the parties did not mean that an
order for discovery and production would automatically be made. The party seeking discovery had still to show that the order was necessary for
disposing fairly of the proceedings. Lord Wilberforce said ([1979] 3 All ER 673 at 679, [1980] AC 1028 at 1065):
‘There is no principle in English law by which documents are protected from discovery by reason of confidentiality alone.’
Then he went on to set out the other principles which I have rehearsed by paraphrasing the headnote to the case (see [1980] AC 1028 at 1029).
In the present case there is no evidence that the disclosure of the Fayeds’ tax documents will interfere with the proper functioning of the Revenue.
There is 895 no affidavit in this case along the lines of that in Re Joseph Hargreaves Ltd [1900] 1 Ch 347. Mr Sumption for the Fayeds tried valiantly
to discover some ground for claiming immunity for these documents apart from that of confidentiality alone. In my judgment he failed in that attempt.
The law in this field is developing so as to restrict the scope of public interest immunity. In Science Research Council v Nassé [1979] 3 All ER 673
at 697, [1980] AC 1028 at 1087 Lord Scarman said:
‘For myself, I regret the passing of the currently rejected term “Crown privilege”. It at least emphasised the very restricted area of public
interest immunity. As was pointed out by counsel … the immunity exists to protect from disclosure only information the secrecy of which is
essential to the proper working of the government of the state … We are in the realm of public law, not private right.’
Having reached the conclusion that this is not a case of public interest immunity but simply a case of confidentiality based on the provisions of the
Taxes Management Act 1970 and the Finance Act 1989, the test which the judge should have applied was whether the discovery was necessary for
disposing fairly of the proceedings. In my judgment there is but one answer to that question. Nevertheless, if I am wrong and this is a case of public
interest immunity it required the judge to be satisfied that the documents disclosure of which was sought would give substantial support to the contention
of the plaintiffs on an issue which arose in the case, I would uphold the judge’s decision on this issue.
These tax documents do not go simply to the credit of the Fayeds as was submitted by Mr Sumption. As Swinton Thomas J said at the outset of his
judgment on 15 October 1992 on Lonrho’s application for further discovery:
‘Two vital questions of fact underlie the plaintiffs’ allegations: first, the source of the funds which enabled the defendants to acquire the House
of Fraser; second, the background and commercial history of the three Al Fayed brothers.’
A large part of those funds was held in two accounts at the Royal Bank of Scotland in 1984 and 1985. If, as seems likely in the light of the Revenue’s
statement in their letter of 5 October 1993 that the Revenue were unaware of the existence of the accounts at the Royal Bank of Scotland during the
period November 1984 to November 1985 when the Fayeds were making tax returns, the Fayeds told lies about the sources of the funds with which they
purchased the House of Fraser in those returns, either directly or indirectly by omitting to mention the payments which they now claim were the origin of
those funds, then such untruths would be probative of Lonrho’s main contention that these moneys were not the property of the Fayeds.
These documents contain statements made by the Fayeds in a case where they have disclosed little either by way of discovery or by way of answers
to interrogatories. In his judgment, Swinton Thomas J found that there existed companies which would have in their possession documents relevant to the
origins of these funds and to the financial status of the Fayeds which, although the Fayeds were not the alter egos of those companies so that they were
obliged to list and produce those documents, they did have sufficient interest in and influence over to be able to obtain copies of those documents had
they so wished.
896
The tax documents contain statements made by the Fayeds or by their agents on their instructions. They are not statements made by third persons
whose identity is unknown to Lonrho. Those documents were not included in the Fayeds’ original lists of documents as they should have been. Before
Swinton Thomas J Lonrho’s solicitor had exhibited to his second affidavit sworn on 14 September 1992 a letter from the Royal Bank of Scotland to a Mr
McArthur of Kleinwort Benson Ltd, who acted as merchant bankers to the Fayeds, which said that the proposed acquisition of the House of Fraser was
being fronted by the Fayeds for a very substantial investor. There are substantial grounds for believing, in my view, that the tax returns will provide
evidence coming from the Fayeds themselves which will add weight to the contents of that letter. It must be remembered that Popplewell J sat with
Swinton Thomas J in the hearing at that application and would have been well aware of all those matters.
For those reasons and the reasons given by Sir Thomas Bingham MR in his judgment I would uphold the decision of the judge.
SIR THOMAS BINGHAM MR. This judgment is being handed down in the absence of the parties, who have been expressly told that they need not
attend.
Since we indicated our intention to hand down judgment today we have learnt that the action and all issues between these parties have been settled.
It does, none the less, appear to us that there are points of principle raised by the judgment of the learned judge at first instance which justify our pursuing
our intention of handing down the judgment, which we now do.
For reasons set out in the judgments the Fayeds’ first appeal on the public interest immunity point is dismissed. The Fayeds’ second appeal on the
financial documents issue is allowed but we shall make no order on either of the appeals.
No orders.
897
[1994] 1 All ER 898
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R v Smurthwaite
R v Gill
CRIMINAL; Criminal Evidence

LORD TAYLOR OF GOSFORTH CJ, ALLIOTT AND BUCKLEY JJ
26, 27 JULY 1993, 11 AUGUST 1993
Criminal evidence – Exclusion of evidence – Evidence obtained by undercover police operation – Discretion to admit evidence obtained by undercover
police operation – Police posing as contract killers to persons seeking to have spouses killed – Defendants charged with soliciting to murder – Whether
taped conversations between defendants and undercover police officers admissible in evidence – Whether undercover police officers acting as agent
provocateurs – Whether court having discretion to exclude evidence on ground that it had been improperly or unfairly obtained – Factors judge may take
into account in exercising discretion whether to admit evidence of undercover police officer – Police and Criminal Evidence Act 1984, s 78.
The appellants in two separate cases, S and G, were each charged with soliciting a person to murder the appellant’s spouse. In both cases the person
solicited was an undercover police officer posing as a contract killer. It was alleged that S wished to have his wife killed because he could not face
continuing with a marriage which he considered a sham and believed that divorce proceedings would expose certain financial dealings known to his wife
but unknown to the Inland Revenue. He was alleged to have made arrangements with two men, who were in fact undercover police officers, for his wife
to be killed for £20,000, half to be paid before the murder and half later. S paid £10,000 to one of the officers and was then arrested. The Crown’s case
depended upon secret tape recordings of meetings held between the undercover officers and S. G was alleged to have asked O for help in arranging for
the murder of her husband because of his conduct towards her. O informed the police and a meeting was arranged between G, O and an undercover
police officer posing as a contract killer. The undercover officer secretly tape recorded the second and subsequent meetings between himself and G. At
their trials the appellants’ defence was that in neither case had there been any intention that a murder should actually be carried out and that the appellants
had been intimidated by the supposed contract killers and had made a pretence of going along with the murder plans out of fear. In addition G submitted
that evidence of the recorded conversations should be excluded under s 78a of the Police and Criminal Evidence Act 1984 but the judge ruled that the
evidence was admissible. Under s 78 the court had a discretion to refuse to allow prosecution evidence to be admitted if it appeared that, ‘having regard
to all the circumstances, including the circumstances in which the evidence was obtained, the admission of the evidence would have such an adverse
effect on the fairness of the proceedings that the court ought not to admit it’. The judge in S’s trial ruled that the evidence of the recorded conversations
should be admitted. Both appellants were convicted. They appealed, contending that any prosecution evidence which included an element of entrapment
or which came from an agent provocateur or was obtained by a 898 trick should be excluded by the trial judge under s 78. The appellants submitted
that the undercover officers were agent provocateurs because if they had not come on the scene the appellants would not have sought to have their spouses
killed and by posing as contract killers they had obtained the recorded evidence by means of entrapment or a trick.
________________________________________
a Section 78 is set out at p 901 j to p 902 b, post
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Held – A judge had no discretion to exclude otherwise admissible evidence merely on the ground that it had been obtained improperly or unfairly and the
evidential requirement in s 78 of the 1984 Act that prosecution evidence might be excluded having regard to the circumstances in which it was obtained
had not altered the substantive rule of law that entrapment or the use of an agent provocateur did not per se afford a defence in law to a criminal charge.
However, if the judge considered that in all the circumstances the obtaining of the evidence in that way would have such an adverse effect on the fairness
of the proceedings that the court ought not to admit it, he could exclude it. Accordingly, it was not open to the appellants to claim that had it not been for
the undercover officers acting as agent provocateurs they would not have solicited the murder of their spouses and on the facts the tape recordings were in
each case an accurate and unchallenged record of the actual offence being committed. They had accordingly been properly admitted in evidence. The
appeals would therefore be dismissed (see p 902 f to j, p 905 j to p 906 b and p 909 e f, post).
Bank of England v Vagliano Bros [1891–4] All ER Rep 93, R v Sang [1979] 2 All ER 1222 and R v Fulling [1987] 2 All ER 65 considered.
Observations on the factors a trial judge may take into account in exercising his discretion whether to admit the evidence of an undercover police
officer (see p 903 a to d, post).
Notes
For the discretion to exclude relevant prosecution evidence, see 11(2) Halsbury’s Laws (4th edn reissue) para 1060, and for cases on the subject, see 15(1)
Digest (2nd reissue) 516–517, 520–521, 17086–17087, 17097–17098.
For official collaboration in crime, see 15(1) Halsbury’s Laws (4th edn reissue) para 48, and for cases on the subject, see 14(1) Digest (2nd reissue)
137–138, 1112–1116.
For the Police and Criminal Evidence Act 1984, s 78, see 17 Halsbury’s Statutes (4th edn) (1993 reissue) 228.

Bank of England v Vagliano Bros [1891] AC 107, [1891–4] All ER Rep 93, HL.
R v Bryce [1992] 4 All ER 567, CA.
R v Christou [1992] 4 All ER 559, [1992] 1 QB 979, [1992] 3 WLR 228, CA.
R v Fulling [1987] 2 All ER 65, [1987] QB 426, [1987] 2 WLR 923, CA.
R v Gibbons, R v Winterburn (1993) Times, 19 July, CA.
R v Gill [1989] Crim LR 358, CA.
R v Governor of Pentonville Prison, ex p Chinoy [1992] 1 All ER 317, DC.
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R v Harwood [1989] Crim LR 285, CA.

R v Jelen, R v Katz (1989) 90 Cr App R 456, CA.
R v O’Leary (1988) 87 Cr App R 387, CA.
R v Parris (1988) 89 Cr App R 68, CA.
R v Samuel [1988] 2 All ER 135, [1988] QB 615, [1988] 2 WLR 920, CA.
R v Sang [1979] 2 All ER 1222, [1980] AC 402, [1979] 3 WLR 263, HL.
899

R v Birtles [1969] 2 All ER 1131n, [1969] 1 WLR 1047, CA.
R v Edwards [1991] Crim LR 45, CA.
R v McCann (1971) 56 Cr App R 359, CA.
R v Mealey (1974) 60 Cr App R 59, CA.
Appeals against conviction and sentence
R v Smurthwaite
Keith Smurthwaite appealed with the leave of the single judge against his conviction on 30 October 1993 in the Crown Court at Teeside before Blofeld J
and a jury of soliciting to murder for which he was sentenced to six years’ imprisonment. The appellant also appealed against the sentence. The facts are
set out in the judgment of the court.
R v Gill
Susan Gill appealed with the leave of the Court of Appeal against her conviction on 29 July 1992 in the Crown Court at Leeds before Laws J and a jury of
soliciting to murder for which she was sentenced to five years’ imprisonment. The appellant also appealed against the sentence. The facts are set out in
the judgment of the court.
The appeals were heard together.
Paul F Worsley QC and Kenneth Gillance (assigned by the Registrar of Criminal Appeals) for the appellant Smurthwaite.
Malcolm Swift QC and Timothy Roberts (instructed by the Crown Prosecution Service, Northallerton) for the Crown.
Paul F Worsley QC and David Wilby (assigned by the Registrar of Criminal Appeals) for the appellant Gill.
David Gripton (instructed by the Crown Prosecution Service, Leeds) for the Crown.
At the conclusion of the argument the court stated that the appeals against conviction would be dismissed for reasons to be given later.
11 August 1993. The following judgment of the court was delivered.
LORD TAYLOR OF GOSFORTH CJ. On 27 July 1993 we dismissed these two appeals against conviction. We now give our reasons and deal also
with appeals against sentence.
The two cases were heard together since they had a number of features in common. In each, the appellant was convicted of soliciting to murder,
Smurthwaite to murder his wife, Gill to murder her husband. In each case, the person solicited was an undercover police officer posing as a contract
killer. Arising from that situation, there was argument on each appeal as to the admission of the undercover officer’s evidence of what was said by each
appellant.
It is convenient first to consider the legal arguments advanced by Mr Worsley QC on behalf of both appellants and then to apply the law to the facts
of each case separately.
Mr Worsley’s principal aim was to establish the breadth of the judge’s powers, under s 78 of the Police and Criminal Evidence Act 1984, to exclude
prosecution evidence where that evidence has one or more of three features: (a) 900 it includes an element of entrapment, (b) it comes from an agent
provocateur or (c) it is obtained by a trick.
Mr Worsley’s starting point was the decision of the House of Lords in R v Sang [1979] 2 All ER 1222, [1980] AC 402. Briefly, his thesis was that
certain rulings in that case have now in effect been reversed by the provisions in s 78. The principles enunciated in R v Sang are to be found in the final
paragraph of Lord Diplock’s speech, with which all of their Lordships agreed, as follows ([1979] 2 All ER 1222 at 1231, [1980] AC 402 at 437):
‘(1) A trial judge in a criminal trial has always a discretion to refuse to admit evidence if in his opinion its prejudicial effect outweighs its
probative value. (2) Save with regard to admissions and confessions and generally with regard to evidence obtained from the accused after
commission of the offence, he has no discretion to refuse to admit relevant admissible evidence on the ground that it was obtained by improper or
unfair means. The court is not concerned with how it was obtained. It is no ground for the exercise of discretion to exclude that the evidence was
obtained as the result of the activities of an agent provocateur.’
The decision in R v Sang thus made it clear that there is no substantive defence of entrapment or agent provocateur in English criminal law. Their
Lordships held that a judge had no discretion to exclude otherwise admissible evidence ‘on the ground that it was obtained by improper or unfair means’.
However, they also made it clear that a judge does have an overall discretion to exclude evidence in order to secure a fair trial. Thus, Lord Diplock
said ([1979] 2 All ER 1222 at 1230, [1980] AC 402 at 436):
‘… the function of the judge at a criminal trial as respects the admission of evidence is to ensure that the accused has a fair trial according to
law. It is no part of a judge’s function to exercise disciplinary powers over the police or prosecution as respects the way in which evidence to be
used at the trial is obtained by them. If it was obtained illegally there would be a remedy in civil law; if it was obtained legally but in breach of the
rules of conduct for the police, this is a matter for the appropriate disciplinary authority to deal with. What the judge at the trial is concerned with is
not how the evidence sought to be adduced by the prosecution has been obtained but with how it is used by the prosecution at the trial.’
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Similarly, Viscount Dilhorne said ([1979] 2 All ER 1222 at 1234, [1980] AC 402 at 441):
‘Evidence may be obtained unfairly though not illegally but it is not the manner in which it has been obtained but its use at the trial if
accompanied by prejudicial effects outweighing its probative value and so rendering the trial unfair to the accused which will justify the exercise of
judicial discretion to exclude it.’
Similar dicta are to be found in the speeches of Lord Salmon, Lord Fraser and Lord Scarman (see [1979] 2 All ER 1222 at 1237, 1241, 1243, 1245, 1247,
[1980] AC 402 at 445, 450, 452, 454, 456).
Section 78 of the 1984 Act provides as follows:
‘(1) In any proceedings the court may refuse to allow evidence on which the prosecution proposes to rely to be given if it appears to the court
that, having regard to all the circumstances, including the circumstances in 901 which the evidence was obtained, the admission of the evidence
would have such an adverse effect on the fairness of the proceedings that the court ought not to admit it.
(2) Nothing in this section shall prejudice any rule of law requiring a court to exclude evidence.’
Section 82(3) of the 1984 Act provides:
‘Nothing in this Part of this Act shall prejudice any power of a court to exclude evidence (whether by preventing questions being put or
otherwise) at its discretion.’
It was submitted that, since s 82(3) preserves the judge’s common law discretion to exclude evidence so as to ensure a fair trial, s 78 must introduce a
wider power. Mr Worsley emphasised the phrase ‘including the circumstances in which the evidence was obtained’. He sought to apply it specifically to
evidence obtained by entrapment, by an agent provocateur or by a trick and argued that the section altered the law as laid down in R v Sang so as to
enable evidence obtained in those ways to be excluded. Whilst at some stages of his argument he accepted that there is still no substantive defence of
entrapment or agent provocateur, at others he contended that, in effect, s 78 afforded such a defence.
In R v Harwood [1989] Crim LR 285 at 286 the court stated, albeit obiter, that s 78 has not abrogated the rule that neither entrapment nor agent
provocateur afford a defence to a criminal charge: ‘The rule that entrapment was no defence could not be evaded by the procedural device of preventing
the prosecution adducing evidence of the commission of the offence.’ In R v Gill [1989] Crim LR 358 some reservations were expressed as to the
correctness of those dicta in R v Harwood.
In our judgment, s 78 has not altered the substantive rule of law that entrapment or the use of an agent provocateur does not per se afford a defence in
law to a criminal charge. A purely evidential provision in a statute, which does not even mention entrapment or agent provocateur, cannot, in our view,
have altered a substantive rule of law enunciated so recently by the House of Lords. Had Parliament intended to alter the substantive law, it would have
done so in clear terms.
However, that is not to say that entrapment, agent provocateur or the use of a trick are irrelevant to the application of s 78. The right approach to the
1984 Act, a codifying Act, is that stated in R v Fulling [1987] 2 All ER 65, [1987] QB 426 following the principles laid down in Bank of England v
Vagliano Bros [1891] AC 107 at 144, [1891–4] All ER Rep 93 at 113. That is simply to examine the language of the relevant provision in its natural
meaning and not to strain for an interpretation which either reasserts or alters the pre-existing law. Viewed in that way, the phrase emphasised by Mr
Worsley clearly permits the court to have regard to ‘the circumstances in which the evidence was obtained’ and to exclude it, but only if it ‘would have
such an adverse effect on the fairness of the proceedings that the court ought not to admit it’. Thus, the fact that the evidence has been obtained by
entrapment, or by agent provocateur, or by a trick, does not of itself require the judge to exclude it. If, however, he considers that in all the circumstances
the obtaining of the evidence in that way would have the adverse effect described in the statute, then he will exclude it. (See also R v Governor of
Pentonville Prison, ex p Chinoy [1992] 1 All ER 317 at 331–332 to the same effect.) ‘Fairness of the proceedings’ involves a consideration not only of
902 fairness to the accused but also, as has been said before, of fairness to the public (see for example R v Sang [1979] 2 All ER 1222 at 1246–1247,
[1980] AC 402 at 456 per Lord Scarman).
In exercising his discretion whether to admit the evidence of an undercover officer, some, but not an exhaustive list, of the factors that the judge may
take into account are as follows. Was the officer acting as an agent provocateur in the sense that he was enticing the defendant to commit an offence he
would not otherwise have committed? What was the nature of any entrapment? Does the evidence consist of admissions to a completed offence, or does
it consist of the actual commission of an offence? How active or passive was the officer’s role in obtaining the evidence? Is there an unassailable record
of what occurred, or is it strongly corroborated? In R v Christou [1992] 4 All ER 559, [1992] QB 979 this court held that discussions between suspects
and undercover officers, not overtly acting as police officers, were not within the ambit of the codes under the 1984 Act. However, officers should not
use their undercover pose to question suspects so as to circumvent the code. In R v Bryce [1992] 4 All ER 567 the court held that the undercover officer
had done just that. Accordingly, a further consideration for the judge in deciding whether to admit an undercover officer’s evidence is whether he has
abused his role to ask questions which ought properly to have been asked as a police officer and in accordance with the codes.
Beyond mentioning the considerations set out above, it is not possible to give more general guidance as to how a judge should exercise his discretion
under s 78 in this field, since each case must be determined on its own facts (see R v Samuel [1988] 2 All ER 135 at 146, [1988] QB 615 at 630, R v
Parris (1988) 89 Cr App R 68 at 72 and R v Jelen, R v Katz (1989) 90 Cr App R 456 at 465 and other cases cited in Archbold’s Pleading Evidence and
Practice in Criminal Cases (44th edn, 1993) para 15-364.)
We now turn to consider the application of these principles to the facts of the instant appeals.
Appeal of Keith Smurthwaite

The appellant Smurthwaite was convicted of soliciting to murder on 30 October 1992 in the Crown Court at Teesside after a four-day trial. He was
sentenced to six years’ imprisonment and appealed against his conviction by leave of the single judge.
He is aged 39. He married his wife, now aged 40, in November 1976. They separated in 1981, but resumed living together about four years later at
Great Broughton near Middlesbrough. The appellant left school with no qualifications and was a self-employed builder. He and his brother built up the
family business, which achieved a turnover of between £750,000 and £1m per annum. His wife had a business degree, worked part-time for British
Telecom and pursued a range of leisure interests. Although they had a house in France which they visited, they spent little time together and, according to
the appellant, had had no sexual relations since they resumed living together.
The prosecution’s case was that the appellant had been contemplating the murder of his wife for some time since he could not face continuing with a
marriage he regarded as a sham, and he believed that a divorce would result in exposing financial dealings (including the purchase of the house in France)
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which were known to his wife but had not been disclosed to the Inland Revenue. Accordingly, he had made certain inquiries which came to the attention
of an undercover officer known to the court only as ‘Eddie’. Eddie 903 arranged a meeting on 18 October 1991 at a Wetherby hotel where he
introduced the appellant to another undercover officer, Webster, who masqueraded as a contract killer. That meeting was the first of two which were
secretly tape recorded by equipment concealed in the hotel room. The appellant made it clear that he wanted ‘a termination’ and that he was prepared to
pay £20,000, half of it to be ‘up front’ and the other half payable after the murder.
A second meeting was held at the same hotel on 21 October and was again recorded. This time, the appellant paid over £10,000 to Webster and gave
him further relevant information to enable him to perform the contract. The appellant was arrested straight after that meeting and maintained his right of
silence.
The intended victim gave evidence that she loved the appellant and believed he loved her, that he had never indicated he was unhappy with her and
so far as she was concerned the marriage was satisfactory. We are told that, despite everything, she wishes to resume cohabitation with him. The
prosecution’s case, therefore, depended solely upon the tape recordings of the two meetings produced by Webster.
There was a submission to the learned judge that the evidence of the recorded conversations should be excluded under s 78 of the 1984 Act. After
hearing argument, Blofeld J ruled that the evidence should be admitted.
The appellant gave evidence that his marriage was happy, that he had never wanted to kill his wife and that he had not voluntarily or intentionally
solicited Webster to do so. His account of the matter was that he had acted under duress and that he was in terror of Webster. A garage owner, referred to
as ‘G’ at the trial and who made no appearance there, had failed to repay a business loan of £2,500 to the appellant. G had underworld connections.
Somehow, G had erroneously got the idea that the appellant wished to get rid of his wife, although the appellant could not recall ever mentioning such an
idea to him. G had telephoned the appellant and told him he had arranged for him to meet two people who would kill his wife. Despite assertions by the
appellant that he was not interested, G persisted in the arrangements and told the appellant that the men who were going to meet him were ‘very heavy
people, you don’t fuck ’em about’. The appellant said that G was not a man he would like to cross. Accordingly, he claimed that he had gone along with
the arrangement to meet Eddie and Webster for fear of what might happen if he did not. Later, G demanded another £2,000 from him which he paid over
in fear. He did not deny the authenticity of the two tape recordings of his meetings with Webster, but maintained that he had played along with the plan
and handed over the £10,000 because he felt his own life was in jeopardy and he believed there would be an opportunity to call the matter off at a later
stage.
The jury rejected that story and convicted the appellant unanimously.
The main ground of appeal was that the learned judge was wrong to admit the evidence of Webster and the tape recordings. It was submitted that
Webster was acting as an agent provocateur because, had he not come on the scene, the appellant would never have sought to have his wife killed.
Secondly, by posing as a contract killer, Webster obtained the evidence on the tape recording by a process of entrapment or by a trick.
Mr Worsley contended that the very existence of these three factors (agent provocateur, entrapment and trick), or one of them, required the learned
judge to exclude the evidence without more ado. He based that contention on his thesis that s 78 reversed R v Sang as to what amounts to a defence in
law. We 904 have already indicated that in our judgment s 78 did no such thing. Moreover, having carefully considered the unchallenged contents of
the two tapes, we are not persuaded that Webster was an agent provocateur.
Mr Worsley’s point is that, although on the first tape the appellant said he had been contemplating the murder of his wife for ‘over a year’ and later
said ‘from 15 November last year’, ie 11 months, he had done nothing effective about it until Webster’s arrival. However, the appellant in evidence
denied the truth of those passages and the whole tenor of both tapes showed the appellant to be eager for the murder to be carried out and indeed for it to
be done sooner rather than later.
There was, of course, as the learned judge recognised, an element of entrapment and a trick inherent in the use of an undercover officer to pose as a
killer. But, given that basic deception, the tapes showed Webster to have taken a minimal role in the planning. He used no persuasion towards the
appellant whose attitude from the start is illustrated by the following exchange:
‘Appellant. What it is basically is that I want me wife killing basically. Webster. Um.
Appellant. That’s what it is. Webster. Well, I think that can be arranged obviously.
Appellant. We’ve discussed the money side of it, that’s all in order. Webster. Well, you know I believe that we’re talking something like
£20,000.
Appellant. £20,000 was quoted to me, and what was said was half “up front” and half at the end. Webster. Yes.
Appellant. It’s no problem, no problem at all.’
After that, the appellant went on to describe how he thought it might be done and suggested a particular car park as the venue, describing its location,
describing his wife’s daily routine, her appearance, how he would give himself an alibi, why divorce was not a solution, his wish for speedy action and
arrangements to meet again with the money.
On the second tape, the appellant produced the £10,000, warned Webster that his wife had a panic button on her keyring and told him how to avoid
its use, gave him directions and wrote down a number of details at his request. Throughout the two tapes, the conversation was punctuated at intervals by
laughter inconsistent with the story of fear and intimidation the appellant told the jury.
Mr Worsley concedes that there is only one point in 108 pages of transcript of the tape at which it is arguable that Webster may have crossed over
the Bryce side of the line, rather than remaining on the Christou side. That was when he said to the appellant:
‘I am grateful for you telling me how you think it best be done, because as I say, you know the woman, you know her movements and
simplicity is the name of the game, but I do know that you have a shotgun for instance.
Appellant. I do, yes, but it is registered … Webster. I am just thinking in the lines of sort of an accident involving that.’
However, in our view, Webster was not seeking information he did not already have and was merely making the sort of remark necessary to maintain his
cover.
To summarise, the two tapes were an accurate and unchallenged record. They recorded not admissions about some previous offence, but the actual
offence being committed of soliciting Webster to murder. The appellant was 905 making the running throughout. In these circumstances, we can find
no ground for criticising the exercise by the learned judge of his discretion under s 78. It cannot, in our view, be said that no judge applying his mind
fairly to all the relevant and no irrelevant factors could reasonably have come to the conclusion he did. That is the test which we must apply (see R v
O’Leary (1988) 87 Cr App R 387 at 391). But having applied it, far from finding the learned judge at fault, we consider he was right.
A secondary argument was mounted by Mr Worsley solely in relation to the second tape. He submitted that, at least by the time the £10,000 was
handed over, Webster should have brought the undercover operation to an end and the appellant should have been charged. To go on and obtain written
details in his handwriting was unnecessary and unfair. Therefore, at least the conversations and evidence obtained after the £10,000 was handed over
should have been excluded. We do not agree. The Code of Practice for the Detention, Treatment and Questioning of Persons by Police Officers (Code
Preamble
C) at para 11.4 provides, so far as it is relevant:
‘As soon as a police officer who is making enquiries of any person about an offence believes that a prosecution should be brought against him
and that there is sufficient evidence for it to succeed, he should ask the person if he has anything further to say. If the person indicates that he has
nothing more to say the officer shall without delay cease to question him about that offence.’
Since the only evidence likely to be available to prove this charge was that obtained undercover, Webster clearly had to consider whether there was
not merely sufficient evidence to bring a charge, but ‘sufficient evidence for it to succeed’, bearing in mind that the appellant might well deny (as he did
in fact) that, despite what he had said orally, he had a serious intention to have his wife killed. In those circumstances, we cannot fault the learned judge’s
view that to admit all of the second tape recording would not have such an adverse effect on the fairness of the trial as to require its exclusion. This
appeal against conviction was therefore dismissed.
Mr Worsley also addressed us on sentence. He submitted that the case would fall to be considered eventually under the early release provisions of
the Criminal Justice Act 1991, so that the appellant would have to serve at least half of the six-year sentence imposed. He also relied upon a medical
report. However, that report was before the learned judge, who was also well aware of the early release provisions. In our view, the sentence of six years
was neither wrong in principle nor excessive for this serious offence. The appeal against sentence is therefore dismissed.
Appeal of Susan Gill

This appellant, now aged 40, was convicted on 29 July 1992 in the Crown Court at Leeds of soliciting to murder and was sentenced to five years’
imprisonment. She applied for an extension of time of some 28 weeks in which to apply for leave to appeal against conviction. The registrar referred the
application to this court and we granted leave.
She married her husband in September 1985. The marriage was stormy and the husband used violence to the appellant on occasions. In June 1991
he telephoned her from Hong Kong to say that he had another woman and was going to leave the appellant on his return to England. On 14 June the
appellant 906 met him at the airport and they went home together. On 17 June the appellant obtained an injunction against her husband ordering him
not to molest her.
Despite that, he returned to stay with her after they met in a car park, and was in the house from 20 until 22 June. After he left on that date, the
appellant was in contact with one Brian Owram, a man with previous convictions whom she had known for a while. According to Owram, the appellant
telephoned him and asked for help with her ‘problems’. On 25 June she telephoned him again and said she wanted to be rid of her husband permanently
and wanted him dead. If Owram was not prepared to help her, she would find someone who was. They agreed to meet at a public house, but Owram
informed the police as he did not want anyone killed. The appellant’s version was that she had complained to Owram about her husband’s conduct,
saying she hated him and wished he were dead, not meaning it literally. Thereupon Owram had said, ‘Leave it with me. I’ll sort out something for you.’
When he telephoned her again, she said she had changed her mind which made him angry as he said he had taken a lot of trouble.
It was common ground that the appellant did go to the public house where she met Owram and one Malcolm Black, an undercover police officer.
Owram then left. Black’s evidence was that the appellant immediately told him she wanted him to get rid of her husband, to kill him, that she wanted him
dead, adding, ‘He is a bully and he has bled me dry.’ She said she did not mind how it was done as long as he was dead. There followed, according to
Black, discussion about money in which she said she would have nothing until she could claim on her husband’s life policy. She suggested Black could
steal her husband’s car, sell it and use the proceeds towards his initial expenses. There was discussion about shooting the husband, the appellant claiming
to have a gun buried in a box.
In evidence, the appellant hotly disputed this account of their first conversation. She claimed that, although Black had mentioned killing her
husband, she made it clear she simply wanted someone to ‘duff him up’. She agreed, however, that £11,000 was the amount agreed, with £1,000 ‘up
front’ and that she had told Black she had a gun. This was to prevent him buying one as she did not really want him to shoot her husband. There was no
tape recording of that first meeting, but Black made a note of it shortly after the event.
A second meeting took place on 3 July at a hotel. This time Black had a tape recorder and there was a full unchallenged record of what was said.
The conversation began as follows:
‘Black. I take it by your turning up you still want it done. Gill. Oh, aye, yes. I went to get the box and they’ve built four houses on, in the
wood, now they haven’t built on where the box is, but it is too bloody open. If I start digging up, there’s four bloody houses looking straight into
it.’
The conversation continued with the appellant describing her husband’s movements in detail, discussing stealing the car at the airport and the
insurance fraud. She agreed that the death must look like an accident or the insurance company would not pay up. The appellant suggested, as an
alternative to shooting her husband, the possibility of injecting him with heroin, so that it might look like an accident or suicide. When Black said he was
thinking of another way and asked whether her husband walked on the road, the appellant said: ‘Yeah, hit and run, he is always pissed … He staggers.’
907
A further meeting took place on 10 July, when the conversation was again tape recorded. Discussion concerned principally the disposal of the
Citroën car and details of where it would be.
The appellant in fact reported the car as stolen. She was arrested on 12 July 1991 and interviewed three times in the presence of her solicitor. She
said that it was a lie that she had planned to kill her husband; she had wanted to put the plan off and told Owram so.
In her first interview, she said she had been trying to get people to frighten her husband for what he had done to her. She said Black had made all
sorts of horrible suggestions as to how to deal with her husband, including shooting him for money, but she had said she had no money. She denied
knowing the name of Owram, which was a lie. She said she had become frightened.
In her second interview, she said she was asked to bring a photograph of her husband and a list of the places he was likely to visit. She had told
Black she did not want any harm to come to her husband. She admitted in evidence that this was a lie since she claimed to have told Black she wanted
her husband ‘duffed up’.
In the third interview, the appellant again denied arranging a meeting so as to employ someone to kill her husband. She said she had been getting
herself in deeper and was trying to get out.
No challenge was made at the trial to the admission of Black’s evidence and the tape recordings of his conversations with the appellant.
Nevertheless, her appeal has been mounted on the basis that the learned judge ought to have excluded that evidence of his own accord.
Clearly, there were many similarities between the facts of this case and Smurthwaite’s case. In each, the appellant was charged with soliciting to
murder a spouse. In each, the person solicited was an undercover police officer. In each, the defence was that there had been no intention that a murder
should actually be carried out and the words of the appellant which appeared to solicit a murder were uttered through fear of the supposed contract killer,
Preamble
merely to string him along.
However, in the appellant Gill’s case, the first meeting with the undercover officer was not tape recorded. Mr Worsley laid great emphasis upon this.
There was a stark conflict of evidence as to what was said at that first meeting, Black contending that the appellant solicited him to murder her husband,
the appellant contending that she had merely asked that he be ‘duffed up’.
Mr Worsley contends that whether there is an unassailable record of a conversation with an undercover officer is crucial to whether it should be
admitted in evidence. He relies upon the distinction between R v Christou, where there was such a record and the evidence was admitted, and R v Bryce,
where there was no such record and the evidence was excluded. However, the existence or absence of a total record is but one factor for the learned judge
to consider when applying s 78.
In R v Gibbons, R v Winterburn (1993) Times, 19 July an undercover officer had recorded some conversations, but not all of them. In rejecting an
argument that those not recorded should have been excluded, this court said (and we read from the transcript):
‘In the present case it is true that there was not a complete record since Ferguson did not have his tape recorder on all occasions. However,
those conversations which were recorded strongly corroborated Ferguson’s account of the general tenor of all the conversations. The defence case
was 908 not to deny that Gibbons had said what Ferguson claimed, but to contend that he had said it “to string Ferguson along”, believing his
family in Ireland might otherwise be harmed.’
Here, a somewhat similar situation existed. The contents of the taped conversations with Black strongly corroborated Black’s account of what had
been said at the first unrecorded meeting. We have already quoted the opening exchange on that tape recording. There were, moreover, two answers she
gave in her formal interviews with the police which supported Black’s account of the first meeting. In her first interview, she said: ‘I realise that what I
did at the first meeting was wrong, and I have been trying to get out of the situation ever since.’ Later, in her last interview, she was asked: ‘You were
attempting to get someone to kill your husband?’ She replied: ‘Initially, you are right. But when I met the man I honestly didn’t know he was a
policeman and I thought he was …’ The appellant’s account of the first meeting, that she only expressed a wish for her husband to be ‘duffed up’, did not
emerge until the trial. It was not mentioned in the course of her interviews with the police. Nor was there any mention in the tape-recorded conversations
with Black of ‘duffing up’. Indeed, the language of those conversations was consistent only with a discussion of a killing. As to the suggestion that the
appellant was in fear, it is a remarkable coincidence that, as in the case of Smurthwaite, there are outbursts of laughter by the appellant to be heard in the
tape recordings.
In our judgment, despite the absence of a tape recording of the first very important meeting between the appellant and Black, the features we have
described, against the background circumstances of the case, amply justified the learned judge in taking no steps to exclude the evidence. In this
appellant’s case, as with Smurthwaite, the tape recording showed no sign of an unwilling defendant being persuaded or cajoled into an agreement to a
murder she would not otherwise have entered. There was, therefore, in our view, no question of Black being an agent provocateur. He, like Webster, in
Smurthwaite’s case, was mostly a passive listener to the appellant’s determined solicitings. Accordingly, this appeal against conviction was dismissed.
Mr Worsley urged the court to reduce the sentence of five years’ imprisonment imposed on the appellant. She is a woman of 40, who, apart from a
conviction for deception in 1982, had no criminal record. She severed her connections with the proposed victim of this offence, her ex-husband. It is said
that he neglected and beat her, and on one occasion raped her. She has a six-year-old son. Two months ago the appellant remarried and Mr Worsley asks
the court to reduce her sentence to four years as an act of mercy. However, we consider that the offence was a grave one, and that the learned judge made
due allowance for matters of mitigation in passing the sentence of five years. We therefore reject the appeal against sentence.
Appeals against conviction and sentence dismissed.
28 February 1994. The Court of Appeal (Lord Taylor of Gosforth CJ, Macpherson and Steel JJ) refused leave to appeal to the House of Lords and
refused to certify, under s 33(2) of the Criminal Appeal Act 1968, that a point of law of general public importance was involved in the decision.
909
[1994] 1 All ER 910
Equal Opportunities Commission and another v Secretary of State for Employment

EMPLOYMENT; Discrimination, Unfair dismissal: EUROPEAN COMMUNITY; Social policy
HOUSE OF LORDS
LORD KEITH OF KINKEL, LORD JAUNCEY OF TULLICHETTLE, LORD LOWRY, LORD BROWNE-WILKINSON AND LORD SLYNN OF HADLEY
25–28 OCTOBER, 1 NOVEMBER 1993, 3 MARCH 1994
Employment – Discrimination against a woman – Unfair dismissal and redundancy payments – Part-time workers – Qualifying thresholds for unfair
dismissal and redundancy different for part-time and full-time workers – Part-time workers required to be in continuous employment for five years to
qualify for unfair dismissal and redundancy payments – Full-time workers required to be in continuous employment for only two years to qualify – 90% of
part-time workers women – Whether qualifying thresholds for unfair dismissal and redundancy discriminatory against women – EEC Treaty, art 119.
Judicial review – Application for judicial review – Locus standi of applicant – Alternative remedy available – Discrimination against women in field of
employment – Part-time worker made redundant after working for employer for less than five years – Part-time worker alleging that United Kingdom
redundancy legislation discriminatory against women – Part-time worker seeking judicial review of Secretary of State’s refusal to introduce amending
Preamble
legislation – Whether appropriate forum for claim an industrial tribunal – Whether part-time worker having locus standi to apply for judicial review.
Judicial review – Application for judicial review – Locus standi of applicant – Equal Opportunities Commission – Discrimination against women in field
of employment – Commission alleging that United Kingdom employment legislation discriminatory against women – Secretary of State expressing view
that United Kingdom not in breach of European Community law – Commission seeking judicial review of Secretary of State’s refusal to introduce
amending legislation – Whether commission having locus standi to apply for judicial review – Whether Secretary of State’s view on state of law
amounting to decision susceptible to judicial review.
Employment – Remuneration – Pay – Compensation for unfair dismissal – Whether compensation for unfair dismissal ‘pay’ – Judicial review –
Availability of remedy – Declaration – Grant of declaratory judgment when prerogative order cannot be made – Whether court having jurisdiction to
grant declaration – EEC Treaty, art 119.
The Employment Protection (Consolidation) Act 1978 provided that full-time workers (ie those who worked 16 or more hours a week) had to be in
continuous employment for two years to qualify for unfair dismissal and redundancy payments under that Act while part-time workers (ie those who
worked between 8 and 16 hours a week) had to be in continuous employment for five years to qualify for the statutory employment rights under that Act.
The great majority of full-time employees in the United Kingdom were men while the great majority of of part-time workers were women, so that the
unfair dismissal and redundancy provisions resulted in indirect discrimination against women. The Equal Opportunities Commission took the view that
such discrimination conflicted with the obligations of the United Kingdom under EEC law, namely 910 art 119a of the EEC Treaty and Council
Directives 75/117 (the equal pay directive) and 76/207b (the equal treatment directive), to provide the right for men and women to receive equal pay for
equal work. However, in a letter of 23 April 1990 to the commission the Secretary of State declined to accept that the United Kingdom was in breach of
its obligations under Community law by providing less favourable treatment in the conditions of employment of full-time workers and part-time workers.
The commission and a part-time worker who had been made redundant by her employer after less than five years’ employment applied for judicial review
of the Secretary of State’s decision and sought a declaration that the Secretary of State and the United Kingdom were in breach of Community law
obligations and an order of mandamus requiring the Secretary of State to introduce legislation to provide the right for men and women to receive equal
pay for equal work. The commission also sought a declaration and an order of mandamus in respect of the Secretary of State’s failure to amend the 1978
Act so as to provide that part-time workers who had previously worked full-time should have their period of full-time work taken into account in the
calculation of statutory redundancy pay. On the procedural aspects of the application the Secretary of State contended in respect of the individual
applicant’s claim that her claim was a private law claim which ought not to have been brought against Secretary of State by way of judicial review and in
respect of the commission’s claim that the commission had no locus standi to bring the proceedings, that the commission’s case did not involve any
decision or justiciable issue susceptible of judicial review, that the court had no jurisdiction to declare that the United Kingdom or the Secretary of State
was in breach of any obligations under Community law and that the Divisional Court was not the appropriate forum to determine the substantive issues
raised by the application. On the substantive issue the Secretary of State contended that the differing threshold provisions for full-time and part-time
workers’ entitlement to unfair dismissal and redundancy payments was objectively justified because it increased the availability of part-time work by
reducing the costs to employers of employing part-time workers. The Divisional Court held that the fact that the less favourable treatment of full-time
and part-time workers under the 1978 Act was discriminatory against women did not constitute an infringement of art 119 of the EEC Treaty and was in
any event justifiable and further held that although it was appropriate for the commission to bring proceedings by way of judicial review of the Secretary
of State’s ‘decision’ and that it had locus standi to do so, the court only had jurisdiction to declare rights and obligations enforceable under the existing
state of the law and had no jurisdiction to grant an order of mandamus requiring the Secretary of State to introduce legislation to amend the 1978 Act or to
declare that he was under a duty to do so. The commission and the individual applicant appealed to the Court of Appeal, which dismissed the individual
applicant’s appeal on the grounds that her application was essentially a private law claim which should have been brought against her employer in an
industrial tribunal and dismissed the commission’s appeal on the grounds that the Secretary of State had not made any ‘decision’, that there was no
justiciable issue suitable for consideration by way of judicial review and also that the commission had no locus standi to bring proceedings for judicial
review against the Secretary of State. The commission and the individual applicant appealed to the House of Lords.
________________________________________
a Article 119 is set out at p 915 b c, post
b Directive 76/207, so far as material, is set out at p 915 d to f, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
911
Held – (1) The individual applicant had not been properly joined in the proceedings because the Divisional Court was not the appropriate forum to
adjudicate on her claim since it was a private law claim against her employers and ought not to have been advanced in the Divisional Court against the
Secretary of State, who was not her employer and was not liable to meet the claim if it was sound. The individual applicant’s appeal would therefore be
dismissed (see p 918 c d, p 925 g h, p 926 b and p 928 g h, post).
(2) (Lord Jauncey dissenting) The commission had ‘sufficient interest’ for the purposes of RSC Ord 53, r 3(7) to bring the proceedings and hence
the necessary locus standi since the matter to which the commission’s application related was essentially whether the relevant provisions of the 1978 Act
were compatible with Community law regarding equal pay and equal treatment and the commission had a sufficient interest in that matter (see p 919 a b,
p 925 h, p 926 c and p 928 g h, post).
(3) (Lord Jauncey concurring with the reasoning) (a) Although the Secretary of State’s letter of 23 April 1990 did not constitute a decision, since it
did no more than state the Secretary of State’s view that the threshold provisions of the 1978 Act regarding redundancy pay and compensation for unfair
dismissal were justifiable and in conformity with Community law, the real object of the commission’s application was the provisions themselves and the
commission was entitled to have recourse to judicial review for the purpose of obtaining a declaration that those provisions were incompatible with
Community law. Similarly, no question of jurisdiction to grant a declaration that the United Kingdom or the Secretary of State were in breach of
obligations under Community law arose since a declaration that the threshold provisions of the 1978 Act were incompatible with Community law was
sufficient for the purposes sought to be achieved by the commission. Such a declaration would not involve any attempt by the commission to enforce
international treaty obligations of the United Kingdom and could validly be granted by the Divisional Court, which was the appropriate forum to grant
such a declaration (see p 919 c, p 920 b to d, p 925 g h, p 926 b and p 928 g h, post); Factortame Ltd v Secretary of State for Transport [1989] 2 All ER
692, Factortame Ltd v Secretary of State for Transport (No 2) Case C-213/89 [1991] 1 All ER 70 and R v Secretary of State for Transport, ex p
Factortame Ltd Case C-221/89 [1991] 3 All ER 769 applied.
(b) The differing threshold provisions in the 1978 Act for full-time and part-time workers workers to qualify for unfair dismissal and redundancy
Preamble
payments were incompatible with art 119 of the EEC Treaty and the equal pay and equal treatment directives because the Secretary of State, on whom the
onus rested, had not shown that the differing threshold provisions were objectively justified. Although the reason advanced by the Secretary of State for
the differing threshold provisions, namely that they would bring about an increase in the availability of part-time work by reducing the costs to employers
of employing part-time workers, was properly to be regarded as a beneficial social policy aim and could not be said not to be a necessary aim of the
provisions, the Secretary of State had not produced evidence to show that the provisions had been proved actually to result in greater availability of
part-time work than would be the case without them. In those circumstances the commission was entitled to declarations that the provisions were
incompatible with art 119 of the EEC Treaty and the directives. The commission’s appeal would (Lord Jauncey dissenting) accordingly be allowed (see p
922 b e f, p 923 c g to j, p 925 g h, p 926 b and p 928 g h, post); Bilka-Kaufhaus GmbH v Weber von Hartz Case 170/84 [1986] 912 ECR 1607 and
Rinner-Kühn v FWW Spezial-Gebäudereinigung GmbH & Co KG Case 171/88 [1989] ECR 2743 considered.
Per Lord Jauncey, Lord Lowry and Lord Browne-Wilkinson. The court has jurisdiction to make a declaratory judgment in judicial review
proceedings brought by a plaintiff who has locus standi, even though the court can not in the circumstances of the case also make a prerogative order, and
under Ord 53 any declaration as to public rights which could formerly be obtained in civil proceedings in the High Court can now also be obtained in
judicial review proceedings (see p 925 g j, p 927 j and p 928 c, post); O’Reilly v Mackman [1982] 3 All ER 1124 considered; dictum of Lord Scarman in
IRC v National Federation of Self-Employed and Small Businesses Ltd [1981] 2 All ER 93 at 109 doubted.
Quaere. Whether the question whether compensation for unfair dismissal is is ‘pay’ within art 119 of the Treaty and the equal pay directive is acte
clair from the fact that redundancy pay has been held to be ‘pay’ or whether the question requires a reference to the European Court under art 177 of the
Treaty for resolution (see p 923 f g, p 925 g h, p 926 b and p 928 g h, post).
Decision of the Court of Appeal [1993] 1 All ER 1022 reversed.
Notes
For the Equal Opportunities Commission, see 16 Halsbury’s Laws (4th edn) paras 771:21–771:22, and for a case on the subject, see 20 Digest (Reissue)
594, 4520.
For the requirement in United Kingdom legislation of equal treatment of men and women regarding terms and conditions of employment, see 16
Halsbury’s Laws (4th edn) para 767, and for cases on the subject, see 20 Digest (Reissue) 579–593, 4466–4515.
For the principle of equal pay for equal work in Community law, see 52 Halsbury’s Laws (4th edn) paras 21.11–21.13.
For the nature and scope of judicial review, mandamus and declarations and locus standi therefor, see 1(1) Halsbury’s Laws (4th edn reissue) paras
60, 64, 128, 132, 134, 155, 157, and for cases on the subject, see 16 Digest (Reissue) 321–364, 3362–3859 and 30 Digest (Reissue) 189–194, 202–234.
For the Employment Protection (Consolidation) Act 1978, see 16 Halsbury’s Statutes (4th edn) (1990 reissue) 232.

Anisminic Ltd v Foreign Compensation Commission [1969] 1 All ER 208, [1969] 2 AC 147, [1969] 2 WLR 163, HL.
Arbeiterwohlfahrt der Stadt Berlin eV v Bötel Case C-360/90 [1992] ECR I-3589, [1992] IRLR 423, CJEC.
Barber v Guardian Royal Exchange Assurance Group Case C-262/88 [1990] 2 All ER 660, [1991] 1 QB 344, [1991] 2 WLR 72, [1990] ECR I-1889,
CJEC.
Dyson v A-G [1911] 1 KB 410, CA.
Equal Opportunities Commission v Birmingham City Council [1989] 1 All ER 769, [1989] AC 1155, [1989] 2 WLR 520, HL.
Factortame Ltd v Secretary of State for Transport [1989] 2 All ER 692, [1990] 2 AC 85, [1989] 2 WLR 997, HL.
Factortame Ltd v Secretary of State for Transport (No 2) Case C-213/89 [1991] 1 All ER 70, [1991] 1 AC 603, [1990] 3 WLR 818, [1990] ECR I-2433,
CJEC and HL.
913
Francovich v Italy, Bonifaci v Italy Joined cases C-6/90 and C-9/90 [1991] ECR I-5357.
Gouriet v Union of Post Office Workers [1977] 3 All ER 70, [1978] AC 435, [1977] 3 WLR 300, HL.
IRC v National Federation of Self-Employed and Small Businesses Ltd [1981] 2 All ER 93, [1982] AC 617, [1981] 2 WLR 722, HL.
Jenkins v Kingsgate (Clothing Production) Ltd Case 96/80 [1981] 1 WLR 972, [1981] ECR 911, CJEC.
Marshall v Southampton and South West Hampshire Area Health Authority (Teaching) Case 152/84 [1986] 2 All ER 584, [1986] QB 401, [1986] 2 WLR
780, [1986] ECR 723, CJEC.
O’Reilly v Mackman [1982] 3 All ER 1124, [1983] 2 AC 237, [1982] 3 WLR 1096, HL.
Pyx Granite Co Ltd v Ministry of Housing and Local Government [1959] 3 All ER 1, [1960] AC 260, [1959] 3 WLR 346, HL.
R v Secretary of State for Defence, ex p Equal Opportunities Commission (20 December 1991, unreported), DC.
R v Secretary of State for Social Security, ex p Equal Opportunities Commission Case C-9/91 [1992] 3 All ER 577, [1992] ECR I-4297, CJEC.
R v Secretary of State for Transport, ex p Factortame Ltd [1989] 2 CMLR 353, DC.
R v Secretary of State for Transport, ex p Factortame Ltd Case C-221/89 [1991] 3 All ER 769, [1992] QB 680, [1992] 3 WLR 288, [1991] ECR I-3905,
CJEC.
Ridge v Baldwin [1963] 2 All ER 66, [1964] AC 40, [1963] 2 WLR 935, HL.
Rinner-Kühn v FWW Spezial-Gebäudereinigung GmbH & Co KG Case 171/88 [1989] ECR 2743.
Roy v Kensington and Chelsea and Westminster Family Practitioner Committee [1992] 1 All ER 705, [1992] 1 AC 624, [1992] 2 WLR 239, HL.
Royal College of Nursing of the UK v Dept of Health and Social Security [1981] 1 All ER 545, [1981] AC 800, [1981] 2 WLR 279, QBD, CA and HL.
Appeal
The Equal Opportunities Commission and Patricia Elizabeth Day appealed with leave of the Appeal Committee given on 25 February 1993 from the
decision of the Court of Appeal (Kennedy and Hirst LJ (Dillon LJ dissenting in part)) ([1993] 1 All ER 1022, [1993] 1 WLR 872) delivered on 6
November 1992 dismissing the appellants’ appeal from the decision of the Divisional Court of the Queen’s Bench Division (Nolan LJ and Judge J)
([1992] 1 All ER 545) delivered on 10 October 1991 refusing the appellants’ applications for judicial review of a decision of the Secretary of State for
Employment dated 23 April 1990 declining to accept that the United Kingdom was in breach of its obligations under EEC law by providing less
favourable treatment of part-time workers than of full-time workers in relation to the conditions for the right not to be unfairly dismissed and for receipt of
statutory redundancy pay and compensation for unfair dismissal and refusing to introduce amending legislation to make the Employment Protection
(Consolidation) Act 1978 comply with the relevant provisions of Community law. The facts are set out in the opinion of Lord Keith.
Preamble
Lord Lester of Herne Hill QC and Monica Carss-Frisk (instructed by J Alan Lakin, Manchester) for the appellants.
Michael Beloff QC and Stephen Richards (instructed by the Treasury Solicitor) for the Secretary of State.
914
3 March 1994. The following opinions were delivered.
LORD KEITH OF KINKEL. My Lords, art 119 of the EEC Treaty provides:
receive equal pay for equal work.
For the purpose of this Article, “pay” means the ordinary basic or minimum wage or salary and any other consideration, whether in cash or in
kind, which the worker receives, directly or indirectly, in respect of his employment from his employer.
Equal pay without discrimination based on sex means: (a) that pay for the same work at piece rates shall be calculated on the basis of the same
unit of measurement; (b) that pay for work at time rates shall be the same for the same job.’
Council Directive (EEC) 75/117 (the equal pay directive) of 10 February 1975 spells out the right to equal pay in greater detail. Article 2(1) of
Council Directive (EEC) 76/207 (the equal treatment directive) of 9 February 1976 provides:
‘For the purposes of the following provisions, the principle of equal treatment shall mean that there shall be no discrimination whatsoever on
grounds of sex either directly or indirectly by reference in particular to marital or family status.’
Article 5(1) and (2) provides:
‘1. Application of the principle of equal treatment with regard to working conditions, including the conditions governing dismissal, means that
men and women shall be guaranteed the same conditions without discrimination on grounds of sex.
2. To this end, Member States shall take the measures necessary to ensure that: (a) any laws, regulations and administrative provisions contrary
to the principle of equal treatment shall be abolished ...’
Section 2 of the European Communities Act 1972, so far as material for present purposes, provides:
‘(1) All such rights, powers, liabilities, obligations and restrictions from time to time created or arising by or under the Treaties [see s 1(2)], and
all such remedies and procedures from time to time provided for by or under the Treaties, as in accordance with the Treaties are without further
enactment to be given legal effect or used in the United Kingdom shall be recognised and available in law, and be enforced, allowed and followed
accordingly; and the expression “enforceable Community right” and similar expressions shall be read as referring to one to which this subsection
applies.
(2) ... at any time after its passing Her Majesty may by Order in Council, and any designated minister or department may by regulations, make
provision—(a) for the purpose of implementing any Community obligation of the United Kingdom, or enabling any such obligation to be
implemented ... or (b) for the purpose of dealing with matters arising out of or related to any such obligation or rights ... or the operation from time
to time, of subsection (1) above; and in the exercise of any statutory power or duty, including any power to give directions or to legislate by means
of orders, rules, regulations or other subordinate instrument, the person entrusted 915 with the power or duty may have regard to the objects of
the Communities and to any such obligation or rights as aforesaid. In this subsection ‘designated minister or department’ means such minister of
the Crown or government department as may from time to time be designated by Order in Council in relation to any matter or for any purpose, but
subject to such restrictions or conditions (if any) as may be specified by the Order in Council ...
(4) The provision that may be made under subsection (2) above includes ... any such provision (of any such extent) as might be made by Act of
Parliament, and any enactment passed or to be passed, other than one contained in this Part of this Act, shall be construed and have effect subject to
the foregoing provisions of this section ...’
By the European Communities (Designation) (No 3) Order 1982, SI 1982/1675, the Secretary of State for Employment was designated for purposes
of s 2(2) of the 1972 Act in relation to measures to prevent discrimination between men and women as regards terms and conditions of employment.
The United Kingdom legislation aimed at preventing such discrimination is to be found in the Equal Pay Act 1970 and the Sex Discrimination Act
1975, but nothing in the present case turns on any provision of either of these Acts. What is in issue is those provisions of the Employment Protection
(Consolidation) Act 1978 which set out the conditions which govern the right not to be unfairly dismissed, the right to compensation for unfair dismissal
and the right to statutory redundancy pay. These conditions require that an employee should have worked a specified number of hours a week during a
specified period of continuous employment. In general, the qualifying periods for entitlement to each of the rights in question are (a) two years of
continuous employment for employees who work for 16 or more hours per week and (b) five years of continuous employment for employees who work
between 8 and 16 hours per week. Employees who work for fewer than 8 hours per week do not qualify for any of the rights in question. The provisions
of the 1978 Act which set out these conditions are to be found in ss 54, 64, 68, 71, 81 and 151 and Sch 13, which need not be referred to in detail. It is
common ground that the great majority of employees who work for more than 16 hours a week are men, and that the great majority of those who work for
less than 16 hours a week are women, so that the provisions in question result in an indirect discrimination against women.
On 21 March 1990 the chief executive of the appellants, the Equal Opportunities Commission (the EOC), wrote to the Secretary of State for
Employment referring to the provisions of the 1978 Act concerning redundancy pay and compensation for unfair dismissal and expressing the view that
these constituted indirect discrimination against women employees, contrary to European Community law. The Secretary of State was asked to give
urgent consideration to that matter and to inform the EOC whether the government would be willing to introduce the necessary legislation to remove the
discrimination inherent in the 1978 Act, giving reasons for his decision if the reply was in the negative. The Secretary of State replied by letter dated 23
April 1990, stating, inter alia:
‘[We do not accept that] statutory redundancy pay and statutory compensation for unfair dismissal constitute ‘pay’ within the meaning of article
119 ... or ... that they fall within the equal treatment directive ... we believe that our current statutory thresholds are entirely justifiable. These
Preamble
thresholds have existed in one form or another ever since employment 916 protection legislation was first introduced. Their purpose is to
ensure that a fair balance is struck between the interests of employers and employees. We have no plans to change the thresholds.’
On 6 June 1990 the EOC obtained leave to move for judicial review, the matter in respect of which relief was sought being stated as:
‘The decision of the Secretary of State for Employment dated 23 April 1990 declining to accept that the United Kingdom is in breach of its
obligations under Community law by providing less favourable treatment of part-time workers than of full-time workers in relation to the conditions
for receipt of statutory redundancy pay and compensation for unfair dismissal.’
The substantive relief sought was expressed in these terms:
‘1. A declaration that the United Kingdom is in breach of its obligations under article 119 of the [EEC Treaty] and [Council] Directive
75/117/E.E.C. by providing less favourable treatment of part-time workers (most of whom are women) than of full-time workers (most of whom are
men) in relation to the conditions for receipt of statutory redundancy pay and compensation for unfair dismissal.
2. A declaration that the United Kingdom is in breach of its obligations under [Council] Directive 76/207/E.E.C. by providing less favourable
treatment of part-time workers (most of whom are women) than of full-time workers (most of whom are men) in relation to the conditions for
receipt of statutory redundancy pay and compensation for unfair dismissal.’
At a later stage the application was amended so as to bring in as second applicant Mrs Day, who had been employed by Hertfordshire County
Council as a cleaner for just under five years working 11 hours a week and had been made redundant, and so as to seek certain further declarations and
also mandamus to compel the Secretary of State to introduce legislation to abolish the discriminatory provisions of the 1978 Act.
The application was heard by a Divisional Court consisting of Nolan LJ and Judge J, who on 10 October 1991 dismissed it (see [1992] 1 All ER
545). On appeal by the EOC and Mrs Day to the Court of Appeal the decision of the Divisional Court was by a majority affirmed (Kennedy and Hirst LJJ
(Dillon LJ dissenting)) (see [1993] 1 All ER 1022, [1993] 1 WLR 872). The EOC and Mrs Day now appeal to your Lordships’ House.
The principal issue of substance raised by the proceedings is whether the indirect discrimination against women involved in the relevant provisions
of the 1978 Act has been shown to be based upon objectively justified grounds, that being the test propounded by the Court of Justice of the European
Communities in Bilka-Kaufhaus GmbH v Weber von Hartz Case 170/84 [1986] ECR 1607 for determining whether or not measures involving indirect
discrimination constitute an infringement of art 119 of the EEC Treaty. A number of procedural points were, however, argued in the courts below and
before this House.
It is convenient first to consider whether Mrs Day is properly joined in the present proceedings against the Secretary of State. Redundancy pay is
‘pay’ within the meaning of art 119 of the Treaty: Barber v Guardian Royal Exchange Assurance Group Case C-262/88 [1990] 2 All ER 660, [1991] 1
QB 344. If the discriminatory measures in the 1978 Act are not objectively justified, Mrs Day has a good claim for redundancy pay against her
employers, the Hertfordshire Area Health Authority, under art 119, which by virtue of s 2(1) of the 1972 Act 917 prevails over the discriminatory
provisions of the 1978 Act. She would also have a good claim under the equal pay directive and the equal treatment directive, which are directly
applicable against her employers as being an emanation of the state: Marshall v Southampton and South West Hampshire Area Health Authority
(Teaching) Case 152/84 [1986] 2 All ER 584, [1986] QB 401. Mrs Day’s claim against her employers is a private law claim, and indeed she has already
started proceedings to enforce it in the appropriate industrial tribunal, these having been adjourned to await the outcome of the present case. The
industrial tribunal has jurisdiction to decide questions as to objective justification for discriminatory measures, and has done so on many occasions, in
particular in the Marshall case. I see no good reason why a purely private law claim should be advanced in the Divisional Court against the Secretary of
State, who is not the claimant’s employer and is not liable to meet the claim, if sound. The determination of such claims has been entrusted by statute to
the industrial tribunal, which is fully competent to deal with them. It is suggested that different industrial tribunals might reach different decisions on the
facts in relation to objective justification, but a suitable test case upon the question of principle, supported by the EOC under the power conferred upon it
by s 75 of the 1975 Act, would be capable of settling the question definitively. I conclude that the Divisional Court was not the appropriate forum to
adjudicate upon what so far as Mrs Day is concerned is her private law claim, and would dismiss her appeal, but without costs.
Turning now to the position of the EOC, the procedural points taken by the Secretary of State are (1) that the EOC has no locus standi to bring the
present proceedings, (2) that the EOC’s case does not involve any decision or justiciable issue susceptible of judicial review, (3) that the Divisional Court
had no jurisdiction to declare that the United Kingdom or the Secretary of State was in breach of any obligations under Community law and (4) that the
Divisional Court was not the appropriate forum to determine the substantive issues raised by the application.
Dealing first with the question of locus standi, RSC Ord 53, r 3(7) provides that the court shall not grant leave to apply for judicial review ‘unless it
considers that the applicant has a sufficient interest in the matter to which the application relates’. Section 31(3) of the Supreme Court Act 1981 contains
a provision in the same terms. The matter to which the EOC’s application relates is essentially whether the relevant provisions of the 1978 Act are
compatible with Community law regarding equal pay and equal treatment. Has the EOC a sufficient interest in that matter? Under s 53(1) of the 1975
Act the duties of the EOC include:
‘(a) to work towards the elimination of discrimination; (b) to promote equality of opportunity between men and women generally ...’
If the admittedly discriminatory provisions of the 1978 Act as regards redundancy pay and compensation for unfair dismissal are not objectively
justified, then steps taken by the EOC towards securing that these provisions are changed may very reasonably be regarded as taken in the course of
working towards the elimination of discrimination. The present proceedings are clearly such a step. In a number of cases the EOC has been the initiating
party to proceedings designed to secure the elimination of discrimination. The prime example is Equal Opportunities Commission v Birmingham City
Council [1989] 1 All ER 769, [1989] AC 1155, where the EOC successfully challenged the policy of the council as regards the relative availability of
grammar school places for girls and for boys, in proceedings which reached this House and in which it was not 918 suggested at any stage that the
EOC lacked locus standi. In R v Secretary of State for Defence, ex p Equal Opportunities Commission (20 December 1991, unreported) it was common
ground that the EOC had locus standi. Another instance is R v Secretary of State for Social Security, ex p Equal Opportunities Commission Case C-9/91
[1992] 3 All ER 577, which went to the European Court. In my opinion it would be a very retrograde step now to hold that the EOC has no locus standi
to agitate in judicial review proceedings questions related to sex discrimination which are of public importance and affect a large section of the
population. The determination of this issue turns essentially upon a consideration of the statutory duties and public law role of the EOC as regards which
no helpful guidance is to be gathered from decided cases. I would hold that the EOC has sufficient interest to bring these proceedings and hence the
necessary locus standi.
The next question is whether there exists any decision or justiciable issue susceptible of judicial review. The EOC’s application sets out the
Secretary of State’s letter of 23 April 1990 as being the reviewable decision. In my opinion that letter does not constitute a decision. It does no more than
Preamble
state the Secretary of State’s view that the threshold provisions of the 1978 Act regarding redundancy pay and compensation for unfair dismissal are
justifiable and in conformity with Community law. The real object of the EOC’s attack is these provisions themselves. The question is whether judicial
review is available for the purpose of securing a declaration that certain United Kingdom primary legislation is incompatible with Community law. It is
argued for the Secretary of State that Ord 53, r 1(2), which gives the court power to make declarations in judicial review proceedings, is only applicable
where one of the prerogative orders would be available under r 1(1), and that if there is no decision in respect of which one of these writs might be issued
a declaration cannot be made. I consider that to be too narrow an interpretation of the court’s powers. It would mean that while a declaration that a
statutory instrument is incompatible with Community law could be made, since such an instrument is capable of being set aside by certiorari, no such
declaration could be made as regards primary legislation. However, in the Factortame series of cases (Factortame Ltd v Secretary of State for Transport
[1989] 2 All ER 692, [1990] 2 AC 85, Factortame Ltd v Secretary of State for Transport (No 2) Case C213/89 [1991] 1 All ER 70, [1991] 1 AC 603, R v
Secretary of State for Transport, ex p Factortame Ltd Case C-221/89 [1991] 3 All ER 769, [1992] QB 680) the applicants for judicial review sought a
declaration that the provisions of Pt II of the Merchant Shipping Act 1988 should not apply to them on the ground that such application would be contrary
to Community law, in particular arts 7 and 52 of the EEC Treaty (principle of non-discrimination on the ground of nationality and right of establishment).
The applicants were companies incorporated in England which were controlled by Spanish nationals and owned fishing vessels which on account of such
control were denied registration in the register of British vessels by virtue of the restrictive conditions contained in Pt II of the 1988 Act. The Divisional
Court (R v Secretary of State for Transport, ex p Factortame Ltd [1989] 2 CMLR 353), under art 177 of the Treaty, referred to the Court of Justice of the
European Communities a number of questions, including the question whether these restrictive conditions were compatible with arts 7 and 52 of the
Treaty. The European Court (R v Secretary of State for Transport, ex p Factortame Ltd Case C-221/89 [1991] 3 All ER 769, [1992] QB 680) answered
that question in the negative, and although the final result is not reported, no doubt the Divisional Court in due course granted a declaration accordingly.
The effect was that certain provisions of United Kingdom primary legislation were held to be invalid in their purported application to nationals of 919
member states of the European Community, but without any prerogative order being available to strike down the legislation in question, which of course
remained valid as regards nationals of non-member states. At no stage in the course of the litigation, which included two visits to this House, was it
suggested that judicial review was not available for the purpose of obtaining an adjudication upon the validity of the legislation in so far as it affected the
applicants.
The Factortame case is thus a precedent in favour of the EOC’s recourse to judicial review for the purpose of challenging as incompatible with
Community law the relevant provisions of the 1978 Act. It also provides an answer to the third procedural point taken by the Secretary of State, which
maintains that the Divisional Court had no jurisdiction to declare that the United Kingdom or the Secretary of State is in breach of obligations under
Community law. There is no need for any such declaration. A declaration that the threshold provisions of the 1978 Act are incompatible with
Community law would suffice for the purposes sought to be achieved by the EOC and is capable of being granted consistently with the precedent afforded
by Factortame. This does not involve, as contended for the Secretary of State, any attempt by the EOC to enforce the international treaty obligations of
the United Kingdom. The EOC is concerned simply to obtain a ruling which reflects the primacy of Community law enshrined in s 2 of the 1972 Act and
determines whether the relevant United Kingdom law is compatible with the equal pay directive and the equal treatment directive.
Similar considerations provide the answer to the Secretary of State’s fourth procedural point, by which it is maintained that the Divisional Court is
not the appropriate forum to decide the substantive issues at stake. The issues at stake are similar in character to those which were raised in Factortame.
The Divisional Court is the only English forum in which the EOC, having the capacity and sufficient interest to do so, is in a position to secure the result
which it desires. It is said that the incompatibility issue could be tested in proceedings before the European Court instituted by the European Commission
against the United Kingdom under art 169 of the EEC Treaty. That may be true, but it affords no reason for concluding that the Divisional Court is an
inappropriate forum for the application by the EOC designed towards a similar end and, indeed, there are grounds for the view that the Divisional Court is
the more appropriate forum, since the Court of Justice of the European Communities has said that it is for the national court to determine whether an
indirectly discriminatory pay practice is founded on objectively justified economic grounds: see Bilka-Kaufhaus GmbH v Weber von Hartz Case 170/84
[1986] ECR 1607 at 1628 (para 36).
I turn now to the important substantive issue in the appeal, which is whether or not the threshold provisions in the 1978 Act have been shown to be
objectively justified, the onus of doing so being one which rests on the Secretary of State.
In the Bilka-Kaufhaus case the European Court said ( at 1628 (para 36)):
‘It is for the national court, which has sole jurisdiction to make findings of fact, to determine whether and to what extent the grounds put
forward by an employer to explain the adoption of a pay practice which applies independently of a worker’s sex but in fact affects more women
than men may be regarded as objectively justified economic grounds. If the national court finds that the measures chosen by Bilka correspond to a
real need on the part of the undertaking, are appropriate with a view to achieving the objectives pursued and are necessary to that end, the fact that
the measures 920 affect a far greater number of women than men is not sufficient to show that they constitute an infringement of Article 119.’
Somewhat broader considerations apply where the discriminatory provisions are to be found in national legislation. In Rinner-Kühn v FWW
SpezialGebäudereinigung GmbH & Co KG Case 171/88 [1989] ECR 2743 the question at issue was whether German legislation which permitted
restrictions on the right of part-time workers to sick pay contravened art 119 of the EEC Treaty, considering that a great majority of part-time workers
were women. The court said (at 2760–2761):
‘12. In such a situation, it must be concluded that a provision such as that in question results in discrimination against female workers in relation
to male workers and must, in principle, be regarded as contrary to the aim of Article 119 of the Treaty. The position would be different only if the
distinction between the two categories of employees were justified by objective factors unrelated to any discrimination on grounds of sex (see the
judgment of 13 May 1986 in Case 170/84 Bilka-Kaufhaus GmbH v Karin Weber von Hartz [1986] ECR 1607).
13. In the course of the procedure, the German Government stated, in response to a question put by the Court, that workers whose period of
work amounted to less than 10 hours a week or 45 hours a month were not as integrated in, or as dependent on, the undertaking employing them as
other workers.
14. It should, however, be stated that those considerations, in so far as they are only generalizations about certain categories of workers, do not
enable criteria which are both objective and unrelated to any discrimination on grounds of sex to be identified. However, if the Member State can
show that the means chosen meet a necessary aim of its social policy and that they are suitable and requisite for attaining that aim, the mere fact that
the provision affects a much greater number of female workers than male workers cannot be regarded as constituting an infringement of Article
119.
15. It is for the national court, which has sole jurisdiction to assess the facts and interpret the national legislation, to determine whether and to
what extent a legislative provision, which, though applying independently of the sex of the worker, actually affects a greater number of women than
men, is justified by reasons which are objective and unrelated to any discrimination on grounds of sex.
16. The reply to the question referred by the national court must therefore be that Article 119 of the EEC Treaty must be interpreted as
Preamble
precluding national legislation which permits employers to exclude employees whose normal working hours do not exceed 10 hours a week or 45
hours a month from the continued payment of wages in the event of illness, if that measure affects a far greater number of women than men, unless
the Member State shows that the legislation concerned is justified by objective factors unrelated to any discrimination on grounds of sex.’
The original reason for the threshold provisions of the 1978 Act appears to have been the view that part-time workers were less committed than
full-time workers to the undertaking which employed them. In his letter of 23 April 1990 the Secretary of State stated that their purpose was to ensure
that a fair balance was struck between the interests of employers and employees. These grounds are not now founded on as objective justification for the
thresholds. It is now claimed that the thresholds have the effect that more part-time employment is 921 available than would be the case if employers
were liable for redundancy pay and compensation for unfair dismissal to employees who worked for less than 8 hours a week or between 8 and 16 hours a
week for under five years. It is contended that if employers were under that liability they would be inclined to employ less part-time workers and more
full-time workers, to the disadvantage of the former.
The bringing about of an increase in the availability of part-time work is properly to be regarded as a beneficial social policy aim and it cannot be
said that it is not a necessary aim. The question is whether the threshold provisions of the 1978 Act have been shown, by reference to objective factors, to
be suitable and requisite for achieving that aim. As regards suitability for achieving the aim in question, it is to be noted that the purpose of the thresholds
is said to be to reduce the costs to employers of employing part-time workers. The same result, however, would follow from a situation where the basic
rate of pay for part-time workers was less than the basic rate for full-time workers. No distinction in principle can properly be made between direct and
indirect labour costs. While in certain circumstances an employer might be justified in paying full-time workers a higher rate than part-time workers in
order to secure the more efficient use of his machinery (see Jenkins v Kingsgate (Clothing Production) Ltd Case 96/80 [1981] 1 WLR 972), that would be
a special and limited state of affairs. Legislation which permitted a differential of that kind nationwide would present a very different aspect and
considering that the great majority of part-time workers are women would surely constitute a gross breach of the principle of equal pay and could not
possibly be regarded as a suitable means of achieving an increase in part-time employment. Similar considerations apply to legislation which reduces the
indirect cost of employing part-time labour. Then, as to the threshold provisions being requisite to achieve the stated aim, the question is whether on the
evidence before the Divisional Court they have been proved actually to result in greater availability of part-time work than would be the case without
them. In my opinion that question must be answered in the negative. The evidence for the Secretary of State consisted principally of an affidavit by an
official in the Department of Employment which set out the views of the Department but did not contain anything capable of being regarded as factual
evidence demonstrating the correctness of these views. One of the exhibits to the affidavit was a report with draft directives prepared by the Social
Affairs Commissioner of the European Commission in 1990 (OJ 1990 C224, p 4 (Com (90) 228–final)). This covered a wide range of employment
benefits and advantages, including redundancy pay and compensation for unfair dismissal, but proposed a qualifying threshold for those benefits of eight
hours of work per week. The basis for that was stated to be the elimination of disproportionate administrative costs and regard to employers’ economic
needs. These are not the grounds of justification relied on by the Secretary of State. The evidence put in by the EOC consisted in large measure in a
report of the House of Commons Employment Committee in 1990 (HC Paper (1989–90) no 122-I) and a report of the House of Lords Select Committee
on the European Communities, ‘Part-Time and Temporary Employment,’ in 1990 (HL Paper (1989–90) no 7). These revealed a diversity of views upon
the effect of the threshold provisions on part-time work, employers’ organisations being of the opinion that their removal would reduce the amount
available with trade union representatives and some employers and academics in the industrial relations field taking the opposite view. It also appeared
that no other member state of the European Community, apart from the Republic of Ireland, had legislation providing for 922 similar thresholds. The
Republic of Ireland, where statute at one time provided for an 18-hour-per-week threshold, had recently introduced legislation reducing this to 8 hours. In
the Netherlands the proportion of the workforce in part-time employment was in 1988 29·8% and in Denmark 25·5%, neither country having any
thresholds similar to those in the 1978 Act. In France legislation was introduced in 1982 providing for part-time workers to have the same rights as
full-time, yet between 1983 and 1988 part-time work in that country increased by 36·6%, compared with an increase of 26·1% over the same period in the
United Kingdom. While various explanations were suggested on behalf of the Secretary of State for these statistics, there is no means of ascertaining
whether these explanations have any validity. The fact is, however, that the proportion of part-time employees in the national workforce is much less than
the proportion of full-time employees, their weekly remuneration is necessarily much lower, and the number of them made redundant or unfairly
dismissed in any year is not likely to be unduly large. The conclusion must be that no objective justification for the thresholds in the 1978 Act has been
established.
A subsidiary issue of substance in the appeal is whether or not compensation for unfair dismissal is ‘pay’ within the meaning of art 119 of the Treaty
and the equal pay directive. The definition of ‘pay’ in art 119 has been set out above. In Arbeiterwohlfahrt der Stadt Berlin eV v Bötel Case C-360/90
[1992] IRLR 423 at 425 (para 12) the European Court said:
‘According to the case law of the court ... the concept of “pay” within the meaning of article 119 of the Treaty comprises any consideration
whether in cash or in kind, whether immediate or future, provided that the employee receives it, albeit indirectly, in respect of his employment from
his employer, whether under a contract of employment, legislative provisions or made ex gratia by the employer.’
In Barber v Guardian Royal Exchange Assurance Group Case C-262/88 [1990] 2 All ER 660 at 701, [1991] 1 QB 344 at 400 (para 18) the court held
that redundancy pay was pay within the meaning of art 119 on the ground that receipt of it arose ‘by reason of the existence of the employment
relationship’. There is much to be said in favour of the view that compensation for unfair dismissal is of a comparable nature, but the European Court has
not yet pronounced upon this issue, and there may be a question whether the answer to it can properly be held to be acte clair, or whether resolution of it
would require a reference to the European Court under art 177 of the Treaty.
Such a reference is in any event, however, unnecessary for the disposal of the present appeal. Discrimination as regards the right to compensation
for unfair dismissal, if not objectively justified, is clearly in contravention of the equal treatment directive.
In the light of the foregoing I am of the opinion that the appeal by the EOC should be allowed and that declarations should be made in the following
terms.
(1) That the provisions of the Employment Protection (Consolidation) Act 1978 whereby employees who work for fewer than 16 hours per week are
subject to different conditions in respect to qualification for redundancy pay from those which apply to employees who work for 16 hours per week or
more are incompatible with art 119 of the EEC Treaty and Council Directive (EEC) 75/117 of 10 February 1975 (the equal pay directive).
(2) That the provisions of the Employment Protection (Consolidation) Act 1978 whereby employees who work for fewer than 16 hours per week are
subject 923 to different conditions in respect of the right to compensation for unfair dismissal from those which apply to employees who work for 16
hours per week or more are incompatible with the Council Directive (EEC) 76/207 of 9 February 1976 (the equal treatment directive).
It remains to note that the EOC proposed that the House should grant a declaration to the effect that the Secretary of State is in breach of those
provisions of the equal treatment directive which require member states to introduce measures to abolish any laws contrary to the principle of equal
treatment. The purpose of such a declaration was said to be to enable part-time workers who were employed otherwise than by the state or an emanation
of the state, and who had been deprived of the right to obtain compensation for unfair dismissal by the restrictive thresholds in the 1978 Act, to take
Preamble
proceedings against the United Kingdom for compensation, founding upon the decision of the Court of Justice of the European Communities in
Francovich v Italy Joined cases C-6/90 and C-9/90 [1991] ECR I-5357. In my opinion it would be quite inappropriate to make any such declaration. If
there is any individual who believes that he or she has a good claim to compensation under the Francovitch principle, it is the Attorney General who
would be defendant in any proceedings directed to enforcing it, and the issues raised would not necessarily be identical with any of those which arise in
the present appeal.
LORD JAUNCEY OF TULLICHETTLE. My Lords, the Equal Opportunities Commission was established by the provisions of Pt VI of the Sex
Discrimination Act 1975. Section 53(1) of that Act provides that it should have the following duties:
‘(a) to work towards the elimination of discrimination, (b) to promote equality of opportunity between men and women generally, and (c) to
keep under review the working of this Act and the Equal Pay Act 1970 and, when they are so required by the Secretary of State or otherwise think it
necessary, draw up and submit to the Secretary of State proposals for amending them.’
Section 55 requires the commission to keep under review the discriminatory aspects of provisions in health and safety legislation and to report to the
Secretary of State on any matter specified by him. Section 56 requires the commission to make an annual report to the Secretary of State on its activities.
‘Without prejudice to their general power to do anything requisite for the performance of their duties under section 53(1), the Commission may
if they think fit, and shall if required by the Secretary of State, conduct a formal investigation for any purpose connected with the carrying out of
those duties.’
‘If in the light of any of their findings in a formal investigation it appears to the commission necessary or expedient, whether during the course
of the investigation or after its conclusion ... (b) to make to the Secretary of State any recommendations, whether for changes in the law or
otherwise, the commission shall make those recommendations accordingly.’
The commission is also empowered by s 75 to provide assistance to claimants in proceedings under the Act.
924
In pursuance of its statutory duties the commission has in the past initiated judicial review proceedings without challenge to its capacity so to do.
This House upheld its right to obtain a declaration that a provision by a local education authority of selected secondary education was unlawful (see Equal
Opportunities Commission v Birmingham City Council [1989] 1 All ER 769, [1989] AC 1155). In the Divisional Court in R v Secretary of State for
Defence, ex p Equal Opportunities Commission (20 December 1991, unreported), hearing an application for judicial review of a decision made on behalf
of the Secretary of State for Defence in relation to pregnant servicewomen, it was accepted by the Crown that the commission had legal standing.
However, the fact that the commission may properly initiate judicial review proceedings in pursuance of their duties against local authorities or other
ministers is not, in my view, conclusive of its ability so to do in relation to the Secretary of State.
The provisions of the Act to which I have referred envisage the commission performing its duties on its own initiative or, in certain cases, as required
by the Secretary of State. Section 53(1)(c) empowers or requires the commission to submit proposals to the Secretary of State and s 60(1) similarly
empowers or requires the commission to make recommendations to the Secretary of State. The Act neither requires the Secretary of State to implement
these proposals or recommendations nor confers power on the commission to have them implemented. Thus, vis-à-vis the Secretary of State, the role of
the commission is advisory and it is no part of its duties to initiate proceedings against him in matters relating to sex discrimination. The broad words of s
53(1)(a) which might be thought habile to cover any steps taken by the commission against anybody towards the specified end must, so far as the
Secretary of State is concerned, be read in the context of the particular relationship which has been created between him and the commission. The Act
makes the commission answerable to the Secretary of State and not vice versa. If Parliament had intended that the commission should be empowered to
challenge decisions of the Secretary of State and impose its will upon him it is quite remarkable that Pt VI of the Act which sets out in some detail the
powers and duties of the commission, both at large and in relation to the Secretary of State, should have remained totally silent upon this particular matter.
While reluctant to disagree with your Lordships I am driven to the conclusion, in agreement with Kennedy LJ in the Court of Appeal, that the
Commission does not have the capacity to pursue these proceedings. I would therefore dismiss the appeal. I should only add that if I had reached a
different conclusion in relation to this preliminary matter I should have been in entire agreement with the reasons given by my noble and learned friends
Lord Keith of Kinkel and Lord Browne-Wilkinson for allowing the appeal.
LORD LOWRY. My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Keith of Kinkel. I
agree with it and for the reasons which he gives I, too, would allow the appeal and make the declarations which he proposes.
Accepting as I do the analysis of my noble and learned friend, I do not find it necessary to consider the question (which I think is arguable) whether
the Secretary of State’s letter of 23 April 1990 was a ‘decision’ for the purposes of judicial review. I would, however, take the opportunity of expressing
my respectful and complete agreement with the observations on procedure which are about to be delivered by my noble and learned friend Lord
Browne-Wilkinson.
925
I feel bound, however, to add (as can perhaps be inferred from my speech in Roy v Kensington and Chelsea and Westminster Family Practitioner
Committee [1992] 1 All ER 705, [1992] 1 AC 624) that I have never been entirely happy with the wide procedural restriction for which O’Reilly v
Mackman [1982] 3 All ER 1124, [1983] 2 AC 237 is an authority, and I hope that that case will one day be the subject of your Lordships’ further
consideration.
LORD BROWNE-WILKINSON. My Lords, I agree with the speech of my noble and learned friend Lord Keith of Kinkel but wish to add a few words
on the procedural question whether the court can make a declaration on an application for judicial review even though in the circumstances of the case the
court could not grant one of the prerogative orders.
The question arises in this way. It being established (for the reasons given by my noble and learned friend Lord Keith) that the Equal Opportunities
Commission has locus standi to bring proceedings for judicial review but has not demonstrated that there is any ‘decision’ by the Secretary of State which
can be quashed, has the court got jurisdiction to make a declaration that the domestic law of the United Kingdom is not in conformity with Community
law?
Preamble
Before 1977 there were two routes whereby relief could be sought from the courts in the field of what is now known as public law. The first was by
application to the Queen’s Bench Divisional Court for one of the prerogative orders. The second was by way of a civil action in the High Court for a
declaration. This procedure in a civil action for a declaration was under what is now RCS Ord 15, r 16, which provides:
‘No action or other proceedings shall be open to objection on the ground that a merely declaratory judgment or order is sought thereby, and the
court may make binding declarations of right whether or not any consequential relief is or could be claimed.’
As early as 1911 it was established that, in a civil action brought by a competent plaintiff, the court could grant declaratory relief against the Crown
as to the legality of actions which the Crown proposed to take: see Dyson v A-G [1911] 1 KB 410. Of course, in such civil proceedings in the High Court
there could be no question of the plaintiff being entitled to any of the prerogative orders, which could only be made in proceedings on the Crown side.
Civil proceedings for a declaration as to public rights were a widely adopted method down to 1977. Indeed, many of the most recent developments
in public law were made in such civil actions brought to obtain declaratory relief only: see, for example, Ridge v Baldwin [1963] 2 All ER 66, [1964] AC
40, Anisminic Ltd v Foreign Compensation Commission [1969] 1 All ER 208, [1969] 2 AC 147; see also Zamir and Woolf The Declaratory Judgment
(2nd edn, 1993) pp 29–31.
The ability to obtain a declaration of public rights in civil proceedings was restricted by the need to show sufficient locus standi. Although the
plaintiff did not have to show an actual or threatened infringement of his private rights, he did have to show that any actual or threatened infringement of
public rights would cause him special damage: see Gouriet v Union of Post Office Workers [1977] 3 All ER 70, [1978] AC 435. However, questions of
locus standi are not what I am now considering.
In 1977 the new Ord 53 was introduced, laying down the modern procedure for judicial review. Order 53, r 1(2) expressly provides that an
application for a declaration can be made in judicial review proceedings and gives the Divisional Court power to make a declaration if it considers it just
and convenient—
926
‘having regard to—(a) the nature of the matters in respect of which relief may be granted by way of an order of mandamus, prohibition or
certiorari, (b) the nature of the persons and bodies against whom relief may be granted by way of such an order, and (c) all the circumstances of the
case.’
This rule was given statutory confirmation by s 31 of the Supreme Court Act 1981.
In the period between the introduction of the new Ord 53 and the decision in O’Reilly v Mackman [1982] 3 All ER 1124, [1983] 2 AC 237 there were
therefore two routes whereby a declaration of public rights could be obtained. The first was in judicial review proceedings under Ord 53; the second was
by civil proceedings for declaratory relief under Ord 15, r 16. As to the latter, the position remained as it was before 1977. During this period, civil
proceedings for a declaration as to public rights continued to be brought. Thus, in Royal College of Nursing of the UK v Dept of Health and Social
Security [1981] 1 All ER 545, [1981] AC 800 civil proceedings were brought in the Queen’s Bench Division for a declaration as to the correctness in law
of a circular from the DHSS purporting to explain to the medical profession the effect of the Abortion Act 1967. No one contended that such a
declaration could not be made even though, as in the present case, none of the prerogative orders could have been made even if the proceedings had been
brought under Ord 53. This House restored a declaration as to the legality of the circular which had been made by the trial judge.
Accordingly, right down to the decision of this House in O’Reilly v Mackman the two procedures for obtaining declaratory relief, the one by way of
civil proceedings in the High Court, the other by way of judicial review in the Divisional Court, continued. In O’Reilly v Mackman itself this House was
considering the propriety of four civil actions brought in the High Court for declarations as to matters of public law. This House held that in such public
law cases, it is an abuse of process to proceed by way of civil action and that such proceedings must be brought by way of judicial review. In so deciding,
Lord Diplock reviewed the law affecting declaratory judgments in both civil proceedings and judicial review proceedings. He said ([1982] 3 All ER 1124
at 1133, [1983] 2 AC 237 at 283):
‘Nevertheless, there may still be cases where it turns out in the course of proceedings to challenge a decision of a statutory authority that a
declaration of rights rather than certiorari is the appropriate remedy. The Pyx Granite case [Pyx Granite Co Ltd v Ministry of Housing and Local
Government [1959] 3 All ER 1, [1960] AC 260] provides an example of such a case. So Ord 53 since 1977 has provided a procedure by which
every type of remedy for infringement of rights of individuals that are entitled to protection in public law can be obtained in one and the same
proceeding by way of an application for judicial review, and whichever remedy is found to be the most appropriate in the light of what has emerged
on the hearing of the application, can be granted to him.’
In my judgment, this passage makes it clear that under Ord 53 any declaration as to public rights which could formerly be obtained in civil
proceedings in the High Court can now also be obtained in judicial review proceedings. If this were not so, the effect of the purely procedural decision in
O’Reilly v Mackman requiring all public law cases to be brought by way of judicial review would have had the effect of thenceforward preventing a
plaintiff who previously had locus standi to bring civil proceedings for a declaration as to public rights (even though there was no decision which could be
the subject of a prerogative order) from 927 bringing any proceedings for such a declaration. No statutory provision has ever removed the right to
seek such a declaration which right has been established and exercised from 1911. Order 53, r 1(2) does not say that a declaration is only to be made in
lieu of a prerogative order. All it requires is that the court should have regard to ‘the nature of the matters in respect of which’ prerogative orders can be
made. In the second Factortame case, Factortame Ltd v Secretary of State for Transport (No 2) Case C213/89 [1991] 1 All ER 70, [1991] 1 AC 603, this
House, admittedly without argument to the contrary, plainly envisaged that a declaration as to public rights could be made, even though on the facts of
that case none of the prerogative orders could have been made.
Finally, the terms of Ord 15, r 16 itself indicate the same result. Judicial review proceedings under Ord 53 are ‘proceedings’. Therefore the effect of
Ord 15, r 16 is that the court in judicial review proceedings for a declaration can make a declaratory order ‘whether or not any consequential relief …
could be claimed’.
I have sought to demonstrate that the history of declaratory relief, authority and the terms of Ord 15, r 16 all point to the court having power to make
a declaratory judgment in judicial review proceedings brought by a plaintiff who has locus standi, whether or not the court could also make a prerogative
order. The only indications to the contrary are certain dicta in IRC v National Federation of Self-Employed and Small Businesses Ltd [1981] 2 All ER 93,
[1982] AC 617. The only matter at issue in that case was locus standi to bring proceedings under Ord 53. It was suggested in argument that Lord Diplock
had indicated, obiter, that a declaration was only available as an alternative to mandamus. I do not so read his speech and, in the light of the passage I
have quoted from his speech in O’Reilly v Mackman a year later, it would be surprising if he meant so to indicate. Lord Scarman clearly expressed the
Preamble
view that a declaration could be granted in judicial review proceedings—
‘only in circumstances in which one or other of the prerogative orders can issue. I so interpret Ord 53, r 1(2) because to do otherwise would be
to condemn the rule as ultra vires.’ (See [1981] 2 All ER 93 at 109, [1982] AC 617 at 648.)
There was no examination of the history of the declaratory judgment in that case and the reason given by Lord Scarman (that otherwise Ord 53, r
1(2) would be ultra vires) ceased to have any force when shortly thereafter s 31 of the 1981 Act was enacted and gave the provision statutory force.
Therefore, in my judgment this obiter dictum should not lead your Lordships to reach a conclusion different from that indicated by the other arguments I
have mentioned.
For these reasons and the reasons given by my noble and learned friend Lord Keith of Kinkel I would allow the appeal and make the declarations
that are proposed.
LORD SLYNN OF HADLEY. My Lords, for the reasons given by my noble and learned friend Lord Keith of Kinkel, I, too, would allow this appeal
and make the declaration he proposes.
Mr Day’s appeal dismissed; no order as to costs. Commission’s appeal allowed; declarations made.

928
[1994] 1 All ER 929
Neath v Hugh Steeper Ltd

(Case C-152/91)
EUROPEAN COMMUNITY; Social policy: EMPLOYMENT; Discrimination: PENSIONS
COURT OF JUSTICE OF THE EUROPEAN COMMUNITIES

JUDGES DUE (PRESIDENT), MANCINI, MOITINHO DE ALMEIDA, DÍEZ DE VELASCO, EDWARD (PRESIDENTS OF CHAMBERS), KAKOURIS, JOLIET, SCHOCKWEILER,
RODRÍGUEZ IGLESIAS, GRÉVISSE, ZULEEG, KAPTEYN AND MURRAY
ADVOCATE GENERAL VAN GERVEN
26 JANUARY, 28 APRIL, 22 DECEMBER 1993
European Economic Community – Equality of treatment of men and women – Equal pay for equal work – Pension– Contracted-out private pension
scheme – Qualifying age for full pension different for men and women – Pension transfer and lump-sum options on early retirement or redundancy
different for men and women because of different normal retirement age – Transfer value and capital sum conversion calculated on actuarial factors
based on different life expectancy for men and women – Whether decision of Court of Justice that principle of equal pay for equal work applying to
contracted-out private occupational schemes entitling men whose employment ends on or after that date to same pension as female counterpart – Whether
use of sex-based actuarial assumptions in pension scheme infringing principle of equal pay for equal work – EEC Treaty, art 119.
The applicant, who was a member of a contracted-out occupational pension scheme run by his employer, was made redundant when he was 54 years and
11 months old. According to the rules of the pension scheme, male employees could not claim a full pension until they were 65, while female employees
could receive a full pension at 60. With the consent of the employer and the scheme trustees, however, any scheme member could take early retirement at
any time after his fiftieth birthday and receive a pension which was payable immediately but which was reduced according to the length of the period
between the actual retirement date and the normal retirement date. If the employer or the trustees refused their consent, as they did in the applicant’s case,
he was only entitled to have his acquired pension rights transferred to another pension scheme or to receive a deferred pension payable on the normal
retirement date, unless he then opted to have part of the pension converted into a capital sum. If the applicant opted to have his pension rights transferred,
his financial situation would be more favourable if he was entitled to have his pension recalculated on the same basis as a female counterpart in relation to
the entire period of his service than it would be if such entitlement could be claimed only in respect of periods of service subsequent to 17 May 1990,
which was the date of the decision of the Court of Justice of the European Communities that a pension paid under a contracted-out private occupational
pension scheme fell within the scope of art 119a of the EEC Treaty, under which member states were obliged to ensure that men and women received
equal pay for equal work. Furthermore, and in any event, because of the use of actuarial factors based on life expectancy which differed for men and
women, the applicant’s pension transfer value would be lower than that of female counterparts, and, if he opted for a deferred pension and asked for part
of it to be converted into a capital sum, he would receive less 929 than his female counterparts would. The applicant accordingly applied to an
industrial tribunal, seeking the same rights as women in the same situation. The tribunal referred to the Court of Justice for a preliminary ruling under art
177 of the EEC Treaty the questions (i) whether art 119 of the Treaty and the court’s decision of 17 May 1990 had the simple effect of entitling a male
employee whose employment ended on or after that date to the same pension as that which he would have received had he been a woman, (ii) whether the
same applied to exercising options under the pension scheme to transfer benefits and lump-sum options, and (iii) if the answer to (i) or (ii) or both was
No, what considerations were to be given to the applicant’s service prior to 17 May 1990 and the use of sex-based actuarial assumptions in the pension
scheme.
________________________________________
a Article 119, so far as material, is set out at p 933 d e, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – (1) The direct effect of art 119 of the EEC Treaty could be relied on in order to claim equal treatment in the matter of occupational pensions only
Preamble
in relation to benefits payable in respect of periods of service subsequent to 17 May 1990, subject to an exception in favour of workers or those claiming
under them who had, before that date, initial legal proceedings or raised an equivalent claim under the applicable national law. The value of transfer
benefits and lump-sum options was affected likewise (see p 987 a b d e and p 989 3 f, post); Barber v Guardian Royal Exchange Assurance Group Case
C-262/88 [1990] 2 All ER 660 explained.
(2) The use of actuarial factors differing according to sex in funded fixed-benefit occupational pension schemes did not fall within the scope of art
119 of the EEC Treaty (see p 989 a to c f g, post).
Notes
For the principle of equal pay for equal work in the European Community, see 52 Halsbury’s Laws (4th edn) paras 21.11–21.12, and for cases on the
subject, see 20 Digest (Reissue) 579–595, 4466–4523.
Cases cited
Administration des douanes et droits indirects v Legros Case C-163/90 [1992] ECR I-4625.
Amministrazione delle Finanze v Srl Meridionale Industria Salumi Joined cases 66, 127 and 128/79 [1980] ECR 1237.
Amministrazione delle Finanze dello Stato v Ariete SpA Case 811/79 [1980] ECR 2545.
Amministrazione delle Finanze dello Stato v Denkavit Italiana SrL Case 61/79 [1980] ECR 1205.
Amministrazione delle Finanze dello Stato v Essevi SpA Joined cases 142 and 143/80 [1981] ECR 1413.
Amministrazione delle Finanze dello Stato v Sas Mediterranea Importazione Rappresentanze Esportazione Commercio (MIRECO) Case 826/79 [1980]
ECR 2559.
Amministrazione delle Finanze dello Stato v Simmenthal SpA Case 106/77 [1978] ECR 629.
Amministrazione delle Finanze dello Stato v SpA San Giorgio Case 199/82 [1983] ECR 3595.
Arizona Governing Committee for Tax Deferred Annuity and Deferred Compensation Plans v Norris (1983) 463 US 1073, US SC.
930
Barber v Guardian Royal Exchange Assurance Group Case C-262/88 [1990] 2 All ER 660, [1991] 1 QB 344, [1991] 2 WLR 72, [1990] ECR I-1889,
CJEC.
Barra v Belgium Case 309/85 [1988] ECR 355.
Beets-Proper v F Van Lanschot Bankiers NV Case 262/84 [1986] ECR 773.
Belbouab v Bundesknappschaft Case 10/78 [1978] ECR 1915.
Blaizot v University of Liège Case 24/86 [1988] ECR 379.
Bonazzi-Bertottili v EC Commission Joined cases 75/88, 146/88 and 147/88 [1989] ECR 3599.
Borrie Clarke v Chief Adjudication Officer Case 384/85 [1987] ECR 2865.
Buhari Haji v Institut national d’assurances sociales pour travailleurs indépendants Case C-105/89 [1990] ECR I-4211.
Burton v British Railways Board Case 19/81 [1982] 3 All ER 537, [1982] QB 1080, [1982] 3 WLR 387, [1982] ECR 555, CJEC.
Celant v EC Commission Joined cases 118 to 123/82 [1983] ECR 2995.
City of Los Angeles Dept of Water and Power v Manhart (1978) 435 US 702, US SC.
Defrenne v Belgium Case 80/70 [1971] ECR 445.
Defrenne v Sabena Case 43/75 [1981] 1 All ER 122, [1976] ECR 455, CJEC.
Defrenne v Société Anonyme Belge de Navigation Aérienne Sabena Case 149/77 [1978] ECR 1365.
Deutsche Milchkontor GmbH v Germany Joined cases 205 to 215/82 [1983] ECR 2633.
EC Council v European Parliament Case 34/86 [1986] ECR 2155.
EC Council v European Parliament Case C-284/90 [1992] ECR I-2277.
Emmott v Minister for Social Welfare and A-G Case C-208/90 [1991] ECR I-4269.
Factortame Ltd v Secretary of State for Transport (No 2) Case C-213/89 [1991] 1 All ER 70, [1991] 1 AC 603, [1990] 3 WLR 818, [1990] ECR I-2433,
CJEC.
Florida v Long (1988) 487 US 223, US SC.
Francovich v Italy Joined cases C-6/90 and C-9/90 [1991] ECR I-5357.
Garland v British Rail Engineering Ltd Case 12/81 [1982] 2 All ER 402, [1983] 2 AC 751, [1982] 2 WLR 918, [1982] ECR 359, CJEC.
Henck v Hauptzollamt Emmerich Case 12/71 [1971] ECR 743.
Hofmann v Barmer Ersatzkasse Case 184/83 [1984] ECR 3047.
Horst v Bundesknappschaft Case 6/75 [1975] ECR 823.
Jenkins v Kingsgate (Clothing Productions) Ltd Case 96/80 [1981] 1 WLR 972, [1981] ECR 911, CJEC.
Johnson v Chief Adjudication Officer Case C-31/90 [1992] 2 All ER 795, [1993] QB 252, [1993] 2 WLR 192, [1991] ECR I-3723, CJEC.
Kowalska v Freie und Hansestadt Hamburg Case C-33/89 [1990] ECR I-2591.
Macarthys Ltd v Smith Case 129/79 [1981] 1 All ER 111, [1981] QB 180, [1980] 3 WLR 929, [1980] ECR 1275, CJEC.
McDermott and Cotter v Minister for Social Welfare and A-G Case 286/85 [1987] ECR 1453.
Marshall v Southampton and South West Hampshire Area Health Authority (Teaching) Case 152/84 [1986] 2 All ER 584, [1986] QB 401, [1986] 2 WLR
780, [1986] ECR 723, CJEC.
Molenbroek v Bestuur van de Sociale Verzekeringsbank Case C-226/91 [1992] ECR I-5943.
931
Murphy v Bord Telecom Eireann Case 157/86 [1988] ECR 673.
Netherlands v Federatie Nederlandse Vakbeweging Case 71/85 [1986] ECR 3855.
Newstead v Dept of Transport Case 192/85 [1988] 1 All ER 129, [1988] 1 WLR 612, [1987] ECR 4753, CJEC.
Nimz v Freie und Hansestadt Hamburg Case C-184/89 [1991] ECR I-297.
Padovani v Amministrazione delle finanze dello Stato Case 210/87 [1988] ECR 6177.
Preamble
Pinna v Caisse d’allocations familiales de la Savoie Case 41/84 [1986] ECR 1.

Pinna d Caisse d’allocations familiales de la Savoie Case 539/87 [1989] ECR 585.
Poucet v Assurances Générales de France Joined cases C-159/91 and C-160/91 [1993] ECR I-637.
R v Lomas, R v Fletcher Joined cases C-38/90 and C-151/90 [1992] ECR I-1781.
R v Secretary of State for Social Security, ex p Equal Opportunities Commission Case C-9/91 [1992] 3 All ER 577, [1992] ECR I-4297, CJEC.
Razzouk and Beydoun v EC Commission Joined cases 75 and 117/82 [1984] ECR 1509.
Roberts v Tate & Lyle Industries Ltd Case 151/84 [1986] 2 All ER 602, [1986] ECR 703, CJEC.
Ruzius-WIlbrink v Bestuur van de Bedrijfsvereniging voor Overheidsdiensten Case C-102/88 [1989] ECR 4311.
Schneemann v EC Commission Case C-137/88 [1990] ECR I-369.
Secretary of State for Social Security v Thomas Case C-328/91 [1993] 4 All ER 556, sub nom Thomas v Chief Adjudication Officer [1993] QB 747,
[1993] 3 WLR 581, CJEC.
Ten Oever v Sticht Bedrijfspensioenfonds voor het Glazenwassers-en Schoonmaakbedrijf Case C-109/91 OJ 1993 C293, p 10, (1993) Times, 12 October,
CJEC.
Verholen v Sociale Verzekeringsbank Joined cases C-87/90, C-88/90 and C-89/90 [1991] ECR I-3757.
Worringham v Lloyds Bank Ltd Case 69/80 [1981] 2 All ER 434, [1981] 1 WLR 950, [1981] ECR 767, CJEC.
Yáñez-Campoy v Bundesanstalt für Arbeit Case C-99/89 [1990] ECR I-4097.
Reference
By order dated 13 May 1991 the Leeds Industrial Tribunal referred to the Court of Justice of the European Communities for a preliminary ruling under art
177 of the EEC Treaty three questions (set out at p 986 c to e, post) on the interpretation of art 119 of the Treaty and of the judgment of the Court of
Justice of 17 May 1990 in Barber v Guardian Royal Exchange Assurance Group Case C-262/88 [1990] 2 All ER 660, [1991] 1 QB 344 regarding the
limitation of its effects in time. The questions arose in the course of proceedings between the applicant, Mr David Neath, and the respondent, Hugh
Steeper Ltd, concerning the rules for granting a company pension and the transfer of pension rights. Written observations were submitted on behalf of
David Neath, by Michael Beloff QC, Clive Lewis and Sarah Moore, barristers, Hugh Steeper Ltd, by David Pannick QC, the United Kingdom, by John
Collins, of the Treasury Solicitor’s Department, acting as agent, and Stephen Richards, barrister, the Netherlands government, by B R Bot, Secretary
General at the Ministry of Foreign Affairs, acting as agent, the German government, by Ernst Röder, Ministerialrat at the Federal Ministry of Economic
Affairs, acting as agent, the Irish government, by Louis J Dockery, Chief State Solicitor, acting as agent, and Aindrias O’Caoimh BL, the Danish
government, by Jørgen Molde, Legal Adviser at the Ministry of Foreign Affairs, acting as agent, and the Commission of the European 932
Communities, by Karen Banks, a member of its Legal Service. Oral observations were presented to the court on behalf of David Neath, Hugh Steeper
Ltd, the United Kingdom, represented by Sir Nicholas Lyell QC, Attorney General, Stephen Richards and Nicholas Paines, barristers, and by John
Collins, of the Treasury Solicitor’s Department, acting as agent, the Netherlands government, represented by J W de Zwaan and T K Heukels, Deputy
Legal Advisers at the Ministry for Foreign Affairs, acting as agents, the German government, the Irish government, represented by J Cooke SC and
Aindrias O’Caoimh BL, acting as agents, the Danish government and the Commission. The language of the case was English. The facts are set out in the
report for the hearing presented by the Judge Rapporteur.
The Judge Rapporteur (G F Mancini) presented the following report for the hearing.
I—FACTS AND PROCEDURE
1. Relevant provisions and case law

Article 119 of the EEC Treaty provides as follows:
receive equal pay for equal work.
For the purpose of this Article, “pay” means the ordinary basic or minimum wage or salary and any other consideration, whether in cash or in
kind, which the worker receives, directly or indirectly, in respect of his employment from his employer …’
In its judgment in Barber v Guardian Royal Exchange Assurance Group Case C-262/88 [1990] 2 All ER 660 at 700, 703, [1991] 1 QB 344 at 399,
402 (paras 12, 37) the court stated that the concept of pay, within the meaning of the second paragraph of art 119, comprised any other consideration,
whether in cash or in kind, whether immediate or future, provided that the worker receive it, albeit indirectly, in respect of his employment from his
employer and that the provision applied directly to all forms of discrimination which could be identified solely wit the aid of the criteria of equal work
and equal pay referred to therein.
On the basis of those principles the court concluded that retirement pensions paid by private occupational schemes, which are the result either of an
agreement between workers and employers or of a unilateral decision taken by the employer, are financed either by the employer alone or by both the
employer and the workers, are allowed by law, with the agreement of the worker, to replace in part the statutory scheme (such schemes being termed
‘contracted-out’ schemes) and concern solely workers employed by certain undertakings, constitute consideration paid by the employer to the worker in
respect of his employment and consequently fall within the scope of art 119 of the Treaty. That interpretation of art 119 was not affected by the fact that
the private occupational scheme had been set up in the form of a trust and was administered by trustees who were technically independent of the
employer, since art 119 also applied to consideration received indirectly from the employer.
The court came to the conclusion) that ([1990] 2 All ER 660 at 704, [1991] 1 QB 344 at 404 (operative part, para 3):
933
‘It is contrary to art 119 of the Treaty for a man made compulsorily redundant to be entitled to claim only a deferred pension payable at the
normal retirement age when a woman in the same position is entitled to an immediate retirement pension as a result of the application of an age
condition that varies according to sex in the same way as is provided for by the national statutory pension scheme.’
However, it is stated ([1990] 2 All ER 660 at 704, [1991] 1 QB 344 at 404 (para 43)):
‘… the member states and the parties concerned were reasonably entitled to consider that art 119 did not apply to pensions paid under
contracted-out schemes and that derogations from the principle of equality between men and women were still permitted in that sphere.’
Preamble
It stated ([1990] 2 All ER 660 at 704, [1991] 1 QB 344 at 404 (para 44)):
‘… overriding considerations of legal certainty preclude legal situations which have exhausted all their effects in the past from being called in
question where that might upset retroactively the financial balance of many contracted-out pension schemes. It is appropriate, however, to provide
for an exception in favour of individuals who have taken action in good time in order to safeguard their rights. Finally, it must be pointed out that
no restriction on the effects of the aforesaid interpretation can be permitted as regards the acquisition of entitlement to a pension as from the date of
this judgment.’
Thus, the court held ([1990] 2 All ER 660 at 704, [1991] 1 QB 344 at 405 (operative part, para 5)):
‘The direct effect of art 119 of the Treaty may not be relied on in order to claim entitlement to a pension, with effect from a date prior to that of
this judgment, except in the case of workers or those claiming under them who have before that date initiated legal proceedings or raised an
equivalent claim under the applicable national law.’
2. The background to the dispute

The applicant in the main proceedings, Mr Neath, was employed by Hugh Steeper Ltd from 29 January 1973 until 29 June 1990, when his
employment was terminated by reason of redundancy. He was then aged 54 years and 11 months.
During that period the applicant was consecutively a member of two occupational pension schemes operated by his employer for its own employees
and those of certain associated companies. From 1 December 1975 to 31 December 1978 he was a member of scheme 5, and from 1 January 1979 until
his employment was terminated he was a member of scheme 4. When he joined scheme 4 all the benefits accruing to the applicant under scheme 5 were
transferred to it. Scheme 4 contracted out of the state earnings-related pension scheme with effect from 1 April 1978.
Both schemes were financed by contributions paid by employers and workers, the contributions paid by the latter being the same for both men and
women. However, certain aspects of the rules governing the schemes varied according to the sex of the worker. A woman could retire on a full pension
at the age of 60, whereas a man could not do so until the age of 65, the method of 934 calculating the amount of the pension varying according to the
sex of the worker and the particular circumstances of the case.
A member of scheme 4, to which the applicant belonged, could, with the consent of his employer and the trustees of the pension scheme, retire early
and take a reduced pension immediately at any time after his fiftieth birthday. The reduction in the pension took account of the length of the period
between the date of the worker’s actual retirement and the date on which he would have been entitled to retire on a full pension (‘normal retirement date’).
If the employer and the trustees did not consent to a member taking early retirement, a member leaving the scheme after his fiftieth birthday and before
the normal retirement date was entitled only to a deferred pension (payable by the scheme at the normal retirement date) or to a transfer payment to
another scheme. It the latter case an amount which was actuarially equivalent to the benefits which the member had accrued as a result of his membership
of the scheme was transferred to another pension scheme of the member’s choice; scheme 4 then ceased to be liable to provide any benefits to the
member. The transfer payment varied according to the sex of the worker. In performing the actuarial calculation of the capital value of the accrued
benefits, it was assumed that a woman would live longer than a man. The cost to the scheme of providing a retirement pension for a woman was therefore
considered greater than the cost of providing such a pension for a man. The transfer value for a woman was therefore considered to be greater than that
for a man.
When the applicant was made redundant he was not allowed to take an immediate pension and was therefore offered the choice of a deferred pension
(payable at the age of 65) or a transfer payment. He was informed that, if he opted for a transfer payment, the transfer value would be £30,672.59. The
calculation was based on the assumption that he received his pension at the age of 65, except as regards benefits attributable to his period of employment
after 17 May 1990, with respect to which the calculation was based on a retirement age of 60 in accordance with one possible interpretation of the Barber
judgment. If the applicant were assumed to have a normal retirement age of 60 for the purpose of calculating benefits in respect of his entire pensionable
service, his transfer value would have been £39,934.56, using male actuarial factors, and £41,486.25, using female actuarial factors.
As regards the option of a deferred pension, the applicant noted that he would not only have to wait five more years than a woman in order to receive
the pension but also, if he wished to exercise his right at that time to exchange part of his pension for a tax-free cash sum, he would again receive a
smaller amount (£17,193.94) than would be received by a woman in similar circumstances (£21,029.02). That difference was gain based on actuarial
tables based on a longer life expectancy for women.
On learning of the options offered to him, Mr Neath instituted proceedings before the Leeds Industrial Tribunal, contending that the options offered
were less favourable than those which would have been offered to a woman. He based his application on art 119 of the EEC Treaty, as interpreted by the
Court of Justice in Barber. The industrial tribunal decided to request a preliminary ruling from the court on the following questions:
‘1. Whether Article 119 and the Barber judgment have the simple effect of entitling a male employee whose employment ends on or after 17
May 1990 to the same pension as that which he would have received if he had been a woman?
935
2. Whether the same applies to his exercising options under the pension scheme to (a) transfer benefits, and (b) lump sum options?
3. If the answer to Question 1 or Question 2, or both is no, what considerations, if any, have to be given to (a) his service prior to 17 May 1990,
and (b) the use of sex-based actuarial assumptions in the pension scheme?’
3. Procedure before the court

The decision of the Leeds Industrial Tribunal was received at the court on 10 June 1991.
Pursuant to the second paragraph of art 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were submitted on
behalf of Mr Neath, by Michael Beloff QC, Clive Lewis and Sarah Moore, barristers, Hugh Steeper Ltd, by David Pannick QC, the United Kingdom
government, by John Collins, of the Treasury Solicitor’s Department, acting as agent, assisted by Stephen Richards, barrister, the Netherlands
government, by B R Bot, Secretary General in the Ministry of Foreign Affairs, acting as agent, the German government, by Ernst Röder, Ministerialrat in
the Ministry of Economic Affairs, acting as agent, the Irish government, by Louis J Dockery, Chief State Solicitor, acting as agent, assisted by Aindrias
O’Caoimh BL, the Danish government, by Jørgen Molde, Legal Adviser in the Ministry of Foreign Affairs, acting as agent, the Commission of the
European Communities, by Karen Banks, a member of its Legal Service, acting as agent.
Upon hearing the report of the Judge Rapporteur and the views of the Advocate General, the court decided to open the oral procedure without any
preparatory inquiry.
Preamble
I—SUMMARY OF THE WRITTEN OBSERVATIONS SUBMITTED TO THE COURT

1. As regards the first question, the applicant maintains that the temporal limitation on the direct effect of art 119 of the EEC Treaty imposed in the
Barber judgment does not apply to workers who, like the applicant, retire after 17 May 1990. Consequently, for the purposes of pension benefits he
should have been treated as if he had been a woman. He is thus entitled to equal treatment in respect of all years of service, whether such years were prior
or subsequent to 17 May 1990. The Barber judgment does not mean and should not be understood to mean that a worker who retires after 17 May 1990
is only entitled to equal treatment in respect of years of service after 17 May 1990.
The applicant puts forward a number of arguments in support of that interpretation.
He argues that such an interpretation follows from the actual terms of the judgment, which in both the operative part and the grounds refers to the
acquisition of entitlement to a pension; entitlement to a pension arises on retirement. Moreover, by referring to the risk of upsetting retroactively the
financial balance of many pension schemes, the court indicated that it was seeking to protect schemes from claims from workers who had retired before
the judgment and who received benefits in respect of years prior to it.
The right to equal pay guaranteed by art 119 is a fundamental right forming part of the foundations of the Community (judgment in Case 43/75
Defrenne [1981] 1 All ER 122); consequently, any derogation from or limitation on such a right should be given the narrowest possible construction in
order to ensure maximum respect for that right. Since the Barber judgment already restricts the application of art 119, any further restrictions would be
unjustifiable.
936
It would, according to the applicant, be inconsistent with the social policy underlying art 119 to limit its effect in such a way that not only pensions
payable before 17 May 1990 but also those payable after that date are excluded from the principle of equal treatment. This would run counter to the
Treaty objectives of improving living and working conditions.
An interpretation other than that advocated by the applicant which allowed the effects of discriminatory working conditions to continue after 17 May
1990 in respect of years of service prior to that date would, in the applicant’s view, threaten the uniformity of competitive conditions with the
Community, which the court held in Defrenne to be one of the aims of art 119. Employers who were required by national law, by virtue of an
equalisation of retirement ages, to ensure that workers retiring after 17 May 1990 were treated equally would be placed at a competitive disadvantage as
compared with employers in member states who were not obliged to accord such equal treatment. In so far as some member states are moving towards
the equalisation of pension ages for men and women, thus entailing equal treatment, it would be unfair to employers in those countries to allow employers
in other member states to avoid the full effects of the principle of equal pay for equal work in the context of pensions.
Since rulings of the court are declaratory of the law and state what the law is and always has been, derogations from the declaratory nature of a
ruling in the form of the imposition of a temporal limitation on its effects are allowed only exceptionally and where they are necessary in view of the
serious difficulties which the ruling may create in respect of events and legal relationships in the past. The court has no power to limit its rulings in a way
that will compromise the future application of Community law. To go further and rule that not only pensions which became payable before 17 May 1990
but also those which become payable after that date need not comply with the principle of equal treatment as regards years of service prior to that date
would compromise to an unjustifiable degree the objectivity of Community law.
The applicant argues that the interpretation which it advocates is in conformity with the approach taken by the court in Defrenne, where the court
limited the effect of its judgment so that pay that should have been paid to workers prior to the date of the judgment could not be recovered. However,
the court did not limit its judgment so that salaries payable after the date of the judgment did not need to comply with the principle of equal treatment.
Turning to the financial consequences of implementing the Barber judgment in accordance with the interpretation which he proposes, the applicant
considers that the court should take into account only the costs of applying the principle of equal treatment to years of service prior to 17 May 1990
(between £4bn and £8bn, according to the Bryn Davies Report, annexed to the applicant’s observations), the costs relating to subsequent years being
future costs which can be covered by an adjustment of contributions. On the other hand, the Barber judgment, as interpreted by the applicant, relieved
employers of an additional burden of £6bn to £12bn.
For the purpose of those estimates account has been taken of factors reducing the costs, such as the fact that by 1990 pension schemes in the United
Kingdom had already equalised benefits for men and women in respect of 45 to 50% of workers, so that only the cost of equalising benefits in respect of
the remaining workers needs to be taken into account. Account has also been taken of factors mitigating the cost, since in the applicant’s view it is
legitimate to take into account the fact that pension schemes have built up large surpluses which are often sufficient to meet some or all of the costs of
equalising benefits. 937 Finally, factors offsetting the cost have been taken into consideration, since it should not be assumed that the entire cost will
fall upon the employers; the increased benefits may be funded by reduced salary increases, increases in selling prices and reduced pension benefits.
Finally, the applicant emphasises that, if the Court of Justice were to rule that the principle of equal pay cannot be relied on in respect of years of
service prior to 17 May 1990, this would severely jeopardise the full attainment of that principle, which would be postponed for several decades.
With respect to the use in pension schemes of actuarial assumptions based on sex (question 3(b)), the applicant contends that the use of different
tables for men and women for the purpose of calculating retirement benefits constitutes discrimination on grounds of sex contrary to art 119 and a
violation of the right to equal pay for equal work.
Such discrimination is not justified for a number of reasons: (1) the use of different tables according to sex, with the result that a man receives a
transfer value or capital sum in exchange for part of his pension which is lower than that which he would have received if he had been a woman
constitutes discrimination by reference to sex; (2) the risk that some workers will live longer than others should be generalised and borne by all workers
and not by one class of workers singled out by reference to sex; (3) other actuarial differences such as differences between smokers and non-smokers or
different occupations or those based on region, class or race are not taken into account. The schemes do not in general distinguish between married and
non-married members, although the former are more expensive owing to widows’ and widowers’ benefits; (4) art 119 is intended to guarantee
fundamental individual rights. It is not justified to use class assumptions in order to calculate pension rights, since an individual may not conform to the
class assumptions and will therefore be treated differently solely on grounds of sex.
2. Hugh Steeper Ltd, the respondent, submits that art 119 and the Barber judgment do not have the effect of entitling a male employee whose
employment ends on or after 17 May 1990 to the same pension as he would have received if he had been a woman. They only have the effect of entitling
a male employee to the same pension as a female employee in respect of benefits arising from the part of his pensionable employment which falls due
after 17 May 1990.
In support of that submission the respondent points out that a pension constitutes pay in respect of each year of pensionable employment which is
deferred until the date of retirement.
Entitlement to the pension (that is to say to the ‘pay’) is not therefore acquired at that date but at the end of each month or year of pensionable
employment, so that once the employee has worked the pensionable month or year in question the legal relationship between the employer and the
employee has exhausted all its legal effects, in the sense that the rights and duties of the parties are perfected. The deferred payment of a pension is
Preamble
different from entitlement to a pension. This understanding of entitlement to a pension is consistent with the language of the Barber judgment, which
precludes ‘legal situations which have exhausted all their effects in the past’ from being called in question, whilst stating that ‘no restriction … can be
permitted as regards the acquisition of entitlement to a pension as from the date of this judgment’.
The respondent contends that the interpretation which it advocates is also in keeping with the court’s aim of ensuring that its decision did not ‘upset
retroactively the financial balance of many contracted-out pension schemes’. 938 Since the contributions constitute the financial support for the
promise of deferred pay and since they are determined in accordance with the legal circumstances prevailing at the time and the financial result to be
achieved, a subsequent modification of the result alone and would not only call in question past legal situations but also seriously upset the financial
balance of the schemes, which would not have accumulated the resources to meet new and unforeseen costs.
As regards the question concerning actuarial assumptions, the respondent submits that art 119 does not prohibit the use of actuarial tables which take
account of the different life expectancies of men and women in the assessment of the value of accrued pension benefits, since the use of such tables does
not involve any discrimination on grounds of sex.
Since the assessment of the value of accrued pension rights depends, inter alia, on how long the recipient lives and since that period cannot be
predicted for each individual, it is necessary to rely on statistics based on past experience.
Since women generally live longer than men, the use of actuarial tables based on sex to calculate lump sums in respect of the commutation of
pensions ensures that men and women receive equal value by reference to the pension which they have surrendered. Since a female pension will,
statistically, receive her pension for longer than a male pension, it is equitable that she should receive a higher sum than a man for each £1 of annual
pension which she surrenders. For similar reasons, the use of sex-based assumptions in calculating transfer benefits generally results in women receiving
higher transfer benefits than men.
3. With regard to the temporal limitation on the effects of the Barber judgment, the United Kingdom contends that point 5 of the operative part of
the judgment, read in the light of paras 43 and 44 of the decision, means that the direct effect of art 119 may be relied upon in relation to pensions in
respect of periods of service after the judgment but not in respect of those prior to the judgment.
Such an interpretation is to be inferred from (a) a detailed examination of the ruling itself, (b) the rationale for the ruling, and (c) the unsatisfactory
nature of alternative interpretations that have been put forward.
(a) As regards the ruling itself, the United Kingdom states that the only reason why art 119 applies to a pension at all is that it has been held by the
court to constitute a form of pay, albeit deferred pay. A pension is pay that is earned by virtue of an employee’s service with his employer. Each period
of pensionable service—each ‘pay period’—confers on the employee an entitlement to pension; and in the case of schemes funded by contributions, it is
in respect of each such pay period that the contributions are made. Thus, the service and, where applicable, the related contributions create the relevant
rights and duties of employee and employer (and/or trustee of the pension fund). It is immaterial that actual payment of the pension is deferred until
retirement.
Consequently, it is reasonable to conclude that, when the court stated in Barber that overriding considerations of legal certainty preclude ‘legal
situations which have exhausted all their effects in the past’ from being called into question where that might upset retroactively the financial balance of
existing schemes, it was referring to situations where entitlement to a pension had already been acquired by virtue of service prior to the judgment in
Barber. That also accords with the statement that no restriction on the direct effect of art 119 939 can be permitted ‘as regards the acquisition of
entitlement to a pension as from the date of this judgment’ (para 44).
In the case of periods of service prior to the date of the judgment, employers and employees alike had acted on the basis that differential age
conditions were permitted. For all such periods of service, therefore, pensions had been promised and planned, and contributions made, by reference to
pensionable ages that might differ as between men and women. Pension entitlement had been acquired on that basis; the financial balance of existing
schemes had been established on that basis. Only in relation to service after the Barber judgment would employers know, in the light of the judgment,
that pension plans and contributions had to be made by reference to equal pensionable ages.
That conclusion is reinforced by the court’s judgment in Defrenne, where a limitation ratione temporis was first applied by the court—and applied
specifically in the context of art 119. Since in that judgment, to which the Barber judgment expressly refers, the court limited the temporal effect of its
judgment so as to prevent reliance on the direct effect of art 119 in respect of ‘claims concerning pay periods prior to the date of this judgment’, the court
must be taken to have applied, to the particular form of pay under consideration in Barber, the general approach towards pay that was adopted in
Defrenne. In relation to pensions, the natural and obvious equivalent to such ‘claims’ is claims to pensions in respect of periods of service prior to the
date of the judgment.
(b) With regard to the rationale for the ruling, the United Kingdom observes that the rationale for the limitation ratione temporis in the Barber
judgment was the court’s concern to prevent the financial balance of schemes from being upset retroactively in circumstances where reliance had
reasonably been placed on Council Directive (EEC) 79/7 of 19 December 1978 on the progressive implementation of the principle of equal treatment for
men and women in matters of social security and on Council Directive (EEC) 86/378 of 24 July 1986 on the implementation of the principle of equal
treatment for men and women in occupational social security schemes, which authorised derogations from the principle of equal treatment. The court
found that prior to the Barber judgment occupational schemes were funded, and the levels of benefits to be provided laid down, in good faith on the basis
that the inequalities inherent in different age conditions were still permitted. It would therefore be unfair to employers and contrary to the principle of
legal certainty for that basis of funding to be overturned in respect of the period prior to the Barber judgment.
If a different view were taken, the court’s aim of not upsetting retroactively the financial balance of pension schemes would not be attained, since
schemes would be unable to bear the financial consequences. Since pension schemes have been funded in order to meet financial costs determined by
reference to the age conditions applicable under the schemes, they would not have the funds to meet the increased financial costs which would result from
any retroactive application of the same conditions for men and women.
(c) The United Kingdom observes that the size of the potential financial deficit resulting from the equalisation of pensions for the periods of service
prior to the Barber judgment may be illustrated by reference to the two main alternative interpretations put forward concerning the consequences of the
temporal limitation imposed by the court in Barber. Those interpretations are as follows: (a) the direct effect of art 119 can be relied on in relation to all
instalments of pension after the Barber judgment, irrespective of those periods of service to which they relate or the date when the pension first became or
940 becomes payable; (b) the direct effect of art 119 can be relied on by all those whose pensions become payable after the Barber judgment (that is
to say those whose service under the relevant scheme ends after that date or whose service ended earlier but who are entitled to a deferred pension payable
only after that date) in respect of service both prior and subsequent to the Barber judgment.
In the first case the additional financial impact on occupational pension schemes would be at least £45bn, and in the second case £33bn. To that
must be added approximately £2bn per annum required in any event to meet the effect of equalisation of pensions for the future. Increased costs of that
order are massive, even in comparative terms, since contributions would have to rise by between £4bn and £6bn a year for the next 15 years, which would
be equivalent to transferring 1.25% of national gross domestic product annually into additional pension rights. Moreover, such increases would have
serious consequences for national income and employment, if account is taken of the fact that there are up to 400,000 pensions schemes in the United
Kingdom, and have a severe impact on the national economy as a whole. Almost insurmountable administrative difficulties are also to be feared. The
United Kingdom concludes that it is only by limiting the direct effect of art 119 to pensions paid in respect of service after the Barber judgment that such
Preamble
serious financial consequences can be avoided, in accordance with the objective sought by the court itself.
The United Kingdom considers that acceptance of its interpretation of the limitation on the temporal effect of the Barber judgment would lead to an
affirmative answer to the second question.
With regard to the third question, the United Kingdom understands the first part of the question to be asking whether the interpretation to be given to
the limitation on the temporal effects of the Barber judgment also applies to the use of actuarial factors in the event of the use of such factors being held
incompatible with art 119. The United Kingdom considers that the question demands an affirmative reply to the effect that it would be possible to reply
on art 119 only in relation to benefits in respect of periods of service after the Barber judgment.
However, the United Kingdom considers that the use of actuarial factors based on sex for the purposes of calculating transfer values and
commutation payments is compatible with art 119. The objective of equal pay may involve unequal costs varying according to sex. An assessment of the
liability of a pension fund cannot ignore the fact that, statistically, women on average live longer than men and consequently receive a pension for a
longer period than men. The function of the actuary is precisely to take into account such factors when planning the funding of a scheme. It is inevitable
that, in calculating transfer values or commutation payments, account should be taken of the same actuarial factors, since otherwise there would be a
discrepancy between the planned funding and the payments to be made, resulting in a deficit and hence an imbalance in the scheme.
4. With respect to the first question, the Netherlands government contends that art 119 of the Treaty requires equal accrual of pension entitlement for
workers still in employment in so far as periods after 17 May 1990 are concerned. That contention is based on the fact that pension rights are acquired
throughout the duration of the legal relationship between the employer and the employee and on the basis in particular of the employer’s financial
contribution, calculated in the light of the legal and economic situation existing at the time when it is paid. Since retirement pension funds are under a
statutory obligation 941 to fund themselves through capitalisation, the reserves thus accumulated during the period in which pension rights are
accruing guarantee that pensions will be paid when the time comes.
It follows that it is the pension rights accruing in the course of the performance of the contract of employment which must be regarded as pay for the
purposes of art 119 and not the pension which is ultimately paid in respect of those rights. Equal pay in the sphere of pensions therefore means equality
with regard to the accrual of pension rights. In other words, in the sphere of pensions the employee acquires during a certain period rights as defined at
the time by the pension scheme. It follows that both when the level of the employer’s contribution is fixed and when the fund is established, account is
taken of the fact that the extent of the obligation entered into, and hence the level of cover, corresponds to the extent of the rights that have accrued. It
would therefore be contrary to the principle of legal certainty if the extent of that obligation ultimately proved to be much greater than that which could
reasonably have been expected when the scheme was funded in reliance on the Community law which was then applicable, or could reasonably be
considered to be applicable.
A wide interpretation of art 119 of the Treaty resulting, not in an obligation to ensure equal accrual of entitlements, but an obligation to pay equal
pensions, irrespective of the periods of insurance and accrual of rights which serve as the basis for that payment, could lead to serious financial and
socio-economic consequences.
With respect to the second and third questions, the Netherlands government states that the use of actuarial factors is an essential element in
supplementary pension schemes financed by capital accumulation. Moreover, in the Netherlands the use of such factors is required by law. The
Netherlands government explains that the essence of funding by capital accumulation is that each generation of workers provides for the financing of its
own pensions. If today it is sought, through the levying of contributions, to ensure that a sufficient financial base is established for pensions anticipated to
be payable in the future, it is essential to have a reliable forecast of the extent of the anticipated pension liability. The use of actuarial factors is the key
instrument in that forecast. Since a pension is a form of old-age provision, it is necessary to use the (objective) criterion of life expectancy. Since
statistically women have a higher life expectancy than men, the actual cost of a pension for a woman is higher than that for a man.
Those differences are necessarily reflected in any transfer of entitlements and in the conversion of part of a pension into a lump sum, that sum being
differ for men and women.
5. The German government expresses doubt as to whether the pension scheme in question, which replaced the statutory scheme and adopted the
same differences in the retirement age for men and women as were applicable under that scheme, falls within the scope of art 119. If it does fall within
that provision, it should be possible to rely on the limitation on the temporal effect of the Barber judgment. That judgment should be interpreted to the
effect that it does not confer upon the applicant the right to equal pension payments after 17 May 1990, in so far as those payments are based on periods
of service and contributions prior to that date. Those periods of service and contributions determined the acquisition of the pension rights and hence
determined legal situations which have exhausted all their effects in the past within the meaning of the Barber judgment. With respect to periods of
employment and 942 contributions after 17 May 1990 the German government considers that it would be for the community legislature to adopt
transitional provisions.
In the light of the foregoing considerations the German government proposes an affirmative answer to the second question. With respect to the third
question, it submits that the fact that pension benefits are calculated by reference to actuarial tables taking account of different life expectancies for men
and women cannot be considered open to objection under art 119.
6. According to the Irish government, the court’ statement in the Barber judgment that ‘The direct effect of art 119 of the Treaty may not be relied
on in order to claim entitlement to a pension, with effect from a date prior to that of this judgment’ (see [1990] 2 All ER 660 at 704, [1991] 1 QB 344 at
405 (point 5 of the operative part)) must mean that equal treatment in occupational pension schemes pursuant to art 119 will only apply in relation to
pensionable service after 17 May 1990. The Barber judgment should be interpreted in the light of the judgment in Defrenne, in which the court held that
the direct effect of art 119 could not be relied upon in order to support claims concerning pay periods prior to the date of the judgment. According to the
Irish government, acquisition of entitlement to pensions and hence to pay arises throughout the period of service; service prior to the Barber judgment
must be left out of account.
The Irish government emphasises that considerations of legal certainty similar to those mentioned in the Barber judgment apply equally in the instant
case. It emphasises the importance of supplementary pension schemes in Ireland, which are encouraged by the state and are financed from resources set
aside during an employee’s working lifetime.
If the Barber judgment were to be interpreted to the effect that art 119 may be relied upon also in respect of periods of service prior to its delivery,
this would have ruinous financial implications for numerous schemes, since they would be faced with unanticipated liabilities for which no funds had
been provided.
With respect to the second and third questions, concerning the use of actuarial factors in calculating transfer payments and the part of a pension taken
as a lump sum, the Irish government contends that the use of such factors differentiating by reference to sex does not infringe the principle of equal
treatment laid down in art 119 and that their use in the financial management of occupational pension schemes can be justified for objective reasons.
Those reasons concern the existence of significant differences between men and women with respect to life expectancy. Those differences have an
impact on the cost of providing benefits under an occupational pension scheme and make it necessary to have recourse to actuarial factors in order to
ensure an adequate balance between costs and benefits. The use of actuarial factors in calculating transfer values and commutation payments is therefore
necessary in order to ensure that accrued pension rights are correctly converted into a capital sum.
7. Like the other governments, the Danish government considers that the terms of the Barber judgment itself, and the court’s statement that its
Preamble
decision should not retroactively upset the financial balance of pension schemes, indicate that contributions paid before 17 May 1990 and the benefits
flowing from those contributions are not affected by the court’s interpretation of art 119.
With respect to the use of actuarial assumptions, the Danish government also takes the view that the use of such assumptions is not contrary to art
119. Such assumptions are based on experience and are necessary in the interests of ensuring the solvency and stability of schemes and hence of
guaranteeing that the pensions can ultimately be paid.
943
8. According to the Commission, when the court sought to limit the temporal effects of the Barber judgment, it meant to exclude the possibility of
reopening discussion in relation to pension payments which had already been made. The ‘effects’ which had to be ‘exhausted’ were the pension
payments. If, as in the present case, the pension had not begun to be paid, there could be no exhaustion.
The Commission does not share the view that contributions and work before 17 May 1990 created legal rights and duties between the parties and
therefore constituted ‘legal situations which have exhausted all their effects in the past’. That approach does not correspond to reality. Whilst it may be
considered that a particular legal effect has been achieved once a contribution period has passed since a certain prospective entitlement to pension has
been built up, it seems contrary to common sense to say that the situation has exhausted all its effects as long as the major intended result, namely
payment, has not materialised. Consequently, the Commission considers that a correct interpretation of the Barber judgment leads to the result that art
199 must be regarded as directly effective in relation to a pension payable after 17 May 1990 irrespective of the fact that most of the contributions on
which it is based were made prior to that date.
As regards the use of actuarial factors, the Commission states that this question has been the subject of debate for many years and has given rise to a
difference of opinion between itself and the Council. The Council, in adopting Directive 86/378, did not follow the Commission’s proposal, which
specifically excluded the possibility of taking into account different actuarial factors for men and women based on life expectancy in the calculation of
contributions and benefits.
However, the Commission considers that the provisions of the directive are of no importance for the purposes of resolving this question in view of
the direct effect of art 119; the question of different actuarial factors for men and women relates to the justification for unequal treatment. According to
the Commission, the fundamental right to equal treatment is an individual right and not a group rights. The fact that in general women live longer than
men means nothing in relation to the life expectancy of a particular individual, and it is not acceptable that an individual should be penalised by
assumptions which may or may not be true in his particular case. Moreover, there are many other risk factors of which no account is taken: the
dangerousness of an occupation, whether a person smokes, whether a person is in good health etc. In addition, there is no technical necessity for pension
schemes to draw a distinction based on life expectancy. Some occupational pension schemes, and all state schemes, operate a system of compensation of
risks which covers any differences in the likely life span of men and women.
The Commission concludes that differences in treatment resulting from the application of different actuarial factors to male and female employees
are not justified. A male employee who has been placed at a disadvantage by the use of such actuarial factors is entitled to receive the amount (transfer
value of commutation payment) which he would have received had he been a woman.
Should the court follow the Commission’s opinion, the Commission asks whether the court should not consider limiting the temporal effect of its
decision, having regard to the fact that Directive 86/378 provides for the use of actuarial factors.
The Commission proposes that the following replies be given to the preliminary questions:
944
‘Article 119, as interpreted in Barber v Guardian Royal Exchange Assurance Group Case 262/88, has the effect of entitling a male employee
whose employment ends on or after 17 May 1990 to the same pension as that which he would have received if he had been a woman.
The same applies in relation to any capital sum he receives in lieu of pension.’
28 April 1993. The Advocate General (W Van Gerven) delivered the following opinion1 in Ten Oever v Stichting Bedrijfspensioenfonds voor het
Glazenwassers-en Schoonmaakbedrijf Case C-109/91, Moroni v Firma Collo GmbH Case C-110/91, Neath v Hugh Steeper Ltd Case C-152/91 and
Coloroll Pension Trustees Ltd v Russell Case C-200/91.
________________________________________
1 Translated from the Dutch
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1. In these cases a considerable number of questions have been referred to the court for a preliminary ruling on the interpretation of art 119 of the
EEC Treaty, having regard in particular to the judgment of 17 May 1990 in Barber v Guardian Royal Exchange Assurance Group Case C-262/88 [1990]
2 All ER 660, [1991] 1 QB 344. In Case C-110/91 (Moroni) a number of questions of interpretation have also been referred on the relationship between,
on the one hand, art 119 of the Treaty and the Barber judgment and, on the other hand, Council Directive (EEC) 86/378 of 24 July 1986 on the
implementation of the principle of equal treatment for men and women in occupational social security schemes.
2. Given the scope and complexity of the questions which have been referred for a preliminary ruling and the observations submitted to the court, I
propose to proceed as follows. First, I shall examine what I consider to be the most crucial question, which runs like a thread through all these cases. It is
this: what precisely are the effects in time of the Barber judgment? Then I will consider whether that judgment, as well as the temporal limitation
imposed in that judgment, also applies to pension schemes other than those in question in that case. I will then go on to examine the question—which
arises in particular in Case C-152/91 (Neath) and Case C-200/91 (Coloroll)—of the compatibility with art 119 of the use of sex-based actuarial factors for
the purpose of calculating pension contributions and benefits. Finally, I will examine a number of the questions which are raised in these cases. They
are: (i) whether the payment of a widower’s pension falls under art 119 (asked in Case C-190/91 (Ten Oever)); (ii) whether art 119 may be relied upon by
the spouse of a deceased employee and whether it may be relied upon against the trustees of a pensions scheme (one of the key questions in the Coloroll
case); and (iii) a number of questions concerning the way in which the principle of equal treatment laid down in art 119 is to be implemented in practice
in the field of occupational pension schemes and concerning liability for its implementation (again, arising in the Coloroll case).
At the outset, however, it would be useful to look briefly at the Barber judgment and to examine the background to the various cases before the
national courts in so far as this is relevant to my opinion.
945
The court’s case law on art 119 of the EEC Treaty and the judgment in Barber
3. As is well know, art 119 of the Treaty lays down the obligation that the member states must ensure in principle that men and women receive equal
pay for equal work. ‘Pay’ is defined in the second paragraph of art 119 as ‘the ordinary basic or minimum wage or salary and any other consideration,
whether in cash or in kind, which the worker receives, directly or indirectly, in respect of his employment from his employer’. Since its judgment in the
Preamble
first Defrenne case (Defrenne v Belgium Case 80/70 [1971] ECR 445) the court has developed a broad interpretation of the concept of pay as thus defined:
it includes—
‘any other consideration, whether in cash or in kind, whether immediate or future, provided that the worker receives it, albeit indirectly, in
respect of his employment from his employer.’2
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2 Judgment in Defrenne v Belgium Case 80/70 [1971] ECR 445 at 451 (para 6); confirmed in, inter alia, the judgment in Garland v British Rail Engineering Ltd Case
12/81 [1982] 2 All ER 402 at 411–412, [1983] 2 AC 751 at 767 (para 5); Barber v Guardian Royal Exchange Assurance Group Case C-262/88 [1990] 2 All ER 660 at
700, [1991] 1 QB 344 at 399 (para 12); see, most recently, the judgment in EC Commission v Belgium Case C-173/91 [1993] ECR I-673 (para 13).
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Moreover, in the second Defrenne case (Defrenne v Sabena Case 43/75 [1981] 1 All ER 122) the court went on to hold that art 119—
‘applies directly, and without the need for more detailed implementing measures on the part of the Community or the member states, to all
forms of direct and over discrimination which may be identified solely with the aid of the criteria of equal work and equal pay referred to by the
article in question.’3
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3 The quotation comes from the judgment in Macarthys Ltd v Smith Case 129/79 [1981] 1 All ER 111 at 118, [1981] QB 180 at 198 (para 10), which on this point
expressly refers to the judgment in Defrenne v Sabena Case 43/75 [1981] 1 All ER 122 (Defrenne (No 2)); as far as the judgment in Defrenne (No 2) itself is concerned,
see in particular paras 18, 21, 24 and 40 ([1981] 1 All ER 122 at 134–135). For subsequent confirmatory judgments, see, inter alia, the judgments in Worringham v
Lloyds Bank Ltd Case 69/80 [1981] 2 All ER 434 at 447, [1981] 1 WLR 950 at 969 (para 23), Jenkins v Kingsgate (Clothing Productions) Ltd Case 96/80 [1981] 1
WLR 972 at 983 (para 17) and Barber v Guardian Royal Exchange Assurance Group Case C-262/88 [1990] 2 All ER 660 at 703, [1991] 1 QB 344 at 402 (para 37).
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As far as the interpretation of ‘consideration’ in art 119 is concerned, the court had held in Defrenne (No 1) that social security schemes and benefits,
in particular old-age pensions, although in principle not entirely separate from the concept of pay, did not fall under the concept of consideration. The
court came to this decision on the basis of the following characteristics of social security systems: (i) they are directly governed by legislation without any
element of agreement within the undertaking or trade concerned and are obligatorily applicable to general categories of workers; and (ii) they provide
workers with the benefit of a statutory scheme to which workers, employers and in some cases the public authorities contribute financially in a measure
determined less by the employment relationship between the employer and the worker than by considerations of social policy, so that the employer’s
contribution cannot be regarded as a direct or indirect payment to the worker for the purposes of art 1194. However, in its judgment of 13 May 1986 in
Bilka-Kaufhaus GmbH v Weber 946 von Hartz Case 170/84 [1986] ECR 1607 at 1626 (para 22) the court, applying those criteria, came to the view
that benefits paid under an occupational pensions scheme originating in an agreement between the employer and the staff committee and forming an
integral part of the contract of employment are to be classified as ‘consideration’ within the meaning of art 119.
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4 Judgment in Defrenne (No 1) [1971] ECR 445 at 451 (paras 7–9); see the judgment in Bilka-Kaufhaus GmbH v Weber von Hartz Case 170/84 [1986] ECR 1607 at 1625
(paras 17–18); see, more recently, the judgment in EC Commission v Belgium Case C-173/91 [1993] ECR I-673 (para 14).
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4. In the Barber case the court had to consider a ‘contracted-out’ pension scheme approved under United Kingdom legislation, that is to say an
occupational pension scheme established in consultation between the social partners or by unilateral decision of the employer, financed by the employer
alone or by employer and employees combined, and which employees may join in partial substitution for their statutory pension. From the principles set
out above the court deduced that—
‘a pension paid under a contracted-out scheme constitutes consideration paid by the employer to the worker in respect of his employment and
consequently falls within the scope of art 199 of the Treaty.’ (See [1990] 2 All ER 660 at 702, [1991] 1 QB 344 at 401 (para 28).)
Asked whether a scheme under which a man made compulsorily redundant was entitled only to a deferred pension at the normal pensionable age
whilst a woman in the same circumstances was entitled to a pension which was payable immediately was compatible with art 119, the court replied in the
negative. The reasons given by the court were ([1990] 2 All ER 660 at 702, [1991] 1 QB 344 at 401–402 (para 32)):
‘… art 119 prohibits any discrimination with regard to pay as between men and women, whatever the system which gives rise to such
inequality. Accordingly, it is contrary to art 119 to impose an age condition which differs according to sex in respect of pensions paid under a
contracted-out scheme, even if the difference between the pensionable age for men and that for women is based on the one provided for by the
national statutory scheme.’
5. The court was, however, aware of the tremendous financial implications of its judgment. It also considered that, in view of the exceptions to the
principle of equal treatment regarding pensionable age provided for in Council Directive (EEC) 79/7 on the progressive implementation of the principle of
equal treatment for men and women in matters of social security, more specifically, art 7(1), and Directive 86/378, more specifically, art 9(a), the member
states could reasonably have taken the view that art 119 was not applicable to pensions paid under a contracted-out scheme. For those two reasons the
court decided to limit the effect of its judgment in time ([1990] 2 All ER 660 at 704, [1991] 1 QB 344 at 404 (para 44)):
‘In the circumstances, overriding considerations of legal certainty preclude legal situations which have exhausted all their effects in the past
from being called in question where that might upset retroactively the financial balance of many contracted-out pension schemes. It is appropriate,
however, to provide for an exception in favour of individuals who have taken action in good time in order to safeguard their rights. Finally, it must
be pointed out that no restriction on the effects of the aforesaid interpretation can be permitted as regards the acquisition of entitlement to a pension
as from the date of this judgment.’
947
The court therefore held ([1990] 2 All ER 660 at 404, [1991] 1 QB 344 at 404–405 (para 45 of the judgment and point 5 of the operative part)):
‘The direct effect of art 119 of the Treaty may not be relied on in order to claim entitlement to a pension, with effect from a date prior to that of
Preamble
this judgment, except in the case of workers or those claiming under them who have before that date initiated legal proceedings or raised an
equivalent claim under the applicable national law.’
Upon the phrases ‘legal situations which have exhausted all their effects in the past’, ‘the acquisition of entitlement to a pension as from the date of
this judgment’ and ‘a pension with effect from a date prior to this judgment’ the issues arising in the present cases from the limitation in time of the
effects of the Barber judgment turn.
Background to the present cases

6. The Ten Oever case Mr Ten Oever was married to M F Heeren, who was employed in the cleaning sector. Her employer had established a
pension scheme which was administered by the Stichting Bedrijfspensioenfonds voor het Glazenwassers-en Schoonmaakbedrijf (Pension Fund for the
Window-cleaning and Cleaning Sector, hereinafter referred to as ‘the pension fund’). It was a collective occupational pension scheme financed by
employers and workers. Until 1 January 1989 the pension fund’s rules made provision only for a widow’s pension; since that date a widower’s pension
has also been provided for, but without retroactive effect. After his wife had died on 13 October 1988, Mr Ten Oever applied—according to the judgment
referring the case, before 17 May 1990—for the grant of a survivor’s pension with effect from 13 October 1988. The pension fund rejected his request on
the ground that at the time of his wife’s death its rules did not provide for such a pension.
On 8 June 1990 Mr Ten Oever applied to the Kantongerecht (magistrate’s court), Utrecht, requesting it to decide that he should be granted a
widower’s pension with effect from 13 October 1988. According to Mr Ten Oever, the pension constituted pay with the meaning of art 119 of the Treaty
and the refusal to grant him a widower’s pension, when a widow’s pension would have been granted had he been a woman and his wife a man, was
contrary to the principle of equal pay for men and women laid down in that provision. The pension fund, on the other hand, relied on the limitation in
time of the effects of the Barber judgment, in which the court held for the first time that payments under non-statutory pension schemes are pay. Since
the proceedings were not pending when the Barber judgment was delivered, Mr Ten Oever had no right to the pension.
The Kantongerecht considered it desirable to refer the matter to the Court of Justice for a preliminary ruling.
7. The Moroni case From 1968 to 1983 Mr Moroni, who was born in 1948, was an employee of Collo GmbH. In 1983 he entered the service of
another employer. When taking up his employment with Collo he had acquired a prospective right to a pension under that undertaking’s pension scheme,
which provided, inter alia, that employees leaving the service of a firm and gainful employment in general were to be entitled to a pension on reaching the
age of 65 (60 in the case of female employees), provided that by that time they had worked in the service of Collo for at least 10 years. On 6 November
1990 Mr Moroni brought an action against Collo in the Arbeitsgericht (labour court) 948 Bonn. On the basis of art 119 of the EEC Treaty and arts 5
and 6 of Directive 86/378 he argues that the occupational pension promised to him must be granted to him already on reaching the age of 60 and that the
value of his prospective pension is to be calculated as if the pension had been promised from that time. Collo, on the other hand, relies on art 8 of the
aforementioned directive. Taking the view that the outcome of the case depends on the interpretation of the relevant provisions of Community law, the
Arbeitsgericht Bonn has referred a number of questions to the court for a preliminary ruling.
It is useful to look at the relevant German legislation. Under the legislation, Mr Moroni, despite having left Collo’s employment prematurely, has,
by virtue of his length of service and the time at which before leaving that employment he had qualified for future pension rights, acquired as against
Collo an indefeasible right vested in interest to benefits (Versorgungsanwartschaft), which, as far as the old-age pension at issue is concerned, is
transformed into entitlement vested in possession to benefits (Versorgungsanspruch) when he reaches 65 years of age (see para 1(1) of the Gesetz zur
Verbesserung der betrieblichen Altersversorgung (Law on the enhancement of occupational old-age benefits, hereinafter referred to as ‘the BetrAVG’)).
Upon his early departure from the undertaking’s employment, the calculation of that entitlement is as follows: the occupational pension which would be
payable upon his reaching 65 years of age in Collo’s employment is reduced in proportion to the ratio between the actual period of that service and that
which he would have completed by the age of 65 (see para 2(1) of the BetrAVG). However, a female employee with an indefeasible right vested in
interest who leaves the undertaking’s employment prematurely suffers a proportionately lower reduction under the rules of Collo’s pension scheme when
her pension entitlement is calculated: as far as the possible length of service is concerned, in a woman’s case only the time served up to the age of 60
years (when she can leave without any reduction of pension) is taken into account.
Mr Moroni has also the possibility under the German legislation of making an early claim, that is to say before he reaches the age of 65 (and at the
earliest upon reaching the age of 60), to the occupational pension earned with Collo (see para 6 of the BetrAVG). However, the condition imposed on
male employees in this regard is that they must be entitled to claim the statutory old-age pension and actually do so, which, besides requiring the
completion of certain insurance periods under the statutory old-age pension rules, also generally requires a relatively long period of unemployment prior
to the attainment of the age of 60. That condition does not apply to female employees (the Arbeitsgericht referred in this regard to para 1248(2) and (3) of
the Reichsversicherungsordnung and para 25(2) and (3) of the Angestelltenversicherungsgesetz). In making an early claim Mr Moroni must also be
prepared to accept a further reduction: besides the pro rata reduction mentioned above, a male employee’s pension will also be subject to an actuarial
deduction ( versicherungsmathematische Abschlag). On the other hand, a female employee can, upon completion of the insurance periods required under
the statutory pension rules, automatically obtain early payment of the old-age pension: if she leaves the undertaking prematurely with an indefeasible
prospective right to pension benefits she will be subject only to the reduction based on her early departure, and not to a pro rata reduction or any actuarial
deduction for drawing her pension early.
949
This treatment of men and women under occupational pension schemes reflects the position under the statutory rules on old-age pension, which have
served as a model for occupational pension schemes5.
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5 The Arbeitsgericht Bonn point out in this regard that both the Bundessozialgericht and the Bundesverfassungsgericht have held that there can be no legal objections, in
terms of the equal treatment of men and women, to the provisions concerned of the statutory legislation on old-age pensions before 1992.
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8. The Neath case Mr Neath, who was born in 1935, was employed by Hugh Steeper Ltd until he was made redundant on 29 June 1990, which was
after the delivery of the judgment in the Barber case. At that time he was 54 years and 11 months old. During that period Mr Neath was consecutively a
member of two occupational pension schemes run by Hugh Steeper. Between December 1975 and December 1978 he was a member of scheme 5; from
January 1979 until the termination of his employment he was a member of scheme 4, a contracted-out scheme to which his rights acquired under the first
scheme were transferred.
Both schemes were financed by contributions paid by the employer and the employees, those paid by the employees being the same for men and
women. However, some scheme rules varied according to the sex of the employee. A woman could retire on a full pension at the age of 60, whereas a
man could not do so until the age of 65.
A member of scheme 4 can, with the consent of his employer and the trustees of that pension scheme, retire early and take a reduced pension
immediately at any time after his fiftieth birthday. If that consent is given, the pension is calculated on the basis of the pension which the member would
Preamble
have received at the normal retirement date, having regard, however, to the anticipated period of payment of the pension. A reduction of 6% is applied
for each year and month between the actual retirement date and the normal pensionable age. If the employer and the trustees do not consent to a member
taking early retirement, a member leaving scheme 4 after his fiftieth birthday and before the normal retirement date will be entitled only to a deferred
pension or to a transfer payment to another pension scheme. If the member opts for a deferred pension, scheme 4 is liable to pay the part of the pension
owed which accrued during the member’s affiliation to the scheme. If he opts for a transfer payment, an amount which is actuarially equivalent to the
sum of benefits which the member had accrued during his membership of scheme 4 is transferred to another pension scheme of the member’s choice.
Scheme 4 then ceases to be liable to provide any benefits to the member.
When Mr Neath was made redundant, he was not allowed to take an immediate pension; he was therefore offered the choice of a deferred pension or
a transfer payment. He was told that, if he opted for a transfer payment, the transfer value would be £30,672.59. The calculation of that transfer value
was based on the assumption that Mr Neath’s normal retirement date, in respect of benefits attributable to service after 17 May 1990 (the date of the
Barber judgment), was his sixtieth birthday. On the other hand, the Barber judgment was not considered to be applicable to periods of service prior to the
judgment. Moreover, it was assumed that art 119 of the Treaty did not preclude the use of actuarial factors. According to the calculations of scheme 4’s
actuary, if, for the purpose of calculating Mr Neath’s benefits in respect of his entire service, he were assumed to have a normal retirement age of 60, his
transfer value would have been £39,934.56 using male actuarial factors. If female actuarial factors were 950 used, his transfer value would have been
£41,486.25; that difference is attributable to the fact that female actuarial factors assume that women have a higher life expectancy so that the cost
involved for scheme 4 in providing benefits to women are regarded as being higher than in the case of men.
After the options on offer had been explained to him, Mr Neath instituted proceedings against Steeper before the Leeds Industrial Tribunal on the
ground that the conditions offered to him were less favourable than those which would have been offered to him had he been a woman. As regards the
option of a deferred pension, he would have to wait five more years than a woman in order to receive the pension; even if he exercised his right at that
time to exchange part of his pension for a cash sum, he would again receive a smaller amount (£17,193.94) than if he had been a woman (£21,029.02).
That difference was again based on actuarial factors based on a longer life expectancy for women. Mr Neath considered this to be contrary to art 119 of
the Treaty, as interpreted by the Court of Justice in the Barber case. The industrial tribunal decided to refer the matter to the Court of Justice. (For the
precise wording of its questions, reference is made to the report for the hearing: see pp 935–936, ante.)
9. The Coloroll case The background to the main proceedings in this case is the financial collapse in the middle of 1990 of the Coloroll Group of
Companies and the consequential necessity to wind up certain of the pension schemes of those undertakings. The proceedings are not conventional
proceedings but a test case (a representative action) which Coloroll Pension Trustees Ltd (hereinafter referred to as ‘the Coloroll trustees’), which is still
the trustee for eight pension schemes of the Coloroll Group, has brought before the High Court. They seek direction from the High Court on matters
which fall within that court’s supervisory jurisdiction over trusts. The ‘defendants’ in the main proceedings are a number of persons selected by the
Coloroll trustees as representative of the divergent interests and views.
The Coloroll trustees are confronted by a whole range of factors which may influence their decisions concerning the winding up of the pension
schemes. All the schemes contain different provisions for men and women. The most important difference is that under all the schemes the normal
retirement age for men is 65 and for women 60, which are the ages at which the state pension is payable in the United Kingdom. Consequently, different
pension amounts are payable to men and women of the same age and having the same number of years of service. Furthermore, where alternative
benefits are provided by reference to a capital valuation of pension rights, actuarial factors are applied which produce different results as between males
and females because of life expectancy and pension commencement dates for men and women differ. Finally, two of the pension schemes have the
particular feature of having no female members; yet the aforementioned sex-based calculation factors still affect the benefits of certain male employees.
Owing to these differences of treatment on grounds of sex the Coloroll trustees are unable to determine with finality the liabilities for which they
must provide in winding up the pension schemes. They are concerned in particular that the provisions of the trust deeds and rules may be overridden in
certain respects by art 119 of the EEC Treaty. Pending further clarification by the Court of Justice of the extent to which art 119 applies in the
circumstances of the present case, the Coloroll trustees consider that it is not possible to say with certainty how the funds should be distributed. In view
of this uncertainty, the 951 Chancery Division of the High Court has referred a number of questions to the court6.
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6 The questions referred to the Court of Justice in Coloroll are set out at pp 989–990, post.
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The operating in time of the Barber judgment

10. Possible interpretations As I have said, the key question in these cases concerns the precise operation in time of the Barber judgment. It is
clear from the observations submitted to the court that the practical importance of the answer to this question is enormous. I therefore propose to focus at
once on the core of the problem. Apparently, there are some four possible interpretations of the limitation which the court sought to place on the
operation in time of its judgment in the Barber case.
A first interpretation would be to apply the principle of equal treatment only to workers who became members of, and began to pay contributions to,
an occupational pension scheme as from 17 May 1990. This view would deprive the Barber judgment of almost all retroactive effect. In practical terms,
it would mean that the full effect of the judgment would be felt only after a period of about 40 years.
A second interpretation is that the principle of equal treatment should be applied to benefits payable in respect of periods of service after 17 May
1990. Periods of service prior to that date would not be affected by the direct effect of art 119.
According to a third interpretation the principle of equal treatment must be applied to all pensions which are payable or paid for the first time after
17 May 1990, irrespective of the fact that all or some of the pension accrued during, and on the basis of, periods of service completed or contributions
paid prior to that date. In other words, it is not the periods of service (before or after the judgment in Barber) which are decisive, but the date on which
the pension falls to be paid.
A fourth interpretation would be to apply equal treatment to all pension payments made after 17 May 1990, including benefits or pensions which had
already fallen due and, here again, as in the previous interpretation, irrespective of the date of the periods of service during which the pension accrued.
This interpretation undoubtedly has the most far-reaching effect7.
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7 See also the description of these possible interpretations by S Honeyball and J Shaw ‘Sex, law and the retiring man’ (1991) 16 EL Rev 47 at 56–57. For a survey of
academic opinion on this point, see D Curtin ‘The Constitutional structure of the Union: a Europe of bits and pieces’ (1993) 30 CML Rev 17 at 50–51, with references.
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11. The argument before the court centred mainly on the second and fourth interpretations. The first view is not supported in these cases by any of
the intervening parties. The third interpretation was supported by the Commission at the time when it submitted written observations in the Ten Oever,
Moroni and Neath cases. However, in its written observations in the Coloroll case and at the hearing the Commission switched its support to the second
interpretation.
Preamble
Besides the Commission, all the intervening pension funds and trustees and all the member states which have submitted observations (Denmark,
Germany, Ireland, the Netherlands and the United Kingdom) now support the second option. In the Coloroll case it is also supported by two defendants,
Judith Broughton and Coloroll Group plc.
952
The fourth possible approach is advocated by four of the defendants in the main proceedings in the Coloroll case (James Russell, Gerald Parker,
Robert Sharp and Joan Fuller).
12. In order to put the issues arising in these cases in their full setting, attention must also be drawn to the Protocol concerning Article 119 of the
Treaty establishing the European Community annexed to the Treaty on European Union (OJ 1992 C191), although that Treaty, signed at Maastricht on 7
February 1992, is not yet in force. The protocol provides:
‘For the purposes of Article 119 of this Treaty, benefits under occupational social security schemes shall not be considered as remuneration if
and in so far as they are attributable to periods of employment prior to 17 May 1990, except in the case of workers or those claiming under them
who have before that date initiated legal proceedings or introduced an equivalent claim under the applicable national law.’
The significance of that protocol for the interpretation to be given to the effect in time of the judgment in Barber is a matter to which I shall soon
return.
13. The case law of the Court of Justice on the temporal effect of judgments Before I take my position on the effect in time of the Barber judgment,
I consider it important to clarify the rationale which led the court to introduce this limitation into its judgment. That this is an unusual step needs no
demonstration, given the declaratory character which in principle attaches to the court’s interpretation of Community law pursuant to art 177 of the
Treaty8. This was formulated by the court in its judgments in Amministrazione delle Finanze dello Stato v Denkavit Italiana Srl Case 61/79 [1980] ECR
1205 at 1223–1224 (paras 16–18) and Amministrazione delle Finanze v Srl Meridionale Industria Salumi Joined cases 66, 127 and 128/79 [1980] ECR
1237 at 1260–1261:
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8 See, in this regard, R Joliet Le droit institutionnel des Communautés européenes: Le contentieud (1981) p 219.
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‘9. The interpretation which, in the exercise of the jurisdiction conferred on it by Article 177 of the EEC Treaty, the Court of Justice gives to a
rule of Community law clarifies and defines where necessary the meaning and scope of that rule as it must be or ought to have been understood and
applied from the time of its coming into force. It follows that the rule as thus interpreted may, and must, be applied by the courts even to legal
relationships arising and established before the judgment ruling on the request for interpretation, provided that in other respects the conditions
enabling an action relating to the application of that rule to be brought before the courts having jurisdiction are satisfied.
10. As the Court recognized in its judgment of 8 April 1976 in Case 43/75 Defrenne v Sabena ([1981] 1 All ER 122), it is only exceptionally
that the Court may, in application of the general principle of legal certainty inherent in the Community legal order and in taking account of the
serious effects which its judgment might have, as regards the past, on legal relationships established in good faith, be moved to restrict for any
person concerned the opportunity of relying upon the provision as thus interpreted with a view to calling in question those legal relationships.
11. Such a restriction may, however, be allowed only in the actual judgment ruling upon the interpretation sought. The fundamental need for a
general and uniform application of Community law implies that is for 953 the Court of Justice alone to decide upon the temporal restrictions to
be placed on the interpretation which it lays down.’9
________________________________________
9 See also the judgments in Amministrazione delle Finanze dello Stato v Ariete SpA Case 811/79 [1980] ECR 2545 at 2553 (paras 6–8) and Amministrazione delle
Finanze dello Stato v Sas Mediterranea Importazione Rappresentanze Esportazione Commercio (MIRECO) Case 826/79 [1980] ECR 2559 at 2573 (paras 7–9); the
judgments in Barra v Belgium Case 309/85 [1988] ECR 355 at 375 (paras 11–13) and Blaizot v University of Liège Case 24/86 [1988] ECR 379 at 405–406 (paras
27–28); the judgment in Padovani v Amministrazione delle finanze dello Stato Case 210/87 [1988] ECR 6177 at 6205 (para 12). Recently, the court summarised these
principles again in its judgment in Administration des douanes et droits indirects v Legros Case C-163/90 [1992] ECR I-4625 (para 30).
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14. It appears from the passage that in deciding to limit the scope of a judgment in time the court is guided mainly by two considerations: a general
principle of legal certainty inherent in the Community legal order and a concern to prevent serious problems from arising, through unrestricted retroactive
application of the judgment, in respect of legal relationships established in good faith. However, it is to be added at once that, as the court has repeatedly
confirmed, the mere fact that a judicial decision has important practical consequences is not in itself a sufficient reason to curtain its unrestricted
application. In Blaizot v University of Liège Case 24/86 [1988] ECR 379 at 406 (para 30) this was explained, with reference to Defrenne (No 2) [1981] 1
All ER 122 at 137 (para 71), as follows:
‘As the Court has held (see in particular the judgment [in Defrenne (No 2)]), in determining whether or not to limit the temporal effect of a
judgment it is necessary to bear in mind that although the practical consequences of any judicial decision must be weighed carefully, the Court
cannot go so far as to diminish the objectivity of the law and compromise its future application on the ground of the possible repercussions which
might result, as regards the past, from a judicial decision.’10
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10 See also the judgments in Worringham v Lloyds Bank Ltd Case 69/80 [1981] 2 All ER 434 at 448, [1981] 1 WLR 950 at 970 (para 31) and Administration des douanes
et droits indirects v Legros Case C-163/90 [1992] ECR I-4625 (para 30).
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15. The fact that the principle of legal certainty forms part of the Community legal order is sufficiently well known11. In essence, the court is
prepared, on account of special circumstances, to avoid calling in question legal relationships established in the past, notwithstanding the fact that there
are grounds for this under a clarifying ruling which the court has given in the meantime. It appears from its case law that the court recognises the good
faith, or the legitimate expectation12, of the parties concerned or of the member states as such a special circumstance if the retroactive application of the
judicial decision involves serious problems for the parties or the member states. Such good faith exists where those parties or member states ‘were
reasonably entitled to consider’13 that their conduct was in accordance with Community law, for example where 954 the scope of a Community
Preamble
provision was not entirely clear. The court has accepted a fortiori that good faith exists where the Community institutions themselves had helped to create
an impression of validity under Community law, either by approving a particular act of secondary Community law which left the practices concerned
intact (judgments in Pinna v Caisse d’allocations familiales de la Savoie Case 41/84 (Pinna (No 1)) [1986] ECR 1 at 26 (para 27)14, (Barber and Legros)
or by not bringing an action under art 169 against the member state in default (Defrenne (No 2) and Legros) or by vacillating over the question of
compatibility (Blaizot).
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11 For express confirmation of this, see, inter alia, the judgment in Deutsche Milchkontor GmbH v Germany Joined cases 205 to 215/82 [1983] ECR 2633 at 2669 (para
30). On legal certainty as a principle for the protection of legal relationships which have come into being in good faith, see, inter alia, K D Borchardt Der Grundsatz des
Vertauenschutzes im Europäischen Gemeinschaftsrecht vol 15 (1988) pp 135–136 and M Schlockermann Rechtssicherheit als Vertauensschutz in der Rechtsprechung
des EuGH (1984) pp 144–151.
12 This term was used by the court in its judgment in Amministrazione delle Finanze dello Stato v Essevi Spa Joined cases 142 and 143/80 [1981] ECR 1413 at 1437 (para
34).
13 This expression is used in the judgment in Barber v Guardian Royal Exchange Assurance Group Case C-262/88 [1990] 2 All ER 660 at 704, [1991] 1 QB 344 at 404
(para 43) as well as in the judgment in Administration des douanes et droits indirects v Legros Case C-163/90 [1992] ECR I-4625 (para 33).
14 Since the Council had approved art 73(2) of Regulation (EEC) 1408/71, which was declared invalid in that judgment, France had believed for a long period of time that
it could maintain practices which had no legal basis under arts 48 and 51 of the EEC Treaty.
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If it is clear, however, that parties or member states, particularly in view of clear, well-known case law of the court, could be in no doubt as to their
Community obligations, the condition of good faith is not fulfilled. As is clear from the judgments in Worringham [1981] 2 All ER 434 at 448, [1981] 1
WLR 950 at 971 (para 33) and Essevi [1981] ECR 1413 at 1437 (para 34), the court does not then feel compelled to limit its judgment in time.
16. The good faith of parties concerned or member states is thus a special circumstance which can justify limiting the effect of a judgment in time if
the absence of a limitation would produce serious problems for legal relationships created in the past. According to the court, such a problem arises if the
judgment concerned may have important general economic and financial consequences going beyond the particular facts of the case in point. Thus in
Defrenne (No 2) [1981] 1 All ER 122 at 137 (para 70) the court lent a receptive ear when the United Kingdom and Irish governments expressed the fear
that many undertakings might experience serious financial difficulties as a result of unforeseen pay claims15. Partly in view of the good faith (mentioned
above) of the market participants the court held in Defrenne (No 2) [1981] 1 All ER 122 at 137–138:
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15 In its judgment in Worringham [1981] 2 All ER 434 at 448, [1981] 1 WLR 950 at 971 (para 33), however, the court decided that ‘the number of the cases which would
be affected in this instance by the direct effect of that provision’ was not sufficiently relevant in order, in the interests of legal certainty, to limit the temporal effect of its
judgment.
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‘74. In these circumstances, it is appropriate to determine that, as the general level at which pay would have been fixed cannot be known,
important considerations of legal certainty affecting all the interests involved, both public and private, make it impossible in principle to reopen the
question as regards the past.
75. Therefore, the direct effect of art 119 cannot be relied on in order to support claims concerning pay periods prior to the date of this
judgment, except as regards those workers who have already brought legal proceedings or made an equivalent claim.’
The court’s regard for ‘all the interests at stake, public and private’16, including the serious financial consequences of a judgment for the parties or
authorities which have acted in good faith, is also evident in a number of recent cases. In Blaizot [1988] ECR 379 at 407 (para 34), for example, the court
took 955 account of the possibility that its judgment (in which it ruled that a supplementary enrolment fee for foreign university students was
incompatible with art 7 of the EEC Treaty) might ‘retroactively throw the financing of university education in to confusion and might have unforeseeable
consequences for the proper functioning of universities’. In Barber, too, the court noted (see the passage cited above in para 5) that ‘the financial balance
of many contracted-out pension schemes’ might be ‘upset retroactively’. And still more recently, in Legros [1992] ECR I-4625 (para 34), in which a
charge levied by the French overseas territories (the ‘octroi de mer’) was declared incompatible with Community Law, the court was prepared to limit the
temporal effect of its judgment on account of the catastrophic financial repercussions which the French overseas territories would face if unduly paid
charges became repayable:
________________________________________
16 This expression is also used by the court in its judgment in Pinna v Caisse d’allocations familiales de la Savoie Case 41/84 [1986] ECR 1 at 26 (para 28); in this regard,
see J Boulouis ‘Quelques observations à propos de la sécurité juridique’ in Du droit international au droit de l’intégration: Liber amicorum Pierre Pescatore (1987) p
53 at p 55.
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‘In these circumstances, overriding considerations of legal certainty preclude legal situations which have exhausted all their effects in the past
from being called in question when such calling in question would upset retroactively the financing system of the local authorities of the French
overseas departments.’17
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17 For another recent temporal limitation imposed on account of the important financial consequences of a judgment, this time in relation to the invalidity of a Community
regulation in the field of agricultural policy (concerning, in particular, a ‘clawback’ levy on products which had attracted a variable slaughter premium), see the
judgment in R v Lomas, R v Fletcher Joined cases C-38/90 and C-151/90 [1992] ECR I-1781 (paras 27–30).
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17. Clarifying the temporal effect of the Barber judgment It is in the light of the case law cited above that the passage in the Barber judgment
concerning the temporal limitation of the effects of that judgment must be read.
However, a few preliminary observations are necessary: in considering the issues arising in these cases it is crucial to understand how occupational
pension schemes (contracted-out and supplementary) are built up and run. As is clear from the observations of the governments and pension schemes
appearing before the court, most of these pension schemes are characterised by their accruing nature. In practice, an employee accrues pension
entitlements on the basis of his periods of service with the employer concerned. For that purpose, contributions (calculated on the basis of actuarial
factors) are periodically paid to a particular pension fund by the employee and/or employer in respect of specific periods of service18.
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Preamble
18 A distinction must be made in this regard between the so-called fixed-contribution schemes (frequently called ‘defined-contribution plans’ or ‘money purchase
schemes’) and the so-called fixed-benefit schemes (also called ‘defined-benefit plans’). In the first-mentioned schemes the benefit consists of the capitalised sum
of—and is accordingly dependent on—contributions periodically made in the past by the members. In schemes with fixed benefits, on the other hand, the level of the
benefit is fixed in advance (in the trust deed, constitutive rules, policy conditions or other general conditions) on the basis of the number of years of service, either as a
fixed amount or as a percentage of the employee’s final salary. I would, incidentally, point out that the pension schemes in the Coloroll case are of the second type and
that, according to the evidence before the court, most occupational pension schemes in Denmark, the Netherlands and the United Kingdom also belong to this category.
As regards the aforementioned difference between occupational pension schemes, see, inter alia, P E d’Herbais Mémento des retraités dans la CEE: Analyse comparée
des régimes de base et complémentaires des salariés et des fonctionnaires (1990) pp 17–18; see also, together with other categorisations, G Tamburi and P Mouton
‘Problèmes de frontières entre régimes privés et régimes publics de pensions’ (1986) 125 Revue internationale du Travail 143 at 145–146.
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956
From the legal point of view, this accruing nature of occupational pension schemes leads to a distinction between the coming into being of pension
rights, namely as a result of the accrual of the pension on the basis of completed periods of service, and those rights’ becoming exercisable, namely when
the pension falls to be paid for the first time.
In financial and economic terms, the balance of such occupational pension schemes is also based on a number of premises, including data concerning
pension lifetimes and the survival probabilities of men and women (see paras 34–39 below).
18. It seems to me that in Barber, too, the court recognises, if only implicitly, the distinction between the accrual and the falling due of an
occupational pension. The court’s conclusion that pension payments made under a contracted-out scheme constitute ‘consideration paid by the employer
to the worker in respect of his employment’19 can be so understood. This is because, from the point of view of art 119 of the EEC Treaty, benefits paid
under an occupational pension scheme are to be regarded as a form of ‘deferred’ pay which the worker has accrued in respect of his service with one or
more employers during a specific period of employment.
________________________________________
19 Judgment in Barber [1990] 2 All ER 660 at 702, [1991] 1 QB 344 at 401 (para 28); see para 4, ante.
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Moreover, this distinction makes it clear what the court meant in its judgment in Barber [1990] 2 All ER 660 at 704, [1991] 1 QB 344 at 404 (para
44) by ‘the acquisition of entitlement to a pension as from the date of this judgment’. Since it is the service itself and, in some cases, the relevant
contributions which give rise to the employee’s pension rights, on the one hand, and the obligations of the employer and/or (the trustees of) the pension
fund, on the other, the court clearly has in view here periods of service after 17 May 1990. Any sex discrimination occurring in this field after that
date—owing, in particular, to the practice of taking account of a different pensionable age in calculating contributions and/or benefits payable by virtue of
those contributions—thus falls under the prohibition laid down by art 119.
19. I also consider the distinction between the accrual of the pension (or the coming into being of pension rights) and the pension’s falling to be paid
for the first time (or the pension rights’ becoming exercisable) to be important for a proper understanding of what the court means in its judgment in
Barber [1900] 2 all ER 660 at 704, [1991] 1 QB 344 at 404 (para 44), where it holds that ‘legal situations which have exhausted all their effects in the
past’ may not be called in question. To give that passage a literal reading, as certain parties to the main proceedings in the Coloroll case (namely James
Russell, Gerald Parker and Robert Sharp) do, is quite wrong. On a literal reading, it may indeed be asserted that the effects of an occupational pension are
only fully exhausted once the pension has been paid in full to the (retired) employee. Such a reading would mean that the temporal limitation of the
judgment decided on by the court would have almost no significance and that the useful effect of the limitation imposed by the court would largely
vanish20.
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20 That judgments of the court may not be interpreted in a way which deprives them of their useful effect was confirmed by the court in, inter alia, its judgment in Pinna v
Caisse d’allocations familiales de la Savoie Case 359/87 [1989] ECR 585 at 615 (para 16); see also the opinion of Mr Advocate General Lenz in that case (in particular
at 605–606 (para 29)), in which he cites case law from which it is clear that a teleological interpretation of judgments of the court is usual.
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Here again, the distinction between the accrual and the falling due of the pension helps to clarify matters. Since it is the service itself and, in some
cases, the relevant contributions which give rise to the rights and obligations of the 957 employee and the employer (and/or of the trustees of the
pension scheme), it may reasonably be assumed that in using the expression ‘legal situations which have exhausted all their effects in the past’ the court
had in view situations in which the right to a pension had already been acquired by virtue of periods of service prior to the judgment in Barber. The
coming into being of a pension right on the basis of a period of service in the past leads indeed to a legal situation whose effects are exhausted in the sense
that the worker has definitively acquired the pension rights relating to that period of service.
20. The reason why the court decided to opt for a limitation of its judgment to the pension rights as understood above can be attributed directly to
the court’s expressly stated wish not to upset retroactively the financial balance of contracted-out pension schemes. Legal certainty means in this
connection that the extent of those rights falls to be determined on the basis of the Community rule which applied at the time of the period of service on
the basis of which those rights were acquired, that is to say art 119 as it was interpreted before the Barber judgment.
This is by no means an innovation in Community law. A precedent may be cited from Community case law on social security schemes, namely the
judgment in Belbouab v Bundesknappschaft Case 10/78 [1978] ECR 1915. That case related to Council Regulations (EEC) 1408/71. It concerned an
Algerian worker who before Algeria’s independence had possessed French nationality and had worked as a French national in France and Germany.
When he applied for a mineworker’s pension in Germany, no account was taken of the periods of insurance which he had completed in France on the
ground that he no longer fulfilled the requirement, laid down in art 2(1) of the regulation, that he should be a national of a member state. The court
rejected the referring court’s premise that the nationality requirement laid down in art 2(1) of the regulation related to the claimant’s nationality at the
time of submission of his application for a pension. It stated (at 1924 (para 7)):
‘In order to satisfy the principle of legal certainty, one of the requirements of which is that any factual situation should normally, in the absence
of any contrary provision, be examined in the light of the legal rules existing at the time when that situation obtained, the second condition [the
nationality requirement contained in art 2(1)] must be interpreted as meaning that the status of being a national of one of the Member States refers
to the time of the employment, of the payment of the contributions relating to the insurance periods and of the acquisition of the corresponding
rights …’ (My emphasis.)21
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21 See also the judgment in Buhari Haji v Institut national d’assurances sociales pour travailleurs indépendants Case C-105/89 [1990] ECR I-4211 at 4237 (para 17). In
its judgments in Henck v Hauptzollamt Emmerich the court had already held that ‘the principle of legal certainty makes it necessary to refer to the state of the law in
Preamble
force when the provision in question was applied’: judgments in Case 12/71 [1971] ECR 743 at 751 (para 5), Case 13/71 [1971] ECR 767 at 774 (para 5) and Case
14/71 [1971] ECR 779 at 786 (para 5).
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It is not therefore the time when an application for a pension is made that is relevant for the purposes of Regulation 1408/71 and in particular for the
purposes of the nationality requirement which that regulation lays down, but the periods of employment or insurance: it is in those periods that the
insurance 958 contributions are paid and, as the court stated in Belbouab, the corresponding rights, including the right to a statutory pension, are
acquired22.
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22 This principle already formed the basis of the court’s case law in relation to Council Regulation (EEC) No 3 of 25 September 1958: see in particular the judgment in
Horst v Bundesknappschaft Case 6/75 [1975] ECR 823 at 830 (para 8).
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A similar application of the principle of legal certainty, this time in the field of family allowances, is to be found in the judgment in Pinna (No 1).
After reaching the view that the former version of art 73(2) of Regulation 1408/71 (which, in the matter of family allowances, laid down for workers
active in France rules which departed from those laid down in art 73(1) for other member states) was invalid, the court nevertheless limited the temporal
effect of its judgment.
According to the court, ‘overriding considerations of legal certainty involving all the interests at stake, public and private’ precluded the calling in
question of ‘the payment of family benefits for periods prior to the delivery of this judgment’ (see [1986] ECR 1 at 26 (para 28)). The court ruled that the
invalidity of the provision in question could not be relied upon ‘in order to support claims regarding benefits for periods prior to [the date of this
judgment]’23.
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23 Except by employed persons who had already brought legal proceedings or made an equivalent claim prior to the date of the judgment: judgment in Pinna (No 1) [1986]
ECR 1 at 27 (para 30). The court took the same position in this regard in its judgment in Yáñez-Campoy v Bundesanstalt für Arbeit Case C-99/89 [1990] ECR I-4097 at
4132 (para 18).
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21. Proposed interpretation On the basis of the foregoing, para 45 and point 5 of the operative part of the judgment in Barber [1990] 2 All ER 660
at 704, [1991] 1 QB 344 at 404–405, in which the court held that art 119 may not be relied upon in order ‘to claim entitlement to a pension with effect
from a date prior to that of this judgment’ (see para 5 above), must be interpreted as meaning that entitlement to a pension is entitlement which was
acquired in relation to periods of service prior to the date of the Barber judgment. In other words, I choose the second interpretation mentioned in para 10
above.
This interpretation sits most easily with the good faith of employers and of occupational pension schemes since account must indeed be taken of their
belief that conditions as to pensionable age varying according to sex were permissible. In Barber [1990] 2 All ER 660 at 704, [1991] 1 QB 344 at 404
(para 43) this was recognised by the court in as many words: in view of the derogations from the principle of equal treatment contained in Directives 79/7
and 86/378 the member states and the ‘parties concerned’ were ‘reasonably’ entitled to consider ‘that art 119 did not apply to pensions paid under
contracted-out schemes and that derogations from the principle of equality between men and women were still permitted in that sphere’.
The fact that the good faith of the parties concerned, in particular of employers and occupational pension funds, is to be taken into account means
that, before Barber, those parties, in the belief that art 119 was not applicable, could promise pensions and make payments based on a different
pensionable age for men and women. The financial balance of the pension schemes concerned could therefore be maintained on that basis before the
judgment. Only in respect of periods of service after Barber did employers know that in administering occupational pension schemes and calculating the
contributions to be made to them account had to be taken of a pensionable age which was the same for men and women. If no account were taken of their
good faith and that 959 of pension scheme administrators, this would entail serious financial problems for pension schemes.
All these factors argue in favour of now allowing obligations entered into and payments made before the date of the Barber judgment to be
affected24.
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24 The court has repeatedly taken a similar position when declaring invalid acts of the institutions: it is then said that, for the sake of ‘important reasons of legal certainty’,
the declared invalidity of the act in question cannot affect the validity of payments made and commitments entered into in implementation of that act: see the judgments
in EC Council v European Parliament Case 34/86 [1986] ECR 2155 at 2212 (para 48) and EC Council v European Parliament Case C-284/90 [1992] ECR I-2277 (para
37).
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22. In passing, I would point out that, in my view, the third interpretation, in which it is suggested that the falling due of the pension after 17 May
1990 should be the decisive criterion (irrespective of the time when the periods of service to which the pension relates were completed), cannot be
entertained under any circumstances. I consider this option undesirable not only in view of the way, described above, in which pension rights accrue but
also on account of the clear unfairness to which this interpretation would lead for a large number of workers: not a single worker whose occupational
pension became payable or was paid for the first time before 17 May 1990 would then be able to rely on the principle of equal pay. Situations which are
otherwise completely the same but differ only in that they lead to entitlement to payment before or after 17 May 1990 would then be treated in a very
different way.
Finally, I consider that the fourth interpretation goes too far. It has no regard at all for the financial balance of occupational pension schemes, as
established in good faith on the basis of calculation factors based on different pensionable ages for men and women.
23. The interpretation of the temporal limitation of the effects of the Barber judgment which I propose here largely coincides with that adopted in
the protocol on art 119 annexed to the Treaty on European Union. I would, moreover, point out that if the court should come to a different conclusion its
decision would be entirely superseded as soon as the Treaty on European Union comes into force.
Article 239 of the EEC Treaty will be applicable on the protocol which is to be annexed to the EEC Treaty: as soon as the Treaty on European Union
comes into force, that protocol will become an integral part of the EEC Treaty. In other words, it will have the same legal force as the provision of the
Treaty25. I would, however, emphasise that the protocol is not intended to amend art 119 nor does it appear to call in question the decisions of the court.
Indeed, the fifth indent of art B of the Treaty on European Union expressly confirms that one of the Union’s objectives is ‘to maintain in full the “acquis
communautaire” and build on it’, that is to say the entire body of the existing Community rules as interpreted and applied by the court26. Accordingly, I
see in the protocol no 960 more than a declaratory determination of meaning adopted in relation to art 119 and the case law of the court27.
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25 C Vedder ‘Artikel 239’ in Grabitz Kommentar zum EWG-Vertrag p 2, point 5. Breach of a protocol is thus equivalent to a breach of the EEC Treaty: M Hilf ‘Artikel
239’ in Groeben, Thiesing and Ehlermann Kommentar zum EWG-Vertrag vol 4 (4th edn, 1991) p 5947, points 7 and 8. Moreover, in international law on treaties,
Preamble
protocols are generally regarded as constituting parts of the treaty to which they are annexed: Myers ‘The names and scope of treaties’ (1957) 51 AJIL 574 at 587; see
also the definition of ‘treaty’ in art 2(1)(a) of the Vienna Convention of the Law of Treaties (Vienna, 23 May to 30 November 1969 and New York, 1 December 1969 to
30 April 1970; TS 58 (1980); Cmnd 7964): ‘an international agreement concluded between States in written form and governed by international law, whether embodied
in a single instrument or in two or more related instruments and whatever its particular designation.’
26 See also art C of the Treaty on European Union, which provides that the institutional framework of the Union is to respect and build upon the ‘acquis communautaire’.
27 See, in the same sense, S Prechal ‘Bommen ruimen in Maastricht’ (1992) 67 Nederlands Juristenblad 349 at 354.
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Does the ruling in Barber as well as the temporal limitation provided for therein also apply to occupational pension schemes other than those envisaged
in that judgment?
24. In the Coloroll case the High Court also asks the Court of Justice whether the temporal limitation on the Barber judgment also extends to
occupational pension schemes other than ‘contracted-out’ occupational pension schemes which were considered in that judgment (question 3), in other
words whether it also applies to supplementary or non-statutory, and not just contracted-out, pensions. This question also arises in the Moroni case,
although the question submitted by the Arbeitsgericht Bonn primarily seeks to ascertain whether the ruling in Barber, in particular on the point
concerning the incompatibility with art 119 of an age condition varying according to sex for entitlement to a pension (see para 4 above), is also applicable
to the occupational pension scheme in that case.
25. Both questions are interwoven and, in my view, are particularly connected with the scope to be given to Bilka [1986] ECR 1607. I would
remind the court that in that judgment it held that benefits paid under an occupational pension scheme applicable in a German undertaking constitute
consideration within the meaning of art 119 (see para 3 above).
According to the defendants in the main proceedings in the Coloroll case other than Judith Broughton and Coloroll Group plc, the court had in view
in the Bilka judgment, which concerned a non-contracted-out occupational pension scheme, the entire situation of such pension schemes. In other words,
according to these parties, that judgment concerned not only the point concerning the exclusion of workers who are members of non-contracted-out
occupational pension schemes, with which that case was specifically concerned, but also the point relating to the commencement date of the pension
under such occupational pension schemes. Since the point concerning the commencement date in non-contracted-out occupational pension schemes had
accordingly been decided in the judgment in Bilka, thus long before the judgment in Barber was delivered, the temporal limitation imposed in the
judgment in Barber should not, in their view, be applied to non-contracted-out occupational pension schemes.
Judith Broughton, Coloroll Group plc and the United Kingdom and, in the Moroni case, the German government, on the other hand, have put
forward the view that the scope of the judgment in Bilka is indeed limited to the point concerning the exclusion of workers who are members of
non-contracted-out occupational pension schemes. Unlike the German government, however, the other three interveners consider that the judgment in
Barber, including the temporal limitation for which it provides, with regard to the commencement date of the pension—with which that case was
specifically concerned—applies to all occupational pension schemes, both contracted-out and non-contracted-out.
26. I agree with Judith Broughton, Coloroll Group plc and the United Kingdom: the ruling in Barber, including the temporal limitation which it lays
961 down, is applicable to all occupational pension schemes, irrespective of the category to which they belong.
In my view, in Bilka the court ruled only on the question whether an occupational pension scheme of the type in question in that case (a contractual
company scheme financed exclusively by the employer and established after consultation within the company concerned) fell within the scope of art 119
and on the question whether the exclusion of part-time workers (mainly women) from such a scheme constitutes discrimination contrary to that provision.
The court answered both questions in the affirmative. Only in Barber did the court also address the question of the lawfulness of an age condition, for the
commencement of the pension, varying according to sex under an occupational pension scheme (which in that case was a contracted-out scheme) (see
para 4 above).
Although that judgment concerned a contracted-out occupational pension scheme, I consider that the court dealt with the issue arising in that
case—the commencement date of the pension—in a general way which is applicable to all occupational pension schemes and that consequently the
temporal limitation laid down in the judgment is also applicable to pension schemes other than contracted-out schemes. I find no support in the operative
part of the judgment in Barber [1990] 2 All ER 660 at 704, [1991] 1 QB 344 at 404–405 for making a distinction between contracted-out and
non-contracted-out pension schemes since nowhere in points 3 and 5 thereof does there appear to be a limitation to contracted-out occupational pension
schemes. In any event, if in its Bilka judgment the court had also ruled on the commencement date of the pension under non-contracted-out pension
schemes, it would, in my view, have also limited the temporal effect of that judgment rather than, as is the case, giving it retroactive effect to 8 April
1976, that is the date on which the court in Defrenne (No 2) held art 119 to have direct effect28. The upshot of this would then be that, as regards the
commencement date of the pension, art 119 would be applied to the scheme with retroactive effect going back more than 14 years, depending on whether
the occupational pension scheme in question was a non-contracted-out or a contracted-out scheme. The financial consequences of such an interpretation
would be catastrophic for member states in which supplementary occupational pension schemes, that is to say non-contracted-out schemes, are very
common. This cannot have been the intention of the court.
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28 According to its own case law (see para 13, ante), the court would not in fact have the possibility of now imposing a temporal limitation on the effects of the Bilka
judgment. For a case in which the court declined to impose such a temporal limitation with regard to previous judgment, see the judgment in Barra v Belgium Case
309/85 [1988] ECR 355 at 375 (para 14).
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Is the use of actuarial calculation factors differing according to sex contrary to art 119 of the Treaty?
27. The positions of the parties In the Neath case (question 3(b)) and the Coloroll case (question 4) the question is raised whether it is compatible
with art 119 of the EEC Treaty for the payments made under a pension scheme to be calculated on the basis of actuarial calculation factors, in particular
actuarial assumptions about the different life expectancy of men and women, which lead to different results for men and women.
962
The pension funds and pension fund administrators as well as most of the intervening member states argue that this is completely normal. They say
that such actuarial calculation factors are based on reliable and objective statistical data which are related to life expectancy after pensionable age has
been reached. Since those factors vary from sex to sex—on average women live longer and therefore on average receive their pension over a longer
period of time than men—actuarial factors are, according to their arguments, essential for evaluating the liabilities assumed by a pension scheme and
consequently for the financial structuring of the entire pension scheme. Taking into account actuarial factors—which, moreover, is a generally accepted
practice in (contractual) schemes—thus has a direct and quite legitimate influence on the sum of rights which are transferable to another scheme and on
the amounts of commutation payments (that is to say where a scheme member opts to receive a capital sum instead of a periodic pension): in the last case,
other circumstances being equal, men receive a lower amount than women.
Preamble
28. The Commission, on the other hand, takes the view that the principle of equal pay for men and women must be applied individually and not on a
category basis. The fact that women generally live longer than men has no significance at all for the life expectancy of a specific individual and it is not
acceptable for an individual to be penalised on account of assumptions which are not certain to be true in his specific case. Moreover, there are a number
of risk factors which are not taken into account: risks associated with certain occupations, smoking, state of health and so on. Finally, there is no
technical necessity for pension schemes to have a distinction based on life expectancies: some pension schemes, and all state pension schemes, use a
system of risk compensation which covers differences in the probable lifespan of men and women29. The Commission points out that the Supreme Court
of the United States has held that similar discrimination in pension schemes is incompatible with the Civil Rights Act 1964. From this the Commission
concludes that, since different actuarial calculation factors are contrary to art 119 of the Treaty, neither employers nor trustees may rely on them to justify
a proportionately greater reduction of the pension of a man than that of a woman upon early retirement, to justify smaller capital sums for men than for
women where these are opted for, or to justify a different measure of the reduction of the pension necessary in order to pay a widow’s or widower’s
pension to an entitled person. In the Commission’s view, the same applies to the payment of a capital sum to the trustees of another pension scheme after
a worker has changed jobs, since those trustees, too, must comply with the principle of equal pay with regard to that worker. Only if the capital sum is
paid to an insurance company or another third party who is a complete stranger to the employment relationship and not therefore bound by art 119 may
that undertaking or third party be exempt from a prohibition on using different life tables for men and women.
________________________________________
29 These arguments were also advanced by the Commission in the explanatory note of 29 April 1983 on the proposal which was to lead to the adoption of Directive
86/378: COM (83) 217 final, pp 7–8.
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29. Community legislation and case law Before I explain my position, I will put the issue of actuarial calculation factors in their Community law
context. As far as Community legislation is concerned, there is Directive 86/378. In contrast to the original Commission proposal for a directive, which
expressly prohibited the determination of benefit amounts or rates of contribution by taking account of ‘different factors of calculation, actuarial or
otherwise, with regard to the 963 phenomena of ill-health, mortality or life expectancy’30, the directive contains various derogations from the
implementation of the principle of equal treatment in occupational social security schemes, those derogations being related to the use of actuarial
calculation factors varying according to sex. For the sake of clarity, I will set out those derogations: (1) art 9(c) provides that, in derogation from the
prohibition laid down in the first sub-paragraph of art 6(1)(i) on setting different levels of worker contribution, member states may defer the application of
the principle of equal treatment on this point in order ‘to take account of the different actuarial calculation factors’, at the latest until the expiry of a
13-year period as from the notification of the directive, that is to say until 30 July 1999; (2) art 6(1)(h) allows levels of benefit differing according to sex
to be set in so far as may be necessary to take account of actuarial calculation factors which differ according to sex in the case of benefits designated as
contribution-defined31; (3) according to the second sub-paragraph of art 6(1)(i), levels of employer contribution differing according to sex may be set in
the case of benefits designated as contribution-defined32 ‘with a view to making the amount of those benefits more nearly equal’; (4) according to art
6(1)(d), except as provided for in sub-paras (h) and (i), rules differing according to sex may be laid down for the reimbursement of contributions where a
worker leaves a scheme without having fulfilled the conditions guaranteeing him a deferred right to long-term benefits; (5) finally, art 6(1)(j) allows, so
far as provided for in sub-paras (h) and (i), different standards to be laid down for workers of a specified sex as regards the guarantee or retention of
entitlement to deferred benefits when a worker leaves a scheme.
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30 Article 6(1)(h)(i) of the Commission’s proposal of 5 May 1983, OJ 1983 C134, p 7. For this approach the Commission found support from, inter alia, the European
Parliament: see the report by H Peeters on behalf of the Committee on Social Affairs and Employment of 12 March 1984, European Parliament, Documents de séance,
1983–1984, doc I-1502/83 (PE 87/755/def), p 10.
31 The expression ‘designated as contribution-defined’ refers to so-called fixed-contribution schemes; on this, see footnote 18 above.
32 See the footnote above.
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Community legislation therefore contains five important restrictions on the implementation of the principle of equal treatment which are related to
actuarial calculation factors; four of them bear no temporal limitation33. Some relate to contributions of either employees or employers, others to the
payment of benefits or the reimbursement of contributions.
________________________________________
33 These derogations have attracted criticism from various authors who have doubts about their compatibility with art 119 of the EEC Treaty: see D Curtin ‘Occupational
pension schemes and Article 119: beyond the fringe?’ (1987 24 CML Rev 215 at 225–229; E Ellis European Community Sex Equality Law (1991) pp 56–57; A Laurent
‘Les CE éliminent des discriminations fondées sur le sexe dans les régimes professionnels de sécurité sociale’ (1986) 125 Revue internationale du Travail 753 at
759–761; S Prechal and N Burrows European Community Law relating to Gender Discrimination (1990) pp 280–282.
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30. As yet, there is no Community case law on the relationship between actuarial calculation factors and the principle of equal treatment34. Again,
regard must be had to the Barber judgment in which the court, in the interests 964 of effective judicial review of compliance with the principle of
equal treatment35, expressly confirmed that—
________________________________________
34 I can disregard the case law which the Court of Justice and the Court of First Instance have developed in staff cases with regard to the taking into account of pension
rights acquired elsewhere, in particular the actuarial countervalue of such rights, by members of staff of the Community institutions: see, inter alia, the judgments in
Celant v EC Commission Joined cases 75/88, 146/88 and 147/88 [1989] ECR 3599 and Schneemann v EC Commission Case C-137/88 [1990] ECR I-369.
35 Judgment in Barber [1990] 2 All ER 660 at 702, [1991] 1 QB 344 at 402 (paras 33–34).
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‘The application of the principle of equal pay must be ensured in respect of each element of remuneration and not only on the basis of a
comprehensive assessment of the consideration paid to workers.’36
________________________________________
36 Judgment in Barber [1990] 2 All ER 660 at 703–704, [1991] 1 QB 344 at 402, 404 (para 35 of the judgment and point 3 of the operative part).
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It is precisely this passage from the judgment on which the Commission relies in order to argue that the prohibition of discrimination laid down in art
Preamble
119 covers all aspects of an occupational pension scheme, including actuarial calculation factors37. The Commission further argues that no account has
to be taken of the derogations from Directive 86/378 mentioned above, since in Bilka and Barber the court confirmed that, as far as the employee is
concerned, art 119 is directly applicable to the conditions of an occupational pension scheme.
________________________________________
37 Whether that passage must in fact be given such a wide-ranging meaning is a question which I will leave aside here. The passage cited was referring in fact to various
types of consideration granted, according to the circumstances, to men and women. The national court was asked to assess all those types of consideration in globo, a
task which it was hardly able to fulfil. The present cases do not, however, concern different elements of pay but the actuarial method of calculating one single element
of pay.
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31. The applicability in principle of the prohibition of discrimination We are thus immediately confronted with the question which Community rule
applies to the issues in these cases—art 119 of the Treaty or Directive 86/378. Drawing the dividing line between the scope of art 119 and that of Council
directives designed to implement the principle of equal treatment has always been a delicate matter. Expressed succinctly, the essence of the court’s case
law is that, where a dispute can be resolved through an interpretation of art 119 alone, only that provision is relevant for Community law purposes38. In
other words, the directives on the implementation of the principle of equal treatment operate only in so far as they supplement or extend39 the effect of art
119; however, they may not in any way alter or restrict the meaning or scope of that article40. The fact that Directive 86/378, as regards the taking into
account of actuarial calculation factors varying according to sex, introduces derogations from the principle of equal treatment (see para 29 above) can
therefore be no reason for considering that those derogations, by way of analogy, are also applicable to the principle of equal treatment laid down in art
119. Derogations from the scope of art 119 must spring from the article itself.
________________________________________
38 A clear illustration of this is to be found in the judgment in Macarthys Ltd v Smith Case 129/79 [1981] 1 All ER 111 at 119, [1981] QB 180 at 199 (para 17): although
the national court had specifically referred to the court questions about the scope of Council Directive (EEC) 75/117, the court decided that the dispute could be entirely
resolved through an interpretation of art 119.
39 For example, mention may be made of the fact that Directive 86/378 has a wider scope ratione personae than art 119 since by virtue of art 3 of the directive it is also
applicable to self-employed persons. Ratione materiae the directive applies, inter alia, to all occupational schemes which provide protection against the risks of
sickness, invalidity, old age, industrial accidents, occupational diseases and unemployment (art 4(a)).
40 See, in relation to Council Directive (EEC) 75/111, the judgments in Jenkins v Kingsgate (Clothing Productions) Ltd Case 96/80 [1981] 1 WLR 972 at 984 (para 22)
and Newstead v Dept of Transport Case 192/85 [1988] 1 All ER 129 at 151, [1988] 1 WLR 612 at 616 (para 20). This was also expressly confirmed by the court in
Barber [1990] 2 All ER 660 at 700, [1991] 1 QB 344 at 399 (para 11).
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965
32. As far as the last point is concerned, namely the scope attributable to the prohibition of discrimination laid down in art 119, the court has, since
its judgment in Defrenne (No 2), adhered to settled case law, which was also confirmed in Barber:
‘… a distinction must be drawn within the whole area of application of art 119 between, first, direct and overt discrimination which may be
identified solely with the aid of the criteria based on equal work and equal pay referred to by the article in question and, second, indirect and
disguised discrimination which can only be identified by reference to more explicit implementing provisions of a Community or national
character.’41
________________________________________
41 Judgment in Defrenne (No 2) [1981] 1 All ER 122 at 134 (para 18).
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Article 119 is therefore directly applicable only to forms of discrimination which are ascertainable as such by the national court42 with the aid of the
criteria of ‘equal work’ and ‘equal pay’ mentioned in that article43. In Defrenne (No 2) the court made it clear that this is the case as regards
discrimination which a court may detect on the basis of a purely legal analysis, in particular forms of discrimination which have their origin in legislative
provisions or in collective labour agreements44, and as regards discrimination in situations in which the court is in a position to establish all the facts in
order to decide whether there is pay discrimination, in particular in cases where men and women receive unequal pay for equal work performed in the
same establishment or service, whether public or private45.
________________________________________
42 The reference to ‘judicial’ identification is made for the first time in the judgment in Macarthys Ltd v Smith Case 129/79 [1981] 1 All ER 111 at 118, [1981] QB 180 at
198 (para 10); see also the judgments in Worringham v Lloyds Bank Ltd Case 69/80 [1981] 2 All ER 434 at 447, [1981] 1 WLR 950 at 969 (para 23) and Jenkins v
Kingsgate (Clothing Productions) Ltd Case 96/80 [1981] 1 WLR 972 at 983 (para 17). In the judgment in Barber [1990] 2 All ER 660 at 703, [1991] 1 QB 344 at 403
(para 38) the court refers to ‘the national court’.
43 Judgments in Macarthys Ltd v Smith Case 129/79 [1981] 1 All ER 111 at 118, [1981] QB 180 at 198 (para 10), Worringham v Lloyds Bank Ltd Case 69/80 [1981] 2 All
ER 434 at 447, [1981] 1 WLR 950 at 969 (para 23) and Jenkins v Kingsgate (Clothing Productions) Ltd Case 96/80 [1981] 1 WLR 972 at 983 (para 17).
44 Judgment in Defrenne (No 2) [1981] 1 All ER 122 at 134 (para 21).
45 Judgments in Defrenne (No 2) [1981] 1 All ER 122 at 134 (paras 22–23), Macarthys Ltd v Smith Case 129/79 [1981] 1 All ER 111 at 118, [1981] QB 180 at 198 (para
10), Worringham v Lloyds Bank Ltd Case 69/80 [1981] 2 All ER 434 at 447, [1981] 1 WLR 950 at 969 (para 23) and Jenkins v Kingsgate (Clothing Productions) Ltd
Case 96/80 [1981] 1 WLR 972 at 983 (para 17).
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Although, according to the court, the full attainment of the economic and social aims of art 11946 also require that all other sex discrimination is
eliminated, it considers in this regard that more detailed Community or national legislative provisions are necessary for this purpose:
________________________________________
46 As regards those aims, see the judgment in Defrenne (No 2) [1981] 1 All ER 122 at 133 (paras 8–12).
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‘It is impossible not to recognise that the complete implementation of the aim pursued by art 119, by means of the elimination of all
discrimination, direct or indirect, between men and women workers, not only as regards individual undertakings but also entire branches of industry
and even of the economic system as a whole, may in certain cases involve the elaboration of criteria whose implementation necessitates the taking
Preamble
of appropriate measures at Community and national level.’47
________________________________________
47 Judgment in Defrenne (No 2) [1981] 1 All ER 122 at 134 (para 19). That the question of the scope of the direct effect of art 119 essentially depends on the criterion
whether unequal treatment can be ascertained on the basis of a purely judicial analysis of the circumstances of the case and does not depend so much on the criterion
whether ‘direct’ or ‘indirect’, ‘overt’ or ‘disguised’ forms of discrimination exist is convincingly argued by Mr Advocate General VerLoren van Themaat in his opinion
in Burton v British Railways Board Case 19/81 [1982] 3 All ER 537 at 541, [1982] QB 1080 at 1085–1086 (para 2.6), with reference to the judgment in Jenkins v
Kingsgate (Clothing Productions) Ltd Case 96/80 [1981] 1 WLR 972.
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33. When applied to the issue of actuarial calculation factors, that case law leads to the following result. In certain cases, as in the Moroni case (see
para 7 966 above), unequal treatment due to the use of different actuarial factors in the matter of benefits (in particular upon early retirement) arises
from a legislative provision. In other cases, as in the Neath case (see para 8 above) and the Coloroll case (see para 9 above), differences based on
actuarial calculation factors arise in transfer payments or capital sum payments as a result of the contractual conditions governing the occupational
pension schemes in question, even under pension schemes having only male members (Coloroll case, para 9 above).
In all these cases, it is, however, possible for the national court to ascertain the existence of unequal treatment on the basis of a purely legal analysis:
the actuarial calculation factors are contained in a statutory provision or form part of the conditions governing an occupational pension scheme (contained
in the trust deed, constitutive rules or general conditions) and are clearly based on nothing else than the distinction between men and women48.
Furthermore, the discrimination can be established by a court with the aid of the criteria of equal work and equal pay contained in art 119: where the
pension benefit, capital sum or transfer payment which a male (or female) worker can claim is lower than those to which a female (or male) worker is
entitled, then, in the orthodoxy of the court’s case law, there is unequal pay for workers of one sex with regard to that of the other sex49. The conclusion
must therefore be that, where account is taken of actuarial calculation factors varying according to sex, this constitutes, at least in so far as such factors
result in different contributions or benefits for men and women (see para 34 below), unequal treatment on the ground of sex, which in principle is
prohibited by art 11950.
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48 On this point, see, in relation to the sex discrimination existing in Barber in the matter of conditions of access, in particular the age requirement in the GRE pension
scheme rules, para 47 of my opinion in that case ([1990] 2 All ER 660 at 692, [1991] 1 QB 344 at 388).
49 See the judgment in Barber [1990] 2 All ER 660 at 703, [1991] 1 QB 344 at 403 (para 38).
50 For examples of other, more indirect discrimination in occupational pension schemes, see D Curtin ‘Occupational pension schemes and Article 119: beyond the fringe?’
(1987) 24 CML Rev 215 at 216.
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34. Possible grounds of justification Nevertheless, the question arises whether it is possible to identify an objective reason on the basis of which
such unequal treatment may be justified under Community law. It is argued by various sides that such a reason is to be found in objectively determinable
differences in average life expectancy between men and women.
Before going into this question, I would draw attention to the reservation expressed at the end of the previous paragraph. I agree with the United
Kingdom and the Netherlands government that the use of sex-based actuarial calculation factors with a view to assessing a pension scheme’s financial
liabilities is not prohibited per se by art 119. In other words, art 119 does not interfere with the method of financing an occupational pension scheme in so
far as this does not result in unequal pay for the workers of one sex in relation to that of the other sex. Unlike the United Kingdom (whose view on this
point differs as a matter of fact from that of the Netherlands government), I consider, however, that if the use of such actuarial factors leads to different
employee 967 contributions and/or different benefits51—in the form of transfer payments, capital sums or reduced pensions upon early
retirement—art 119 is fully applicable (see para 33 above).
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51 If the pension scheme is also financed by employers’ and/or state contributions, I consider that account may be taken, in calculating those contributions, of sex-based
actuarial factors in so far as differences resulting therefrom do not in any way lead to a different burden in respect of contributions for male and female employees and
the payments made to men and women with the help of those contributions are not discriminatory either.
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35. I thus come to the question whether differences in average life expectancy between men and women can justify the use of sex-based actuarial
factors in the calculation of employee contributions and benefits in occupational pension schemes. It is true that women as a group prove to live longer
than men. It is, however, equally true that not all individual men and women exhibit the average characteristics of their sex: many women live for a
shorter time than the average man and many men live longer than the average woman. The key question, therefore, is whether discrimination, within the
meaning of art 119, exists when men and women are treated, not as individuals, but as a group and unequal treatment for individual men or women arises
as a result.
In my view, the answer must be in the affirmative: although art 119—unlike its American counterpart, the Civil Rights Act 1964, which is expressly
orientated towards equal treatment of the individual, as distinct from the sex group to which the individual belongs52—prescribes in general terms the
application of the principle of equal pay for ‘men and women’, this provision also reflects the aspiration to treat the worker as an individual with regard to
the worker’s right to equal pay for equal work, and not simply as a member of one particular sex group53. For, as the court confirmed in its judgment in
Murphy, underlying art 119 is the principle that a worker of one sex engaged in work of equal value to that of a worker of the opposite sex may not be
paid a lower wage than the latter on the grounds of sex54. The mere fact that, in general, women live on average longer than men cannot, therefore, be a
sufficient reason to provide for different treatment in the matter of contributions and benefits under occupational pension schemes.
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52 The Civil Rights Act prohibits discrimination ‘against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such
individual’s … sex’: 42 USC § 2000e-2(a)(1).
53 See, in the same sense, D Curtin ‘Scalping the Community legislator: occupational pensions and Barber’ (1990) 27 CML Rev 475 at 495.
54 Judgment in Murphy v Bord Telecom Eireann Case 157/86 [1988] ECR 673 at 689–690 (para 9); see also the opinion of Mr Advocate General Lenz in that case (at 684
(para 12)).
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36. I can put those propositions in another way. The unequal treatment of men and women may be justified, and therefore not constitute unlawful
discrimination, if the difference in treatment is based on objective differences which are relevant, that is to say which bear an actual connection with the
subject of the rules entailing unequal treatment. In this regard, I could for instance imagine that factors having a direct impact on the life expectancy of a
Preamble
specific individual, such as risks associated with a particular occupation, smoking, eating and drinking habits and so forth, would be taken into account, if
this is technically possible, in order to justify individual differences in contributions and/or benefits. As regards differences in average life expectancy
between men and women, the situation is different, however. These differences bear no relation to the life expectancy of a specific individual and are
968 thus irrelevant for the calculation of the contributions and/or benefits which may be ascribed to that individual.
37. The assertion that, as the Danish government points out, the propositions set out above must inevitably lead to a redistribution between the two
sexes, so that one sex de facto ‘subsidises’ the pension benefits received by the other sex, I do not consider to be a convincing objection. In order to
negate it I would refer to the judgment of the United States Supreme Court in City of Los Angeles Dept of Water and Power v Manhart (1978) 435 US
702 esp at 710, in which a similar argument was rejected in these words:
‘… when insurance risks are grouped, the better risks always subsidize the poorer risks. Healthy persons subsidize medical benefits for the less
healthy; unmarried workers subsidize the pensions of married workers; persons who eat, drink, or smoke to excess may subsidize pension benefits
for persons whose habits are more temperate. Treating different classes of risks as though they were the same for purposes of group insurance is a
common practice which has never been considered inherently unfair. To insure the flabby and the fit as though they were equivalent risks may be
more common than treating men and women alike; but nothing more than habit makes one “subsidy” seem less fair than the other.’
The concern also expressed by the Danish government that workers who became aware that their contributions were to some extent benefiting
workers of the other sex might not wish to become members of such schemes likewise appears to me unfounded, at least in so far as it is assumed that the
prohibition laid down in art 119 extends to all occupational pension schemes, irrespective of the legal form which they take (see also paras 62–63 below).
38. In order to justify the use of sex-based actuarial calculation factors in the determination of employee contributions or pension benefits some
parties point out that their use is necessary in order to maintain the financial balance of occupational pension schemes. The United Kingdom above all
attempts to convince the court of the need for this. Its argument runs as follows: the fact that women live on average longer than men is an essential
element in assessing the financial liabilities of such schemes since it must be assumed that women will draw their pension during a longer period than
their male colleagues. This necessarily gives rise to unequal costs for a scheme, depending on whether men or women are involved, which inevitably has
effects on the level of benefits. The imposition of a unisex method for calculating the fund required for the scheme would also fly in the face of reality
and impair the actuary’s ability to give sound advice concerning the pension scheme’s liabilities and the appropriate level of future contributions.
39. Although, in view of recent case law of the court, I cannot immediately exclude the possibility that the necessity for a financial balance may in
some circumstances justify discriminatory treatment55, I am not convinced by those arguments. I have difficulty in accepting that it would be technically
necessary to take into account actuarial factors differing according to sex (in particular differences in life expectancy between men and women) in order
to determine the contributions and benefits to be paid, since not a single state pension scheme applies such a distinction56 and some occupational pension
schemes, particularly in countries where their use is prohibited, do not do so either57. I can well understand that it is important for a pension fund to get
an accurate 969 picture of the life expectancy of the scheme members so as to assess outstanding and future liabilities. But this concerns only the
internal actuarial methods of administration which are used by actuaries in order to ascertain the funds needed in order to maintain a financial balance
between contributions and benefits, taking into account the lifespan of the persons entitled to pensions. There is nothing to prevent actuaries, when
determining that balance, from taking account of actuarial factors differing according to sex (see para 34 above). What is, however, required by art 119 is
that the determination of the amount of contributions to be paid by members and the amount of benefits to be paid to the entitled employee—thus, as far
as the external relations of the scheme with its members are concerned—should take place on the basis of the same criteria for men and women.
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55 See, in particular, the judgment in R v Secretary of State for Social Security, ex p Equal Opportunities Commission Case C-9/91 [1992] 3 All ER 577 esp at 604–605
(paras 15–18), which concerned the interpretation of the derogation from the principle of equal treatment of men and women provided for in art 7(1)(a) of Directive
79/7. Just recently that judgment has been confirmed and clarified: see the judgment in Secretary of State for Social Security v Thomas Case C-328/91 [1993] 4 All ER
556 at 574–575, [1993] QB 747 at 767 (paras 9–12). In the recent judgment in Poucet v Assurances Générales de France Joined cases C-159/91 and C160/91 [1993]
ECR I-637 (esp para 13), too, central to which was the question whether a body charged with the administration of a special social security scheme was to be regarded
as an undertaking within the meaning of arts 85 and 86 of the EEC Treaty, the court laid stress on the necessity to maintain the financial balance of such a scheme.
Mention may also be made of the judgment in Celant v EC Commission Joined cases 118 to 123/82 [1983] ECR 2995 at 3013–3014 (para 27), in which the court, with
regard to the taking into account, in the Community pension scheme, of insurance periods completed under a national pension scheme, likewise stressed the need for
‘sound financial management’ of that scheme.
56 See A Laurent ‘Les CE éliminent des discriminations fondées sur le sexe dans les régimes professionnels de sécurité sociale’ (1986) 125 Revue internationale du
Travail 753 at 760.
57 I am here thinking of the United States, where it is established that the use of actuarial factors varying according to sex for the calculation of contributions to pension
schemes is contrary to the Civil Rights Act 1964 since the ruling of the United States Supreme Court in City of Los Angeles Dept of Water and Power v Manhart (1978)
435 US 702. In 1983 Supreme Court ruled that the use of such factors in respect of benefits under such schemes was also caught by the prohibition of discrimination:
Arizona Governing Committee for Tax Deferred Annuity and Deferred Compensation Plans v Norris 463 US 1073; see also Florida v Long (1988) 487 US 223.
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Whilst I therefore find that the necessity to maintain the financial balance of occupational pension schemes does not constitute a ground of
justification for discriminatory treatment of men and women as regards contributions and benefits, it does, however, seem to me to be a reason to take a
broad view of the temporal limitation of the proposed interpretation. I consider that limitation to be sensible and shall now devote the following
paragraphs to it.
40. Limitation of the temporal effect of the interpretation proposed in this opinion Should the court decide to adopt the position taken in this
opinion, it would be appropriate to place a temporal limitation on the operation of that interpretation and to indicate as precisely as possible the modalities
of the proposed limitation. This is in fact what the High Court seeks to ascertain in the Coloroll case with its question 4(c), where it is asked to what
extent (in particular, in respect of which periods) can the trustees of a pension scheme be required to review and recalculate determinations made by
reference to actuarial considerations in relation to events prior to 17 May 1990.
Nearly all the parties intervening before the court have adopted a position with regard to the temporal effect of a judgment in which the court ex
hypothesi 970 holds art 119 to be applicable to the use of actuarial calculation factors varying according to sex. Their positions may be summarised
as follows.
41. The German government and the United Kingdom argue that the same principles must apply as in relation to the temporal effect of the Barber
judgment itself. From this the United Kingdom deduces that benefits would fall to be reviewed and recalculated only in so far s they related to service
after 17 May 1990.
The Netherlands government does not suggest any date but argues that current differences in lifelong periodic benefits upon early retirement or upon
the conversion of part of a pension into a lump sum may continue to exist if accruing in respect of periods of service prior to a point in time to be
determined by the court, or at any rate 17 May 1990.
Preamble
The Commission’s position is less clear. In Neath, clearly assuming that the issue of actuarial factors was not covered by the Barber judgment, it
suggested that, should the court adopt the interpretation proposed above, it should limit the temporal effect of its judgment in the present case. In its
observations in the Coloroll case, on the other hand, the Commission takes the view that the reasoning followed in the Barber judgment in relation to the
effects in time of that judgment must also be applicable in relation to claims challenging discrimination which appeared to be permissible on account of
Directive 86/378. Should the court uphold a different view, the Commission suggests that it should invite written observations as to the most appropriate
limitation in time of its decision.
42. Like the aforementioned intervening parties, I consider that the principles indicated in Barber in relation to temporal effect, as I have explained
those principles above (paras 17–20), should apply. This means that, as regards the issue of actuarial calculation factors, too, it seems tome that, for the
overriding reasons of legal certainty and in view of the good faith of market participants and the member states, it is necessary to limit the temporal effect
of the interpretation which I advocate in this opinion. The reason for this is that market participants as well as the member states could rely on the
permissibility under Community law of the differences in actuarial calculation applied by occupational pension funds, in view of the extensive
derogations which Directive 86/378 (see para 29 above) provided for on this point in relation to the implementation of the principle of equal treatment laid
down by that directive. Relying on this, pension fund administrators determined the contributions to be paid by, and the benefits to be paid to, male and
female employees in respect of periods in the past by taking account of such actuarial differences. To alter such determinations in respect of the past
could seriously jeopardise the financial balance of pension schemes.
As regards, more specifically, the date from which the temporal limitation is to apply, I consider—unlike the United Kingdom and, so it seems, the
Commission in its observations in the Coloroll case—that the court may not take the Barber judgment as its reference point but must take the date of the
judgment in these cases. The judgment in Barber related, after all, to a different issue, namely the question whether an age condition differing according
to sex for entitlement to an occupational pension was permissible under art 119. It is only in the present cases, in particular in Neath and Coloroll, that
the court was asked to address the issue of the actuarial calculation factors applied in relation to such pensions.
971
43. This brings me to the following conclusion. In view of the derogations provided for in Directive 86/378, the parties concerned could reasonably
assume that the use of actuarial factors varying according to sex, in particular for the determination of contributions to be paid by, and benefits to be paid
to, employees, was permissible under art 119. In order to prevent pension schemes built up in the past on the basis of such factors from being called in
question, with all the considerable financial repercussions which this would entail, it is therefore appropriate for the court to limit the effect of its
interpretation to pension entitlements which correspond to periods of service subsequent to the date of its judgment in the Neath and Coloroll cases. The
only exception which I consider desirable in this regard concerns the situation of persons—employees or those claiming under them—who before the date
of the court’s judgment have initiated legal proceedings or raised an equivalent claim under the applicable national law.
Does the payment of a widower’s pension fall under art 119 of the Treaty?
44. In the Ten Oever case the Kantonrechter at Utrecht asks whether ‘pay’ within the meaning of art 119 of the ‘other consideration’ referred to in
that article is to be understood as covering the payment of non-statutory benefits to surviving relations (in that case, the payment of a widower’s pension).
Mr Ten Oever, the United Kingdom and the Commission take the view that this question must be answered in the affirmative. The pension fund and
the Netherlands and German governments, on the other hand, propose a negative answer.
45. Before giving my view, I consider it necessary to describe the precise characteristics of the widower’s pension in question. According to the
rules of the pension fund, it is a pension which is awarded to the man to whom the female member or the former female member was married at the time
of her death, provided that the marriage took place before the woman in question reached the age of 6558. It also appears from the observations of the
Netherlands government and the pension fund that the scheme concerned is an industry pension scheme which was compulsorily established pursuant to
the Wet betreffende verplichte Deelneming in een Bedrijfspensioenfonds (law concerning compulsory affiliation to an occupational pension fund (Law of
17 March 1949, Staatsblad J 121)) for the entire window-cleaning and cleaning industry. In order for it to be made compulsory—which occurs through
ministerial order—the aforesaid law requires that the representative employers’ and employees’ organisations in an industry which has established a
pension fund must submit an application for this purpose59. The Netherlands government has explained that the terms of the pension scheme are
determined by collective bargaining between employers’ and employees’ organisations; the scheme is funded mainly by means of an average
contribution, which, as in the instant case (see para 6 above), is paid jointly by employers and employees. Finally, amendments to the order rendering the
scheme compulsory, the statutes and the rules of the occupational pension fund require the prior consent of the competent minister.
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58 This is what is provided by art 2(1)(c) of the rules of the pension fund, which has been in force since 1 January 1989.
59 Article 3(1) of the Wet betreffende verplichte Deelneming in een Bedrijfspensioenfonds.
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972
46. Is such a widower’s pension a form of pay within the meaning of art 119 of the Treaty? According to the Netherlands government, this is
doubtful or at any rate unclear: on the one hand, the Barber judgment—which did not concern a survivor’s benefit—appears to suggest that occupational
pension schemes are indeed covered by art 119; on the other hand, however, benefits for surviving relatives occupy a specific place in secondary
Community law. The government is referring in this regard to art 3(2) of Directive 79/7, which expressly excludes survivors’ benefits from equal
treatment in the matter of social security, as well as to art 9(b) of Directive 86/378, which allows the member states to defer the implementation of the
principle of equal treatment with regard to survivors’ pensions ‘until a directive requires the principle of equal treatment in statutory social security
schemes in that regard’. This special position of benefits for the surviving spouse was, according to the Netherlands government, also confirmed in the
proposal for a directive completing the implementation of the principle of equal treatment for men and women in statutory and occupational social
security schemes submitted by the Commission to the Council on 27 October 198760. Article 4 of the proposal implements the principle of equal
treatment as regards surviving spouse’s benefits61.
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60 OJ 1987 C309, p 10. In the fifth recital of the preamble to this proposal, express reference is made to art 9(b) of Directive 86/378.
61 It is to be noted that art 4 forms part of Title I of the proposed directive, ‘Survivors’ benefits’, in which it appears alongside provisions intended to implement the
principle of equal treatment in the matter of orphans’ benefits (art 5) and other survivors’ benefits (art 6).
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Finally, the Netherlands government finds confirmation of its view that survivors’ benefits occupy a specific place in Community law in the court’s
judgment in Newstead. According to the pension fund, in its judgment in that case the court proceeded from the assumption that a widow’s pension is not
Preamble
an element of pay within the meaning of art 119.
47. I propose to consider first of all the argument which these parties believe they can derive from the judgment in Newstead. That case concerned
the question of the compatibility with Community law of a United Kingdom occupational pension scheme (again, a contracted-out scheme) which
required only male civil servants to contribute 1.5% of their gross salary to a widows’ pension fund. Although the gross salary of male and female civil
servants was the same, the relevant contributions led to a lower net salary for men. However, the contributions of an unmarried official such as Mr
Newstead were paid back, together with compound interest, if he left the civil service or in the event of his death.
The court held that art 119, read in conjunction with Directive 75/117, did not preclude such a scheme (see [1988] 1 All ER 129 at 151, [1988] 1
WLR 612 at 616–617 (para 21)). It reasoned that the disparity in net salary at issue was in fact the result of the deduction of a contribution to an
occupational pension scheme. Since that scheme replaced the statutory scheme, the court concluded that such a contribution ‘must therefore, like a
contribution to a statutory social security scheme, be considered to fall within the scope of art 118 of the Treaty, not of art 119’ (see [1988] 1 All ER 129
at 150, [1988] 1 WLR 612 at 616 (para 15)).
Asked in the second place whether the scheme rules were compatible with Council Directive (EEC) 76/207 on the implementation of the principle of
equal treatment for men and women as regards access to employment, vocational 973 training and promotion, and working conditions, the court
held—with reference to art 3(2) of Directive 79/7 and art 9(b) of Directive 86/378 cited above (at para 46)—that none of the directives which the Council
had established on the progressive implementation of the principle of equal treatment in the field of social security was applicable to survivors’ pensions
(see [1988] 1 All ER 129 at 151–152, [1988] 1 WLR 612 at 617 (paras 25–27)). The court accordingly concluded that there was no breach of Directive
76/207 either. Thus, according to the court, the case fell within the exception to the application of the principle of equal treatment provided for in art 1(2)
of Directive 76/207 (see [1988] 1 All ER 129 at 152, [1988] 1 WLR 612 at 618 (para 28))62.
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62 Article 1(2) of this directive refers, with a view to ensuring the progressive implementation of the principle of equal treatment in matters of social security, to provisions
which the Council, acting on a proposal from the Commission, is to adopt defining its substance, its scope and the arrangements for its application.
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48. One should be wary of drawing too far-reaching conclusions from that judgment. After all, in that case the court was addressing itself to the
question whether a difference in net salary between men and women as a result of compulsory affiliation for men to a widows’ pension fund constituted
discrimination contrary to art 119; the question whether a widow’s pension itself was to be regarded as pay within the meaning of that provision was not
in point as such. However, I consider it to be of decisive importance that in Barber the court expressly went back on the view it had taken in Newstead
that the supplementary pension concerned did not fall under art 119 but under art 118: in Barber the court ruled that ‘a pension paid under a
contracted-out private occupational scheme falls within the scope of art 119 of the Treaty’ (see [1990] 2 All ER 660 at 702, 704, [1991] 1 QB 344 at 401,
404 (para 30 of the judgment and point 2 of the operative part)).
49. In Barber the court came to that conclusion on the basis of an analysis of the contracted-out occupational pension scheme in question in that case
which goes back to the criteria developed in Defrenne (No 1) and Bilka (see para 3 above) and which I will shortly apply to the widower’s pension with
which the Ten Oever case is concerned. First of all, however, I would make this point: it follows from the very nature of a widower’s pension of the kind
now in question that the pension is not granted to the employee but to the employee’s surviving spouse. However, I do not see in that circumstance any
convincing objection to the application of art 119 to such a widower’s pension despite the way in which the court defined ‘pay’ for the purposes of art 119
(see para 3 above)—‘consideration which the worker receives … in respect of his employment’. The essential point is that under the rules of the pension
fund, membership of the scheme affords entitlement to the widower’s pension63: in other words, as the United Kingdom rightly points out, the pension is
acquired within the employment relationship between employer and employee and therefore paid to surviving spouses in respect of the employment of
their deceased spouses, ie, in the words of the pension scheme rules, ‘female members or former female members’.
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63 Article 2(1), first sentence, of the pension scheme rules, as applying from 1 January 1989.
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50. There remains the question whether, as the Netherlands government and the pension fund argue, a pension scheme such as the one under
consideration is not rather like an old-age pension, as in Defrenne (No 1), and 974 therefore still falls outside the scope of art 119. If I apply the
criteria developed in the judgments in Defrenne (No 1), Bilka and Barber (see para 3 above) to the widower’s pension in the Ten Oever case, then I must
answer that question in the negative. First of all, it is clear that this pension scheme, although made compulsory by law, is the result of collective
consultations within the industry concerned and is not as such directly established by law. Upon application by the employers’ and trade union
organisations considered to be representative, which initially drew up the actual terms of the pension scheme through a process of collective bargaining,
the state merely stipulates that the scheme concerned is to be made compulsory for an entire industry. The scheme is therefore primarily ‘the result … of
an agreement between workers and employers’64.
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64 Judgment in Barber [1990] 2 All ER 660 at 701, [1991] 1 QB 344 at 400 (para 25).
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Furthermore, it is not disputed that the pension scheme in question is funded exclusively by employers and employees without any contributions
from the state65.
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65 The situation was the same in Barber: see [1990] 2 All ER 660 at 701, [1991] 1 QB 344 at 400 (para 25).
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Finally, the scheme is not compulsorily applicable to general categories of workers but only to workers employed by certain undertakings, in
particular workers in the window-cleaning and cleaning industry. In the words of the Barber judgment, it must therefore be assumed that affiliation to the
scheme derives of necessity from the employment relationship with a given employer and that the scheme, even though recognised and made compulsory
by the public authorities, is governed by its own rules (see [1990] 2 All ER 660 at 701, [1991] 1 QB 344 at 400–401 (para 26)).
51. It follows that a widower’s pension, such as that concerned in the Ten Oever case, falls within the scope of art 119 of the Treaty. Although I
think that, strictly speaking, it was possible, even before the judgment in Barber and particularly after the judgment in Bilka, to come to this conclusion
on the basis of the court’s case law, I agree with the Netherlands and German governments and the United Kingdom that the court’s judgment must be
limited in time on this point, too. Once again, given the derogation provided for in art 9(b) of Directive 86/378 (see para 46 above), the member states
and the parties concerned could assume that discrimination in occupational pension schemes as regards the granting of widowers’ pensions was still
permissible under Community law.
I accordingly consider that, as regards the application of art 119 to widowers’ pensions, the court must again limit its judgment in time in accordance
with the principles which I have indicated above in relation to the temporal effect of the Barber judgment66. As far as the reference date is concerned, I
Preamble
would consider appropriate not the date of the Barber judgment but that of the judgment to be given in the Ten Oever case, since only in that case is the
court asked to rule on this issue.
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66 Indeed, a similar approach is proposed by the Commission in its proposal of 27 October 1987 for a Council directive mentioned above, wherein art 13(2) provides that,
with respect to the application of the principle of equal treatment to benefits of the surviving spouse, the directive may not be relied upon in respect of applications
submitted before the date of its implementation.
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Concretely, the view I have taken means that, contrary to what the United Kingdom in particular argues, Mr Ten Oever is indeed entitled to the
widower’s 975 pension which he claims since as a person claiming under a worker he took action in good time to safeguard his rights, namely by
initiating legal proceedings on 8 October 1990 before the Kantonrechter at Utrecht.
The question whether art 119 may be relied upon by the spouse of a deceased worker
52. In the Coloroll case (question 1), and to some extent in the Ten Oever case as well, the question arises as to whether, apart from the worker
himself or herself, persons dependent on the worker, in particular the widow or widower of the worker, may also rely on the direct effect of art 119 of the
EEC Treaty with regard to claims to benefits under a pension scheme.
Five of the defendants in the main proceedings in the Coloroll case (James Russell, Gerald Parker, Robert Sharp, Joan Fuller and Judith Broughton),
the United Kingdom, Ireland and the Commission have answered this question in the affirmative. The Netherlands government, on the other hand, argues
that art 119 has in view only the relationship between the employer and the employee. Since the surviving relatives are outside that relationship, they
cannot rely independently on that provision. However, the Netherlands government immediately goes on to point out that the practical significance of
this aspect of the scope ratione personae of art 119 is not very great, since surviving relatives will usually be able to rely on art 119 as heirs in so far as
they may in any case be legal successors—under national law on succession—as regards any claims of the deceased worker against the former employer.
53. I cannot accept that last view. I have already reached the conclusion (in para 51) that a widower’s pension of the type in question in the Ten
Oever case falls within the scope of art 119 of the EEC Treaty. As far as such a pension scheme is concerned, but also with regard to other occupational
pensions, the question whether art 119 may be relied upon by the worker’s surviving spouse usually arises in practice where the worker has died and the
surviving spouse subsequently claims the benefits from the pension scheme of which the worker was a member. If, as a matter of law, this spouse could
not rely on art 119, then in such a situation the principle of equal pay would lose its useful effect.
Moreover, the court has already taken such a view in relation to the application of Directive 79/7, in particular in the Verholen judgment. That case
concerned, inter alia, the question whether the spouse of a worker who falls within the scope of that directive (but who is not a party to the proceedings)
may rely on the provisions of that directive if he bears the effects of a discriminatory national provision. The court expressly recognised that—
‘the right to rely on the provisions of Directive 79/7 is not confined to individuals coming within the scope ratione personae of the directive, in
so far as the possibility cannot be ruled out that other persons may have a direct interest in ensuring that the principle of non-discrimination is
respected as regards persons who are protected.’ (See [1991] ECR I-3757 at 3790 (para 23).)
Although the court admitted that the determination of an individual’s standing and legal interest in bringing proceedings was a matter of national
law, it referred to its settled case law according to which Community law requires that national legislation should ensure effective judicial protection and
that the application of national legislation must not render virtually impossible the exercise of the rights conferred by Community law (see [1991] ECR
I-3757 at 976 3790–3791 (para 24)). The court’s actual answer to the question raised was that an individual may rely on Directive 79/7 before a
national court if he bears the effects of a discriminatory national provision regarding his spouse who is not a party to the proceedings, provided that his
spouse herself comes within the scope of the directive (see [1991] ECR I-3757 at 3791, 3793 (para 26 of the judgment and point 3 of the operative part)).
54. Consequently, the surviving spouse may also rely on the direct effect of art 119 with regard to claims to benefits which the deceased worker had
under an occupational pension scheme, although, of course, the temporal limitations which I have proposed in relation to the Barber judgment and to the
issue of actuarial calculation factors also apply on this point, too.
The question whether art 119 may be relied upon against the trustees of an occupational pension scheme
55. The question submitted to the court in the Coloroll case (question 1) is a different one: it is whether employees or those claiming under them
may, in relation to claims to pension benefits, also rely on the direct effect of art 119 against a person other than the employee, namely the trustees of an
occupational pension scheme. I will first consider the main issue itself, as to whether art 119 may be relied upon, before going on to deal with the other
problems raised in the High Court’s questions.
Most of the defendants in the main proceedings in the Coloroll case (all but Judith Broughton and Coloroll Group plc), the United Kingdom and the
Commission take the view that art 119 may be relied upon against the trustees of a pension scheme. I can only indorse their arguments: the practical
significance and the useful effect of art 119 would be considerably reduced—and the necessary judicial protection for the operation of that article
substantially impaired—if an employee or those claiming under him could rely on that provision only as against the employer. This is especially true of
countries like the United Kingdom in which the use of trusts for occupational pension schemes is widespread.
56. Moreover, I find support for this view in both the wording of art 119 and the case law of the court. As far as the wording of art 119 is
concerned, the Commission rightly points out that ‘pay’ includes all consideration which the worker receives directly or indirectly from the employer in
respect of his employment. The court accordingly held in Barber [1990] 2 All ER 660 at 702, [1991] 1 QB 344 at 401 (para 29) that the fact that
contracted-out occupational pensions are not paid to the employee by the employer himself but by the trustees of a pension scheme is irrelevant for the
purposes of art 119:
‘That interpretation of art 119 is not affected by the fact that the private occupational scheme in question has been set up in the form of a trust
and is administered by trustees who are technically independent of the employer, since art 119 also applies to consideration received indirectly from
the employer.’
Subsequently, in settled case law since Defrenne (No 2), the court has confirmed that the prohibition of discrimination laid down in art 119 is
mandatory and applies erga omnes:
‘The prohibition of discrimination between male and female workers contained in [art 119 of the Treaty], being mandatory, not only applies to
977 the action of public authorities but extends also to all agreements which are intended to regulate paid labour collectively, as well as to
contracts between individuals …’ (My emphasis.)67
Preamble
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67 Judgment in Kowalska v Freie und Hansestadt Hamburg Case C-33/89 [1990] ECR I-2591 at 2611 (para 12), containing a reference to the judgment in Defrenne (No 2)
[1981] 1 All ER 122 at 135 (para 39); on the matter of collective labour agreements, see also the judgment in Nimz v Freie und Hansestadt Hamburg Case C-184/89
[1991] ECR I-297 at 320 (para 17).
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From that case law it follows that the court does not limit the direct effect of art 119 to vertical situations (state-private individuals) and contractual
conditions agreed collectively or individually between the employer and employees but extends it to all contracts between individuals. These
undoubtedly include contractual agreements which an employer has made with persons, including trustees, who are engaged in some way or other to
administer the pension rights accruing to an employee from the employment relationship with that employer.
57. In my view, this carry-over effect which art 119 has with regard to the trustees of an occupational pension scheme cannot be resisted by arguing
for example, as Judith Broughton does, that the trustees might then be compelled to act in a way which would be contrary to the provisions of the trust
deed and it might become impossible for them to give effect to the deed. The fundamental nature of the principle of equal pay for men and women laid
down in art 119, which constitutes an application of the prohibition of discrimination on grounds of sex and therefore of a fundamental right68, means
that any provision which is contrary to it, whether contained in national legislation, administrative provisions or in a contract or (trust) deed governed by
private law, must be overridden by that rule. To take a different view would make it all too easy for the principle of equal treatment to be circumvented
by bringing in persons who are not parties to the employment relationship.
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68 See the judgment in Defrenne v Société Anonyme Belge de Navigation Aérienne Sabena Case 149/77 [1978] ECR 1365 at 1378 (para 27); judgment in Razzouk and
Beydoun v EC Commission Joined cases 75 and 117/82 [1984] ECR 1509 at 1530 (para 16). It is precisely the fundamental nature of the principle of equal treatment in
the Community legal order that has repeatedly led the court to interpret narrowly the derogations from it permitted by the Community legislature: see the judgments in
Roberts v Tate & Lyle Industries Ltd Case 151/84 [186] 2 All ER 602 at 611–612 (para 35), Marshall v Southampton and South West Hampshire Area Health Authority
(Teaching) Case 152/84 [1986] 2 All ER 584 at 601, [1986] QB 401 at 422–423 (para 54) and Beets-Proper v F Van Lanschot Bankiers NV Case 262/84 [1986] ECR
773 at 792 (para 38).
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Nor do I consider that this view is contradicted by art 6(2) of Directive 86/378, as the Netherlands government argues. That provision requires the
management bodies of supplementary or contracted-out occupational pension schemes to take account of the principle of equal treatment where the
granting of benefits is left to their discretion. I see in that provision merely a confirmation of the Community legislature’s intention to give effect to the
principle of equal treatment as effectively as possible and certainly not any argument a contrario according to which the worker or the person (or persons)
claiming under him could not, as regards pay discrimination directly caught by art 119, rely on art 119 against trustees as well. In any case, that directive
cannot detract from the effect of art 119 (see para 31 above).
58. For the sake of clarity, I will deal with another point raised by the Netherlands government. This government points out the complications
which, in its view, could be produced by an extension of the horizontal direct 978 effect of art 119 where a worker is a member of different
occupation pension schemes in succession—usually, but not necessarily, as a result of his changing his employer. This point is also touched upon by the
High Court in question 5(2) of its order for reference. In such circumstances, it happens quite frequently (consider Mr Neath’s option between a deferred
pension and a transfer payment, para 8 above) that the most recent pension scheme, in exchange for a transfer payment, has taken over the previous
scheme’s obligation to pay benefits. In such a case, can the last pension scheme be confronted with the claims of a worker which are based on unequal
treatment to which that worker was subjected under a previous pension scheme with a different employer?
Like the interveners who advocate the second interpretation of the temporal effect of Barber, I consider that this feared ‘domino’ effect will be
almost entirely neutralised by the limitations concerning the temporal effect of the court’s rulings which I have proposed, and in particular of the Barber
judgment itself (para 21 above) as well as of the judgments to be given in the Neath and Coloroll cases in which the court is asked to rule on the question
of actuarial calculation factors (para 43 above). The periods of service in relation to which a worker is entitled to rely on the principle of equal treatment
will then be clear for all parties, so that in principle no more problems should arise where transfer payments are made from one pension scheme to
another.
59. The effects of art 119 in relation to the action of trustees In the event that art 119 may also be relied upon against the trustees of a pension
scheme, the High Court poses a number of sub-questions about the way in which the trustees or the employer should act in order to give effect to the
principle of equal treatment (question 1(2)(i), (ii) and (iii)). Essentially, there are two questions to be answered: they concern (i) the effect of Community
law on the way in which trustees or employers are to exercise their powers and (ii) the financial shaping of the equal treatment principle, in particular
whether this must be put into effect by increasing the benefits granted to the disadvantaged sex or whether it may also be put into effect by reducing the
benefits granted to workers of the advantaged sex.
On the first point, concerning the effect of Community law on the way in which trustees and employers are to exercise their powers, I can be brief.
It is clear that these persons are bound to do everything within their powers to ensure that benefits payable to workers or those claiming under them are in
conformity with the principle of equal treatment, having due regard for the limitations on the temporal effect of that principle proposed above. With this
in view, they can be obliged to co-operate with one another, such co-operation being, according to the High Court’s order for reference, generally
required in order to make amendments to the trust deed and to the rules of the pension scheme. It goes without saying that this leaves a major supervisory
task to be performed by the national court, which must ensure that Community law takes full effect and that the legal protection which it requires is
available69, and to that end—making full use of the discretion conferred upon it by its own national law—must interpret and apply national (legislative
and, a fortiori, contractual or constitutive) provisions in accordance with Community law or, 979 when this does not appear to be possible, if necessary
set aside on its own authority the legislative, contractual or constitutive provisions which conflict with it70.
________________________________________
69 This is settled law: see, inter alia, the judgments in Factortame Ltd v Secretary of State for Transport (No 2) Case C-213/89 [1991] 1 All ER 70 at 105, [1991] 1 AC 603
at 643–644 (para 19) and Francovich v Italy Joined cases C-6/90 and C-9/90 [1991] ECR I-5357 at 5414 (para 32).
70 See the judgments in Murphy v Bord Telecom Eireann Case 157/86 [1988] ECR 673 at 690 (para 11), Nimz v Freie und Hansestadt Hamburg Case C-184/89 [1991]
ECR I-297 at 321 (para 19); and Amministrazione delle Finanze dello Stato v Simmenthal SpA Case 106/77 [1978] ECR 629 at 644 (para 21).
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60. The second question, concerning the financial result to be achieved as far as employees are concerned, appears to me to be more delicate. A
number of defendants in the main proceedings in the Coloroll case (James Russell, Gerald Parker, Robert Sharp and Joan Fuller) rightly refer in this
regard to the judgment in Defrenne (No 2). In that case the court, having regard to the social aim underlying art 119, as reflected in art 117, which refers
to the need to promote improved working conditions and an improved standard of living for workers, stated that ‘the objection that the terms of this article
Preamble
may be observed in other ways than by raising the lowest salaries may be set aside’ (see [1981] 1 All ER 122 at 133 (para 15)). However, that ground of
judgment must be read in its context: the main proceedings concerned a claim for compensation made by Gabrielle Defrenne against her former employer,
Sabena, on account of pay discrimination in relation to service which had taken place in the previous decade. The court’s statement may accordingly be
regarded as only having in view discrimination occurring in the past. The fact that, in relation to such discrimination and pending a measure eliminating
it, an increase of the lowest salaries is required has been confirmed by more recent case law: particularly since its judgment in Razzouk and Beydoun v EC
Commission Joined cases 75 and 117/82 [1984] ECR 1509 at 1530–1531 (para 19)71 the court has indicated that ‘the only valid frame of reference’ for an
immediate implementation of the principle of equal treatment, so long as a scheme is still not adapted to that principle, is to be found in the pension
scheme rules in force. This means, that, pending new adjusted rules, the rule applicable under the existing scheme provisions to members of the more
favoured sex must also be applied to members of the less favoured sex72. As regards the past, or, more precisely, as regards pension benefits which relate
to periods of service performed in the past, the principle of equal treatment therefore requires that the benefits of the disadvantaged sex be brought up to
the level of those of the advantaged sex.
________________________________________
71 See, with regard to the criterion on the ‘only valid point of reference’ applied in that judgment, J Mertens de Wilmars ‘Le système communautaire de contrôle des
sanctions dans le domaine de l'égalité de traitement entre hommes et femmes’ in Egalité de traitement entre les hommes et les femmes, Revue de Travail April-May-June
1990 p 731 at p 735.
72 The court applied this criterion in particular in order to ensure application of the principle of equal treatment laid down in art 4(1) of Directive 79/7 for as long as this
directive is not being implemented (in full) by the national legislature: see the judgments in Netherlands v Federatie Nederlandse Vakbeweging Case 71/85 [1986] ECR
3855 at 3876 (para 22), McDermott and Cotter v Minister for Social Welfare and A-G Case 286/85 [1987] ECR 1453 at 1468 (para 18), Borrie Clarke v Chief
Adjudication Officer Case 385/85 [1987] ECR 2865 at 2881 (para 12), Ruzius-Wilbrink v Bestuur van de Bedrijfsvereniging voor Overheidsdiensten Case C-102/88
[1989] ECR 4311 at 4333 (para 20), Kowalska v Freie und Hansestadt Hamburg Case C-33/89 [1990] ECR I-2591 at 2613 (para 20), Nimz v Freie und Hansestadt
Hamburg Case C-184/89 [1991] ECR I-297 at 320 (para 18) and Johnson v Chief Adjudication Officer Case C-31/90 [1992] 2 All ER 705 at 726, [1993] QB 252 at 276
(para 36).
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However, in the case of benefits based on new rules adapted to the principle of equal treatment which govern periods of service in the future, the
situation is different. Like the Commission, I take the view that Community law does not 980 preclude a reduction of such benefits, so long as those
benefits are set at a level which is the same for men and women. To take any other view would entail undesirable Community interference in a policy
area which, in the present state of Community law, belongs to the sphere of competence of the member states, which, as the court has repeatedly
emphasised, ‘enjoy a reasonable margin of discretion as regards both the nature of the protective measures and the detailed arrangements for their
implementation’73.
________________________________________
73 Judgments in Hofmann v Barmer Ersatskasse Case 184/83 [1984] ECR 3047 at 3075–3076 (para 27), EC Commission v Belgium Case C-229/89 [1991] ECR I-2205 at
2229 (para 22) and Molenbroek v Bestuur van de Sociale Verzekeringsbank Case C-226/91 [1992] ECR I-5943 (para 15).
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61. The relation between the liability of the pension scheme and that of the employer In the event that art 119 may be relied upon against both the
employer and the trustees of a pension fund, the High Court poses a number of detailed questions regarding the relation between the liability of the
pension fund and that of the employer (question 1(3)), in particular where the funds of the pension scheme or of the employer are insufficient (question
1(4)).
Like Judith Broughton, Coloroll Group plc, the United Kingdom and the Commission, I consider that, as Community law stands at present, these
questions can only be dealt with at the national level. Article 119 of the EEC Treaty lays down a directly effective duty under which men and women are
guaranteed the same pay for the same work. Neither the Treaty nor any other Community legislation regulates the respective liabilities of the employer
and third parties as far as the performance of that obligation is concerned, in particular where an occupational pension scheme or the employer is solvent.
However, here again, it is for the national court to give full effect to Community law and to guarantee the necessary judicial protection (see para 54
above). Moreover, it is quite clear that the rules on liability which apply in relation to a breach of art 119 may not be less favourable than those which
apply to similar national claims or be of such a nature as to make it virtually impossible, or extremely difficult, to exercise rights conferred by Community
law74.
________________________________________
74 This has already been expressly confirmed by the court in equal treatment cases: see, with regard to Directive 79/7, the judgment in Verholen v Sociale
Verzekeringsbank Joined cases C-87/90, C-88/90 and C-89/90 [1991] ECR I-3757 as well as the judgment in Emmott v Minister for Social Welfare and A-G Case
C-208/90 [1991] ECR I-4269 at 4298 (para 16). See, more particularly, as far as claims for compensation are concerned, the judgment in Francovich v Italy Joined
cases C-6/90 and C-9/90 [1991] ECR I-5357 at 5416 (para 43). The three judgments refer on this point to the judgment in Amministrazione delle Finanze dello Stato v
SpA San Giorgio Case 199/82 [1983] ECR 3595 esp at 3612 (para 12).
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Article 119 and the different methods of funding occupational pension schemes
62. By its question 5(1) the High Court also seeks to ascertain whether, in the case of pension schemes which are not funded exclusively by
employers’ contributions but are also funded by compulsory and/or additional voluntary employees’ contributions, art 119 applies only to the benefits
payable out of those assets of the fund which are attributable to employers’ contributions or also to benefits attributable to the aforesaid employees’
contributions.
The answer to this question is of fundamental importance, although I consider it to be obvious. First of all, we must go back to the passage in the
Barber case [1990] 2 All ER 660 at 702, [1991] 1 QB 344 at 401 (para 28) cited earlier (para 4), in which the court held that a pension paid under a
contracted-out scheme constituted consideration paid by the employer to the 981 worker in respect of his employment and consequently fell within
the scope of art 119 of the Treaty (see, too, the last sentence of para 25 ([1990] 2 All ER 660 at 701, [1991] 1 QB 344 at 400): ‘Accordingly, such
schemes form part of the consideration offered to workers by the employer.’). The court came to this decision on the basis of an analysis of the pension
schemes in question, from which it ascertained, inter alia, that they were ‘wholly financed by the employer or by both the employer and the workers
without any contribution being made by the public authorities in any circumstances’ (see [1990] 2 All ER 660 at 701, [1991] 1 QB 344 at 400 (para 25)).
This shows that, for the purpose of classifying benefits as ‘advantages’ covered by art 119, the court makes no distinction between benefits paid under an
occupational pension scheme depending on the method of funding such a scheme, whether exclusively on the basis of employer’s contributions or on the
basis of both employers’ and employees’ contributions. As a matter of fact, that not only benefits paid out of employers’ contributions are covered by art
119 could already be deduced from the judgment in Worringham [1981] 2 All ER 434 at 446, [1981] 1 WLR 950 at 968 (para 17), in which the court held
that an employee’s contribution to a contracted-out pension scheme (under which only men had to make contributions) which was paid by the employer
Preamble
to the pension fund on behalf of the employee constitutes pay within the meaning of art 119.
In practice, such a distinction between employers’ and employees’ contributions would be ineffective in any case. Normally, both forms of
contribution are not kept separate in the pension scheme’s assets and are managed as one whole fund. Yet, even if a distinction were possible, I consider
it to be completely arbitrary and undesirable: schemes which are funded exclusively by employers’ contributions would then have to apply the principle
of equal treatment in full, whereas it would only partly apply—namely not as far as employees’ contributions are concerned—to schemes whose funding
also depends on employees’ contributions. This would undoubtedly lead to a large number of devices designed to circumvent art 119 and therefore to
new forms of discrimination.
63. In my view, largely the same reasons support the case for not allowing, as far as the application of art 119 is concerned, any distinction
according to whether compulsory or voluntary employees’ contributions are involved. The arguments put forward by a number of interveners to the effect
that such optional employees’ contributions are managed in a separate fund and that the corresponding benefits are not usually calculated on the basis of
the member’s service and pay but through the determination of a specific sum which corresponds to the value of the contributions paid cannot convince
me otherwise. Here again, these are invariably benefits which are paid under a contracted-out or supplementary pension scheme and so it cannot be
denied that they, too, form part of the consideration which an employer offers to his employees in respect of their employment, within the meaning of the
Barber judgment. In other words, art 119 is applicable to all benefits which are paid under an occupational pension scheme to employees in respect of
their employment.
Applicability of art 119 to pension schemes having members of only one sex
64. By its sixth and last question the High Court seeks to ascertain whether art 119 applies to schemes which have at all times had members of only
one sex. More specifically, it asks whether a member of such a scheme is entitled to 982 additional benefits to which that member would have been
entitled as a result of art 119 had the scheme had a member or members of the other sex.
65. From the point of view of art 119, this question can be answered quite simply, since pension schemes having members of only one sex generally,
if not always, relate to an undertaking or company division in which only workers of one sex are employed. In the judgment in Macarthys the court
expressly rejected the argument that a female worker can rely on art 119 in order to claim the pay to which she would be entitled if she were a man, even
if there are or were no male employees in the undertaking or service concerned who perform or performed the same work (the ‘hypothetical male worker’
criterion). The court held that, under art 119, comparisons are confined to ‘parallels which may be drawn on the basis of concrete appraisals of the work
actually performed by employees of different sex within the same establishment or service’ (see [1981] 1 All ER 111 at 119, [1981] QB 180 at 199 (para
15)). In other words, if only workers of one sex work in an undertaking or division of an undertaking, those workers may not rely on art 119 with a view
to the equalisation of their pay and other consideration to the level of the pay and consideration which a hypothetical worker of the other sex would
receive: in such a case, the criterion of equal, or at least comparable, work by workers of the other sex, which is essential for the application of art 119,
cannot be applied.
Matters would be different, of course, if an employer decided to propose separate pension schemes to his employees depending on their sex. In that
event, which, as the United Kingdom rightly points out, falls outside the ambit of the question asked by the High Court, it seems to me that art 119
requires an examination to establish whether the pension benefits granted to male and female employees—this time under different pension
schemes—meet the ‘equal pay’ and ‘equal work’ criteria laid down in art 119.
Conclusion
66. In view of the foregoing consideration, I propose that the court should answer the questions arising in these cases as follows.
In Cases C-109/91 (Ten Oever), C-110/91 (Moroni), C-152/91 (Neath) and C-200/91 (Coloroll):
‘The direct effect of art 119 of the EEC Treaty may not be relied upon in order to claim entitlement to an occupational pension which was
acquired in connection with periods of employment served prior to the date of the judgment of 17 May 1990 in Barber v Guardian Royal Exchange
Assurance Group Case C-262/88 [1990] 2 All ER 660, [1991] 1 QB 344, except in the case of workers or those claiming under them who have
before that date initiated legal proceedings or raised an equivalent claim under the applicable national law.’
In Case C-109/91 (Ten Oever):
‘A widower’s pension of the kind in question in this case is to be regarded as “pay” within the meaning of the second paragraph of art 119 of
the EEC Treaty. However, art 119 may not be relied upon in this respect in order to claim entitlement to such a widower’s pension in so far as this
pension corresponds to periods of employment served before the date of the judgment of the court in this case, except in the case of workers or
those 983 claiming under them who have before that date initiated legal proceedings or raised an equivalent claim under the applicable national
law.’
In Cases C-110/91 (Moroni) and C-200/91 (Coloroll):
‘The prohibition resulting from art 119 of the EEC Treaty with regard to the setting of a pensionable age varying according to sex, as well as the
temporal limitation of that rule, as prescribed in the judgment in Barber, are not only applicable to contracted-out pension schemes but also to all
other forms of occupational pension schemes.’
In Cases C-152/91 (Neath) and C-200/91 (Coloroll):
‘Article 119 of the EEC Treaty precludes account from being taken, in an occupational pension scheme, of actuarial calculation factors varying
according to sex, at least in so far as this leads to men and women paying different contributions or receiving different benefits. The direct effect of
art 119 may not, however, be relied upon in this regard in relation to pension entitlements which correspond to periods of employment served
before the date of the judgment in these cases, except in the case of workers or those claiming under them who have before that date initiated legal
proceedings or raised an equivalent claim under the applicable national law.’
In Case C-200/91 (Coloroll):

‘1. The surviving spouse may also rely upon the direct effect of art 119 of the EEC Treaty with regard to entitlements to benefits which the
deceased worker had under an occupational pension scheme.
2. An employee or those entitled under him may rely upon art 119 of the Treaty against the trustees of an occupational pension scheme.
Preamble
3. The trustees of an occupational pension scheme are obliged under art 119 of the Treaty to do everything within their powers in order to
ensure that benefits to be paid to employees or those entitled under them comply with the principle of equal treatment laid down in that article.
4. So long as art 119 of the Treaty has not been properly implemented, the pension benefits of the disadvantaged sex must be brought up t the
level of those of the advantaged sex. However, Community law does not prevent new scheme rules, adapted to the principle of equal treatment,
which relate to periods of service in the future, from reducing pension benefits, so long as those benefits are set at a level which is the same for men
and women.
5. As Community law stands at present, the question as to the relation between the liability of a pension scheme and that of the employer with
regard to breaches of art 119 of the Treaty, particularly where the funds of one of those parties are insufficient, can be dealt with only at the national
level. However, Community law requires the national rules on liability which apply in relation to breaches of art 119 to be no less favourable than
those which apply to similar national claims and that they must not be of such a nature as to make the exercise of rights conferred by Community
law virtually impossible or extremely difficult.
6. It is immaterial for the purposes of art 119 of the Treaty whether an occupational pension scheme is funded exclusively on the basis of
984 employers’ contributions or also on the basis of compulsory or voluntary employees’ contributions.
7. Where only employees of one sex work within an undertaking or division of an undertaking and those employees are members of an
occupational pension scheme having members only of that sex, those employees may not rely on art 119 of the Treaty with a view to the
equalisation of their pensions with that which a hypothetical worker of the other sex would receive.’
22 December 1993. THE COURT OF JUSTICE delivered the following judgment.
1. By order of 13 May 1991, received at the court on 10 June 1991, the Leeds Industrial Tribunal referred to the court for a preliminary ruling under art
177 of the EEC Treaty three questions on the interpretation of art 119 of that Treaty and of the judgment of the Court of Justice of 17 May 1990 in Barber
v Guardian Royal Exchange Assurance Group Case C-262/88 [1990] 2 All ER 660, [1991] 1 QB 344 regarding the limitation of its effects in time.
2. The three questions have been raised in the context of proceedings between Mr David Neath and the company Hugh Steeper Ltd concerning the
rules for granting a company pension and the transfer of pension rights.
3. Mr Neath was employed by Hugh Steeper from 29 January 1973 to 29 June 1990, the date on which he was made redundant. At that time he was
54 years and 11 months old. During that period he was successively a member of two private occupational pension schemes run by his employer, the
entitlements acquired under the first scheme having been transferred to the scheme of which he was a member at the time when he was made redundant
and which was a ‘contracted-out’ scheme (ie contracted out of the state earnings-related pension scheme).
4. According to the rules of that contracted-out scheme, male employees may not claim a full company pension until they are 65 years of age whilst
female employees may receive a full pension at 60 years of age.
5. However, any member may, with the consent of the employer and the scheme trustees, take early retirement at any time after his fiftieth birthday
and receive a pension which is payable immediately but which is reduced according to the length of the period between the actual retirement date and the
normal retirement date. If the employer or the trustees refuse their consent, as they did in Mr Neath’s case, the member is entitled only to have his
acquired pension rights transferred to another pension scheme or to receive a deferred pension payable on the normal retirement date, unless he then opts
to have part of that pension converted into a capital sum.
6. When making his choice, Mr Neath realised, on the basis of the figures given by the scheme, that if he opted to have his pension rights
transferred, his financial situation would be more favourable if the interpretation of the Barber judgment were that any male employee retiring, like
himself, after 17 May 1990 (the date of the judgment) is entitled to have his pension recalculated on the same basis as his female counterpart in relation to
the entire period of his service. If the interpretation were that such entitlement may be claimed only in respect of periods of service subsequent to that
date, he would be entitled to a smaller sum.
985
7. Mr Neath also noted that, on either interpretation, the transfer value will in any case be lower than his female colleagues would have received
because of the use, in the assessment of the capital sum transferred, of actuarial factors based on life expectancy which differ for men and women.
8. Similarly, if he were to opt for a deferred pension and ask for part of it to be converted into a capital sum, he would receive, owing to those same
actuarial factors, a sum less than his female counterpart would receive.
9. Relying on the principle of equal pay for men and women, as laid down in art 119 of the Treaty and interpreted by the Court of Justice in the
Barber judgment, Mr Neath then applied to the Leeds Industrial Tribunal seeking the same rights as women in the same situation. In those circumstances,
the industrial tribunal decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:
‘1. Whether Article 119 and the Barber judgment have the simple effect of entitling a male employee whose employment ends on or after 17
May 1990 to the same pension as that which he would have received if he had been a woman?
2. Whether the same applied to his exercising options under the pension scheme to (a) transfer benefits, and (b) lump-sum options?
3. If the answer to Question 1 or Question 2, or both is no, what considerations, if any, have to be given to (a) his service prior to 17 May 1990,
and (b) the use of sex-based actuarial assumptions in the pension scheme?’
10. Reference is made to the report for the hearing for a fuller account of the facts of the case, the procedure and the written observations submitted
to the court, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the court.
11. The preliminary questions are reducible to two issues: (a) the interpretation of the Barber judgment with respect to the limitation of its effects in
time and (b) the question whether the use of actuarial factors differing according to sex in the sphere of private occupational pension schemes is
compatible with art 119 of the Treaty.
(a) The interpretation of the Barber judgment with respect to the limitation of its effects in time
12. By its first and second questions, and by the first limb of the third question, the national court seeks clarification of the correct operation of the
limitation of the effects in time of the Barber judgment.
13. As the court stated in its judgment of 6 October 1993 in Ten Oever v Sticht Bedrijfspensioenfonds voor het Glazenwassers-en
Schoonmaakbedrijf Case C-109/91 (1993) Times, 12 October, the precise context in which that limitation was imposed was that of benefits (in particular,
pensions) provided for by private occupational schemes which were treated as pay within the meaning of art 119 of the Treaty.
14 That ruling took account of the fact that it is a characteristic of this form of pay that there is a time lag between the accrual of entitlement to the
pension, which occurs gradually throughout the employee’s working life, and its actual payment, which is deferred until a particular age.
Preamble
15. The court also took into consideration the way in which occupational pension funds are financed and thus of the accounting links existing in
each 986 individual case between the periodic contributions and the future amounts to be paid.
16. Given the reasons explained in the judgment in Barber [1990] 2 All ER 660 at 704, [1991] 1 QB 344 at 404 (para 44) for limiting its effects in
time, it must be made clear that equality of treatment in the matter of occupational pensions may be claimed only in relation to benefits payable in respect
of periods of employment subsequent to 17 May 1990 (the date of the Barber judgment) subject to the exception in favour of workers or those claiming
under them who have, before that date, initiated legal proceedings or raised an equivalent claim under the applicable national law.
17. As regards transfer benefits and lump-sum options with which the second question is concerned, since by virtue of the Barber judgment of art
119 cannot be invoked to call in question the financial basis of pension rights accrued before 17 May 1990 on the basis of different retirement ages, it
follows, subject to the explanations below, that its capital equivalent must necessarily be subject to the consequences of that temporal limitation.
18. The answer to be given to the national court must therefore be that by virtue of the Barber judgment the direct effect of art 119 of the Treaty
may be relied on in order to claim equal treatment in the matter of occupational pensions only in the case of benefits payable in respect of periods of
service subsequent to 17 May 1990, subject to the exception in favour of workers or those claiming under them who have, before that date, initiated legal
proceedings or raised an equivalent claim under the applicable national law. The value of transfer benefits and lump-sum options is affected likewise.
(b) The use of actuarial factors differing according to sex in the sphere of private occupational pension schemes
19. It appears that the occupational pension scheme of which Mr Neath was a member when he was made redundant is a defined-benefit/final-salary
scheme which provides employees reaching retirement age with a defined pension corresponding to one-sixtieth of their final salary for each year of
service.
20. The scheme is contributory, in the sense that it is funded not only by contributions from the employer but also by contributions from employees.
21. The employees’ contributions correspond to a percentage, identical for men and women, of their salary.
22. The employer’s contributions, however, which are calculated in the aggregate, vary over time, so as to cover the balance of the cost of the
pensions promised. They are also higher for female employees than for male employees.
23. This variability and inequality are due to the use of actuarial factors in the mechanism for funding the scheme. The aim of an occupational
retirement pension scheme being to provide for the future payment of periodic pensions, the scheme’s financial resources, accrued through funding, must
be adjusted to the pensions, which, according to forecasts, will have to be paid. The assessments needed to give effect to this system are based on a
number of objective factors, such as the return on the scheme’s investments, the rate of increase in salaries and demographic assumptions, in particular
those relating to the life expectancy of workers.
24. The fact that women live on average longer than men is one of the actuarial factors taken into account in determining how the scheme in
question 987 is to be funded. This is why the employer has to pay higher contributions for his female employees than for his male employees.
25. In the case of the transfer of acquired rights and in the case where part of a pension is converted into capital (the case under consideration in the
main proceedings), the fact that account is taken of different actuarial factors as just described has the result that male employees are entitled to sums
lower than those to which female employees are entitled.
26. Essentially, the national court wants to know whether such differences are compatible with art 119 of the Treaty. In order to reply to that
question, it must be determined whether transfer benefits and lump-sum options constitute pay within the meaning of that article.
27. The Commission claims that this is indeed the case and that consequently any difference in treatment based on sex would be permissible only if
it were objectively justified. Statistical data based on the life expectancy of the two sexes do not, in its view, constitute an objective justification because
they reflect averages calculated on the basis of the entire male and female population whereas the right to equal treatment in the matter of pay is a right
given to employees individually and not because they belong to a particular class.
28. It is, of course, settled law that the concept of pay, within the meaning of the second paragraph of art 199, comprises any consideration, whether
in cash or in kind, whether immediate or future, provided that the worker receives it, albeit indirectly, in respect of his employment from his employer.
The fact that certain benefits are paid after the end of the employment relationship does not prevent them from being pay within the meaning of art 119
(see, in particular, the judgment in Barber [1990] 2 All ER 660 at 700, [1991] 1 QB 344 at 399 (para 12)).
29. The assumption underlying this approach is that the employer commits himself, albeit unilaterally, to pay his employees defined benefits or to
grant them specific advantages and that the employees in turn expect the employer to pay them those benefits or provide them with those advantages.
Anything that is not a consequence of that commitment and does not therefore come within the corresponding expectations of the employees falls outside
the concept of pay.
30. In the context of a defined-benefit occupational pension scheme such as that in question in the main proceedings, the employer’s commitment to
this employees concerns the payment, at a given moment in time, of a periodic pension for which the determining criteria are already known at the time
when the commitment is made and which constitutes pay within the meaning of art 119. However, that commitment does not necessarily have to do with
the funding arrangements chosen to secure the periodic payment of the pension, which thus remains outside the scope of application of art 119.
31. In contributory schemes, funding is provided through the contributions made by the employees and those made by the employers. The
contributions made by the employees are an element of their pay since they are deducted directly from an employee’s salary, which by definition is pay
(see the judgment in Worringham v Lloyds Bank Ltd Case 69/80 [1981] 2 All ER 434, [1981] 1 WLR 950). The amount of those contributions must
therefore be the same for all employees, male and female, which is indeed so in the present case. This is not so in the case of the employer’s
contributions which ensure the adequacy of the funds necessary to cover the cost of the pensions promised, so securing their payment in the future, that
being the substance of the employer’s commitment.
988
32. It follows that, unlike periodic payment of pension, inequality of employers’ contributions paid under funded defined-benefit schemes, which is
due to the use of actuarial factors differing according to sex, is not struck at by art 119.
33. That conclusion necessarily extends to the specific aspects referred to in the questions submitted, namely the conversion of part of the periodic
pension into a capital sum and the transfer of pension rights, the value of which can be determined only by reference to the funding arrangements chosen.
34. The answer to be given to the national court must therefore be that the use of actuarial factors differing according to sex in funded
defined-benefit occupational pension schemes does not fall within the scope of art 119 of the EEC Treaty.
Costs
35. The costs incurred by the Netherlands, German, Irish and Danish governments, by the United Kingdom, and by the Commission of the European
Communities, which have submitted observations to the court are not recoverable. Since these proceedings are, for the parties to the main proceedings, a
step in the proceedings pending before the national court, the decision on costs is a matter for that court.
On those grounds, the court, in answer to the question referred to it by the Leeds Industrial Tribunal by order of 13 May 1991, hereby rules: (1) by
Preamble
virtue of the judgment of 17 May 1990 in Barber v Guardian Royal Exchange Assurance Group Case C-262/88 [1990] 2 All ER 660, [1991] 1 QB 344,
the direct effect of art 119 of the EEC Treaty may be relied on in order to claim equal treatment in the matter of occupational pensions only in relation to
benefits payable in respect of periods of service subsequent to 17 May 1990, subject to the exception in favour of workers or those claiming under them
who have, before that date, initiated legal proceedings or raised an equivalent claim under the applicable national law. The value of transfer benefits and
lump-sum options is affected likewise; (2) the use of actuarial factors differing according to sex in funded defined-benefit occupational pension schemes
does not fall within the scope of art 119 of the EEC Treaty.
The questions referred by the Chancery Division in Coloroll (Case C-200/91) to the Court of Justice are as follows:
‘1. (1) Can the direct effect of art 119 of the EEC Treaty be relied on (a) by employees and (b) by dependants of such employees, in relation to
claims to benefits under a scheme where those claims are made not against the employer but against the trustees of the scheme? (2) Can the direct effect
of art 119 be relied on in relation to a scheme (a) by employees and (b) by dependants of such employees, (i) to require the trustees to administer the
scheme as if the provisions of its rules had been altered (notwithstanding their actual terms) so as to reflect the principle of equal pay laid down by art 119
by securing that the benefits payable under the scheme to such employees and/or dependants are equalised? or (ii) to require the employer (if still in
existence) and/or the trustees to use such powers as they may have, whether by amendment of the rules of the scheme or otherwise, to secure that the
benefits payable under the scheme reflect the principle of equal pay? and if the answer to (i) or (ii) is Yes, (iii) does the principle of equality require the
benefits of the disadvantaged sex to be increased in all cases or is it consistent with art 119 for the benefits of the other sex to be reduced? (3) If the direct
effect of art 119 can be relied on both against the employer and against the trustees of the scheme, what is the relation between the liability of the scheme
and that of the employer? In particular (i) can the employer be required to pay further funds to the trustees of the scheme? (ii) where there are surplus
assets in the scheme trust funds can the employer require that any liability under art 119 be discharged in the first instance wholly or in part as the case
may be from the surplus assets? (iii) does any additional entitlement have to be provided for by the trustees out of the assets of the scheme where no claim
has been made against the employer or where no action has been taken by the 989 employer to satisfy or provide for such a claim? (4) Are the
answers to parts (1), (2) and (3) of this question affected (and if so how) by whether: (a) the funds held by the trustees are insufficient to meet in full the
cost of equalising benefits so as to reflect the principle of equal pay laid down by art 119; or (b) the employer is unable to provide any further funds to the
trustees of the scheme; or (c) the effect of equalising benefits will or may be to achieve equality for one class of beneficiary (for instance persons in
receipt of a pension) only if the benefits of another class (for instance current employee members of the scheme) are reduced?
2. In relation to claims to benefits under a contracted-out scheme, what is the precise effect of point 5 of the operative part of the judgment in
Barber? In particular (and subject to the exception in respect of proceedings initiated prior to the date of the judgment in Barber): (1) Can the direct
effect of art 119 be relied upon by employees in relation to such a claim: (a) only in respect of service on or after 17 May 1990 (the date of the
judgment)? or (b) also in respect of service on or after 17 May 1990, and if so in respect of the whole period of such service or some and if so what part of
such service? (2) If the answer to (1) is (b), can the direct effect of art 119 be relied upon in relation to such a claim: (a) only by employees whose service
under the scheme ended on or after 17 May 1990? or (b) also by employees (i) whose service under the scheme ended prior to 17 May 1990 and who
were entitled under the rules of the scheme to payment of instalments of pension prior to 17 May 1990? (ii) whose service under the scheme ended prior
to 17 May 1990 but who were entitled under the rules of the scheme to payment of instalments of pension (a deferred pension) only on or after 17 May
1990? (3) If the answer to (2) is (b)(i), can the direct effect of art 119 be relied upon by such employees only in relation to instalments of pension payable
or after 17 May 1990 or also in relation to instalments of pension payable prior to that date? (4) Do the principles laid down in answer to (1) to (3) apply
equally in relation to claims to benefits by dependants of employees? In particular, to what extent and in respect of what period of service are widows
and widowers (a) widowed on or after 17 May 1990 and (b) widowed prior to 17 May 1990 entitled to rely upon the direct effect of art 119 in relation to
claims to survivors’ benefits? (5) Do the principles laid down in answers (1) to (4) apply, and if so how, to benefits which do not depend on the length of
actual pensionable service?
3. Do the principles laid down in answer to question 2 apply equally in respect of schemes and periods of service which are not contracted-out?
4. Is it compatible with art 119 to provide benefits or payments under a scheme calculated by reference to actuarial considerations (including, in
particular, actuarial assumptions as to life expectancy) which produce differing results as between men and women? In particular: (a) Can such
considerations be used in the calculation of the benefits payable to an employee (i) in respect of the cash sum payable by way of commutation of part of
the annual pension? (ii) in respect of a reversionary pension payable to a dependant in exchange for the surrender of part of the annual pension? (iii) by
way of a reduced pension where the employee chooses to retire early and to start receiving pension instalments before normal pension age? (b) Where the
trustees of a scheme pay a capital sum to a third party in order to secure the payment of pension benefits by the third party to an employee or dependant in
respect of whom the capital sum is paid, are the trustees entitled or required: (i) to pay a capital sum which is equal as between men and women but which
will purchase pension benefits which are unequal as between men and women? (ii) to adopt some other (and if so what) courses or course? (c) In the light
of the answers given to (a) and (b), together with the answers given to question 2, are the trustees of a scheme required to review and recalculate
determinations made by reference to such actuarial considerations in relation to events prior to 17 May 1990 and if so in respect of what period?
5. (1) In circumstances where a scheme is not funded exclusively by employers’ contributions but is also funded by employees’ contributions, being
(i) contributions required of employees under the rules of the scheme and/or (ii) voluntary contributions additional to those required under the rules of the
scheme, does the principle of equality laid down by art 119 apply: (a) only to benefits payable out of those assets of the fund which are attributable to
employers’ contributions? or (b) also to benefits payable out of those assets of the funds which are attributable to (i) normal scheme contributions and/or
(ii) additional voluntary contributions? (2) When an employee has transferred from one scheme to another (for example on a change of job) and liability
has been accepted by the receiving scheme for the payment of benefits in return for a transfer payment from the trustees of the former scheme, does art
119 apply so as to require those benefits to be increased by the scheme where necessary to reflect the principle of equality? If so how do the principles
laid down in answer to question 2 apply in such circumstances?
6. Does art 119 apply to schemes which have at all times had members of only one sex so as to entitle a member to additional benefits to which that
member would have been entitled as a result of art 119 had the scheme had a member or members of the other sex?’
990
[1994] 1 All ER 991
North Yorkshire County Council v Selby Youth Court Justices and others
CRIMINAL; Sentencing
QUEENS BENCH DIVISION

MACPHERSON AND LAWS JJ
3 DECEMBER 1993
Sentence – Compensation – Parent or guardian’s liability – Local authority as guardian – Young persons remanded in local authority accommodation –
Youth in local authority accommodation committing offences – Justices imposing compensation order on local authority – Whether local authority having
‘parental responsibility’ for youths – Children and Young Persons Act 1933, s 55(5) – Children and Young Persons Act 1969, s 23 – Children Act 1989,
ss 3, 33, 44.
Two youths were convicted by magistrates of a number of burglaries committed after they absconded while on remand in local authority accommodation
under s 23a of the Children and Young Persons Act 1969, which provided, inter alia, that where a young person was committed for sentence and was not
released on bail the remand was to be to local authority accommodation. The magistrates subsequently made an order under s 55(5)b of the Children and
Young Persons Act 1933 that the local authority pay compensation in respect of the offences committed by two youths. Magistrates had power under s 55
to make a compensation order against the parent or guardian of a young person who committed an offence or against a local authority if it had ‘parental
responsibility’ for the child as defined in the Children Act 1989. Under s 3c of the 1989 Act ‘parental responsibility’ included ‘all the rights, duties,
powers and responsibilities and authority which by law a parent … has in relation to the child’. The magistrates held that the local authority had parental
responsibility for the two youths by virtue of the fact that they were in local authority accommodation under s 23 of the 1969 Act. The local authority
appealed, contending that parental responsibility could only be conferred on a local authority by a care order made under s 33d of the 1989 Act which
designated the local authority as having parental responsibility for the child or by an emergency protection order made under s 44e of the 1989 Act and
that since the youths were not in the local authority’s accommodation for either reason it did not have parental responsibility for them.
________________________________________
a Section 23, so far as material, is set out at p 994 h, post
b Section 55, so far as material, is set out at p 994 j to p 995 d, post
c Section 3, so far as material, is set out at p 995 f g, post
d Section 33, so far as material, is set out at p 995 j, post
e Section 44, so far as material, is set out at p 996 b, post
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Held – An order made under s 23 of the 1969 Act remanding a young person to local authority accommodation did not confer parental responsibility on
the local authority. Parental responsibility could only be acquired by a local authority where it was expressly conferred by statute, as in ss 33 and 44 of
the 1989 Act. Since there was no care order or emergency protection order under ss 33 or 44 in force in respect of the youths, the local authority did not
have parental responsibility for them and therefore a compensation order could not be made against it under s 55(5) of the 1933 Act. The local authority’s
appeal 991 would therefore be allowed and the compensation orders discharged (see p 996 c to g j, post).
Notes
For remands or committals to local authority accommodation, see 5(2) Halsbury’s Laws (4th edn reissue) para 1309, and for the power to make
compensation orders, see 11(2) Halsbury’s Laws (4th edn reissue) para 1282.
For the Children and Young Persons Act 1933, s 55, see 6 Halsbury’s Statutes (4th edn) (1992 reissue) 57.
For the Children and Young Persons Act 1969, s 23, see ibid 165.
For the Children Act 1989, ss 3, 33, 44, see ibid 395, 435, 450.
Case stated
The North Yorkshire County Council appealed by way of a case stated by the justices for the County of North Yorkshire acting in and for the petty
sessional division of Selby in respect of their adjudication as a youth court sitting at Selby. On 18 November 1992 informations were preferred by an
officer of the North Yorkshire Police against two youths B and A alleging that they jointly committed burglaries of Cellar 5 off licence on 18 November
1992 and of Whites Newsagents on 18 November 1992 and against B alleging aggravated vehicle taking on 18 November 1992. Other informations had
earlier been preferred and B was charged with a total of 31 offences, for which he was sentenced in respect of 27, with 15 other offences taken into
consideration, to a total of 12 months in a young offender institution. A was charged with a total of three offences with some offences taken into
consideration and was sentenced to 9 months in a young offender institution for those offences and for the original offence where a conditional discharge
had been imposed. On 11 January 1993 the justices considered the question of the liability of the appellants under s 55(5) of the Children and Young
Persons Act 1933 as inserted by s 57(2) of the Criminal Justice Act 1991, to pay compensation in respect of offences committed by B and A whilst in
local authority accommodation between 30 October and 19 November 1992, when the youth court declared them each to be a person to whom s 23(5) of
the 1969 Act applied and accordingly remanded them to prison. The justices found the following facts. (a) B and A were both in local authority
accommodation between 30 October and 19 November 1992 for some time of which conditions under s 23(7) of the Children and Young Persons Act
1969 applied. (b) During that period both absconded and committed offences which were the subject of charges or were taken into consideration which
resulted in compensation claims made by the victims, in the case of B the total exceeding £10,000 and in the case of A the total being £59.40. In respect
of B there were additional items of compensation in excess of £20,000 for offences committed before he was placed in local authority accommodation.
(c) B and A pleaded guilty to all offences and it was accepted by the appellants that loss was incurred as a result of offences committed while B and A
were in local authority accommodation. (d) A number of the offences were committed at night whilst both defendants were in care and subject to
restrictions imposed under s 23(7) of the 1969 Act. It was contended by the appellants that they were not liable to pay the amounts claimed as
compensation. The appellants conceded that B and A at the material time were provided with accommodation by the local authority but contended that
they did not have parental responsibility for them as the only way that parental 992 responsibility (as defined in s 3 of the Children Act 1989) could
Preamble
be acquired was by way of proceedings brought under s 31 of that Act or an emergency protection order. The appellants further contended that as B and
A were not in local authority accommodation via one of those routes they could not be held to be liable in respect of compensation incurred as a result of
offences committed by them during the relevant period and that there was no specific provision in the 1933 Act whereby a local authority acquired
parental responsibility for a child or young person remanded to local authority accommodation. However the appellants conceded that that was a narrow
interpretation of s 55 of the 1933 Act, effectively saying that local authorities were only liable where a child or young person the subject of a s 31 care
order committed offences while so accommodated. The justices were not referred to any cases but were aware of Leeds CC v West Yorkshire
Metropolitan Police [1982] 1 All ER 274, [1983] AC 29, for offences committed prior to the commencement of the 1991 Act (1 October 1992). The
justices were of the opinion that parental responsibility could be acquired other than via Children Act orders, as a remand to care was analogous to a care
order and that the appellant’s interpretation of s 55(5) was too narrow and did not follow the spirit of the legislation. The justices considered that a
remand to local authority accommodation placed a responsibility upon the local authority to care adequately for the child or young person and that the
new provisions were designed to achieve more than the previous provisions. They noted that s 2(5) of the 1989 Act allowed more than one person to have
parental responsibility for the same child at one time and that s 23(13) of the 1969 Act imposed upon a local authority the general duties set out in s 22 of
the 1989 Act to look after children for whom they have provided accommodation while on remand in accordance with s 21(2) of the 1989 Act. The
justices considered the powers and duties given to local authorities by s 22 (including sub-s (6) to make decisions unilaterally) and found that the
appellants did have parental responsibility and that they could therefore exercise the powers under the provisions of s 55. The justices went on to consider
whether they should exercise their powers under s 55(5) and heard evidence from the social workers for A and B. The justices then found the further
following facts. (a) The claims for compensation arose out of offences committed while B and A were in local authority accommodation. (b) Neither B
nor A fell within the security provisions of s 23(5) as amended by s 62(3) of the 1991 Act until they each re-offended on 16 and 18 November, prior to
these dates having been kept in a local authority family resource centre or a home with local authority approval. (c) Both B and A had signed contracts
about their future good behaviour and curfew and other restrictions applied to them. The appellants contended that they had done all they could
reasonably be expected to do in the circumstances and that since B and A did not fit the criteria under s 25 of the Children Act 1989 or s 62 of the
Criminal Justice Act 1991 they had no choice but to accommodate them where they did and were not permitted to put any physical restrictions on them.
The justices were of the opinion that despite the appellants saying and giving evidence that they had done all they could do in the circumstances of the
case, that they had fallen short of what needed to be done in the case of B and A and the appellants should not be able to avoid their responsibilities in that
way. The justices accordingly made orders of compensation although not for the full amounts claimed. The justices asked the following questions for the
opinion of the High Court: (1) were they correct in law in concluding that a local authority was constituted as ‘parent or guardian’ 993 of a young
person being remanded to local authority accommodation pursuant to s 23(1) of the 1969 Act? (2) Was there evidence upon which they were entitled in
law to find that an order should be made in relation to A and B’s offences?
Roger McCarthy (instructed by M Lightfoot, Northallerton) for the appellant council.

Tim Capstick (instructed by the Crown Prosecution Service, York) for the respondent justices.
3 December 1993. The following judgments were delivered.
LAWS J (giving the first judgment at the invitation of Macpherson J). This is an appeal by way of case stated against an order of the Selby Youth Court
Justices made on 11 January 1993. On that day the justices ordered that the North Yorkshire County Council (now the appellants before us) should pay
compensation in respect of a series of offences committed by two youths in a period while they were remanded to local authority accommodation under s
23 of the Children and Young Persons Act 1969. The power to make such an order only arises where the local authority have parental responsibility in
respect of the child as defined in s 3 of the Children Act 1989. The primary question in this case is whether on the undisputed facts parental responsibility
was indeed conferred on the local authority.
Those facts may themselves be shortly stated from the justices’ case. The two boys were both in local authority accommodation between 30 October
1992 and 19 November 1992. As I have said, they were in such accommodation by virtue of an order under s 23 of the 1969 Act, to which I will shortly
come. During this period both of them absconded and they committed between them a large number of offences. In the result compensation claims were
made by the victims. Many of the offences had been burglaries. In the case of one youth the total exceeded £10,000; in the case of the other it was much
smaller. The two pleaded guilty to all the offences when they were brought to court. There were also a number of other offences taken into
consideration. It is not in dispute that loss was occasioned by the offences that had been committed while these two young men were in local authority
accommodation.
The magistrates made the order on 11 January 1993 and I may go at once to the relevant law. Section 23 of the Children and Young Persons Act
1969 provides by sub-s (1) in part as follows:
‘Where—(a) a court remands a child or young person charged with or convicted of one or more offences or commits him for trial or sentence;
and (b) he is not released on bail, then, unless he is declared by the court … to be a person to whom subsection (5) below applies the remand or
committal shall be to local authority accommodation …’
It is not necessary to read sub-s (5), which is concerned with a different provision that can be made for remand to a remand centre or prison in certain
circumstances.
The provision under which local authorities may be ordered to pay compensation is to be found in s 55 of the Children and Young Persons Act 1933
as amended by s 57 of the Criminal Justice Act 1991. The relevant parts of the section are in these terms:
‘(1) Where—(a) a young person is convicted or found guilty of any offence for the commission of which a fine or costs may be imposed or a
994 compensation order may be made under section 35 of the Powers of Criminal Courts Act 1973; and (b) the court is of opinion that the case
would best be met by the imposition of a fine or costs or the making of such an order, whether with or without any other punishment, it shall be the
duty of the court to order that the fine, compensation or costs awarded be paid by the parent or guardian of the young person instead of by the
young person himself …’
and then certain exceptions are set out. By sub-s (1B), which was inserted by the 1991 Act, the duty provided by sub-s (1) is converted to a power in a
case where the young person has attained the age of 16. The critical subsection for the purposes of this case is sub-s (5), also inserted by 1991 Act. It is
in these terms:
‘In relation to a child or young person for whom a local authority have parental responsibility and who—(a) is in their care; or (b) is provided
with accommodation by them in the exercise of any functions (in particular those under the Children Act 1989) which stand referred to their social
services committee under the Local Authority Social Services Act 1970, references in this section to his parent or guardian shall be construed as
Preamble
reference to that authority. In this subsection “local authority” and “parental responsibility” have the same meaning as in the Children Act 1989.’
It will at once be seen from that subsection that the power to order a local authority to pay compensation in effect as a parent only arises where the local
authority have parental responsibility as defined in the 1989 Act. That definition is contained in s 3 of that Act. It is not necessary to read all of it.
Subsection (1) provides:
‘In this Act “parental responsibility” means all the rights, duties, powers, responsibilities and authority which by law a parent of a child has in
relation to the child and his property.’
It is worth reading sub-s (2):
‘It also includes the rights, powers, and duties which a guardian of the child’s estate (appointed, before the commencement of section 5, to act
generally) would have had in relation to the child and his property.’
Mr McCarthy has submitted before us that the 1989 Act makes careful express provision for the conferment of parental responsibility. His case on
behalf of the authority is, in effect, that a local authority cannot acquire parental responsibility save through the statutory routes which are expressly
provided in the 1989 Act. It is not necessary to read the various provisions by which parental responsibility devolves upon or is acquired by individuals,
but there are two sections of the statute by which parental responsibility is indeed acquired by a local authority. The first is s 33. The cross-heading to
that section is ‘Effect of care order’ and I should note in passing that care orders may be made under s 31 of the statute on the application of a local
authority or an ‘authorised person’, a term explained by s 31(9). Section 33(3) provides:
‘While a care order is in force with respect to a child, the local authority designated by the order shall—(a) have parental responsibility for the
child …’
995
The other provision is s 44. This deals with emergency protection orders in relation to children. It is not necessary to travel through the statutory detail
by which such orders are described. Section 44(4) provides:
‘While an order under this section … is in force it … (c) gives the applicant parental responsibility for the child.’
There is no other provision in the 1989 Act, nor as far as we are aware in any other statute, by which parental responsibility as defined in the Children Act
is expressly devolved on a local authority.
The magistrates, as the case stated shows, held that the local authority here did have parental responsibility for these two youths by virtue, in effect,
of the fact that they were in local authority accommodation under s 23 of the 1989 Act. It will be plain from the citations I have given that there is
nothing whatever in s 23 that confers parental responsibility on a local authority. For my part I would hold that parental responsibility can only be
acquired by a local authority where statute expressly so provides. It is to be noted that the definition of parental responsibility in s 3(1) and (2) contains
the whole gamut of rights, duties, powers, responsibilities and authority which by law a parent has in relation to a child. I find it difficult to conceive that
this bundle of legal functions could be transferred to a local authority unless statute expressly so provided. Statute has so provided by ss 33 and 44 of the
1989 Act which I have read. It has not so provided in relation to facts such as those arising in the present case.
I would therefore hold that the magistrates fell into error and would answer the first question for the opinion of the High Court in the negative. The
second question relates to the exercise of their discretion. They proceeded, after holding that the local authority had parental responsibility, to consider
whether on the merits they ought to make a compensation order. Given the answer I would give to the first question, it is not necessary to deal with
question (2). On the basis I have outlined I would allow the appeal.
MACPHERSON J. I agree. It can and should be noted that s 23 of the Children and Young Persons Act 1969 does allow a court remanding a person to
local authority accommodation to apply certain conditions such as are applied in bail cases that can be an added protection to the local authority perhaps
in a case of this kind. Furthermore, if the young person so remanded, who is over 15, misbehaves in accordance with the standards set out in s 23(5), the
magistrates can form the opinion that only remanding him to a remand centre or prison would be adequate. So that if individuals are particularly bad that
course can be taken by magistrates. Those are both protections to a local authority in cases like this.
I do not believe the wider interpretation of the magistrates of the law was correct and I agree with Laws J that the answer to question (1) must be in
the negative and that the compensation orders must therefore be discharged.
Appeal allowed.

996
[1994] 1 All ER 997
Coventry City Council v Cole

HOUSING: LOCAL GOVERNMENT

NEILL, STEYN AND ROSE LJJ
28 APRIL, 28 MAY 1993
Preamble
Housing – Local authority houses – Tenant’s right to buy – Tenant exercising right to take long lease – Service charge – Clause in lease providing for
payment by tenant of fixed service charge subject to annual indexation – Whether clause valid and enforceable – Whether clause contrary to statutory
control of service charges – Whether sum claimed ‘rent’ and irrecoverable because exceeding statutory maximum fixed rent – Housing Act 1985, Sch 6,
paras 11, 14(2), 16A, 16.
The lessees, the tenants of a council flat, exercised their right to take a long lease of the flat under the Housing Act 1985. The council demised the flat to
the lessees for a term of 125 years for the sum of £5,175 at the statutory maximum fixed rent of £10 per annum provided for by para 11a of Sch 6 to the
Act. By cl 5(2) of the lease the lessees covenanted to pay an annual service charge of £208 which was subject to increases in the Royal Institution of
Chartered Surveyors Index of building costs. Under para 14(2)b of Sch 6 to the Act landlord’s covenants to repair and provide services were implied in
the lease and under para 16Ac the lease could require ‘a reasonable part’ of the landlord’s costs in discharging those obligations to be paid by the tenant.
Under para 18d of Sch 6 a provision in the lease of a flat purporting to recover a charge under para 16A otherwise than in accordance with para 16A or
para 16B was void. The council claimed the sum of £244 from the lessees for the service charge under cl 5(2) of the lease for the period from 1 October
1988 to 30 September 1989. The lessees failed to pay the sum claimed and the council issued a summons in the county court to recover it. The council’s
claim was dismissed by the district judge on the grounds that cl 5(2) was void under para 18 of Sch 6. The council appealed to the county court judge
who allowed the appeal on the grounds that cl 5(2) was valid and enforceable. The lessees appealed to the Court of Appeal.
________________________________________
a Paragraph 11, so far as material, provides: ‘A lease shall be … at a rent not exceeding £10 per annum …’
b Paragraph 14, so far as material, is set out at p 1001 g to j, post
c Paragraph 16A is set out at p 1002 d to j, post
d Paragraph 18 is set out at p 1003 g to j, post
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(1) The protection afforded to a tenant by Sch 6 to the 1985 Act had to be considered in the context of the statutory control of variable service
charges. The sum referred to in cl 5(2) of the lease was, notwithstanding its description as a ‘service charge’, in fact a fixed charge and not a ‘service
charge’ within the meaning of para 16A of Sch 6 to the 1985 Act since it was a fixed sum, subject to an indexed escalation clause, payable as a
contribution towards the cost of repairs and maintenance. The council was not seeking to recover any contribution from the lessees by way of a charge
under para 16A since the sum claimed was not ‘a reasonable part of the costs incurred by the landlord’ within the meaning of para 16A but a fixed charge
payable without any reference to actual costs incurred or to be incurred in the future. Accordingly, cl 5(2) fell 997 outside para 16A and therefore
outside the scope of para 18 of Sch 6 (see p 1005 b to d and p 1006 f to p 1007 a, post).
(2) Clause 5(2) of the lease did not infringe the statutory maximum fixed rent provision in para 11 of Sch 6 because ‘rent not exceeding £10 per
annum’ referred to ground rent and was not used in the wide sense of meaning periodic consideration payable under a lease. The provisions set out in
para 16A and 16B made it clear that the word ‘rent’ in para 11 did not embrace all sums payable from time to time as consideration under the lease (see p
1006 h to p 1007 a, post).
Notes
For service charges under, see 27 Halsbury’s Laws (4th edn) paras 258–263.
For the Housing Act 1985, Sch 6, paras 11, 14, 16A and 18, see 21 Halsbury’s Statutes (4th edn) (1990 reissue) 598, 599, 600.
Cases also cited

Pepper (Inspector of Taxes) v Hart [1993] 1 All ER 42, [1992] 3 WLR 1032, HL.
Property Holding Co Ltd v Clark [1948] 1 All ER 165, [1948] 1 KB 630, CA.
Appeal
Michael David Cole and Patricia Eleanor Cole, the lessees of a flat at 2 Deal House, Dunhill Avenue, Coventry, appealed against the decision of Judge
Michael Harrison-Hall QC sitting in the Coventry County Court on 2 June 1992 whereby the judge reversed the decision of Deputy District Judge Sharpe
made on 15 November 1991 dismissing the summons issued by the lessors of the flat, the Coventry City Council, claiming the sum of £244 by way of
service charges for the period from 1 October 1988 to 30 September 1989. The facts are set out in the judgment of Neill LJ.
Lance Ashworth (instructed by Field Overell, Coventry) for the lessees.

Michael Briggs (instructed by A H Pitts, Chief Solicitor, Coventry City Council) for the council.
Cur adv vult
NEILL LJ. This is an appeal by Mr Michael David Cole and Mrs Patricia Eleanor Cole (whom I shall call ‘the lessees’) from the order of Judge Michael
Harrison-Hall QC dated 2 June 1992 setting aside an arbitration award of Deputy District Judge Sharpe dated 15 November 1991 in proceedings brought
against the lessees by the Coventry City Council (the council). The appeal is brought by leave of the judge.
The appeal raises an important question relating to the right to buy provisions contained in the Housing Act 1985 (as amended).
For the purpose of reaching our decision on this appeal it will be necessary to consider not only the right to buy provisions themselves but also the
history of the statutory control of service charges. The control of service charges was first introduced in 1972 in relation to leases on property granted to
tenants by private landlords. First, however, I propose to set out the relevant facts.
998
In 1988 the lessees were the tenants of a first floor flat at 2 Deal House, Dunhill Avenue in Coventry. The landlords were the council from whom
Preamble
the lessees held the flat as secure tenants. The lessees decided to exercise their right to take a long lease of the flat in accordance with the provisions of
the Housing Act 1985. By a lease dated 4 July 1988 the council demised the flat to the lessees for the term of 125 years in consideration of the sum of
£5,175. The lease was at a fixed rent payable throughout the term at the rate of £10 pa payable annually in advance on 1 October.
By cl 4 of the lease the lessees covenanted, inter alia, to put, keep and maintain all parts of the interior of the flat in good and tenantable repair order
and condition, and to permit the council and the other specified covenantees and their agents to enter the flat for the purposes of repairing any other part
of the building of which the flat formed part, and for other specified purposes. In addition by cl 4(4) the lessees covenanted as follows:
‘Structural defects
[To] Bear a reasonable part of the costs of (a) carrying out repairs not amounting to the making good of structural defects (b) the costs of
making good any structural defects of which the Council have notified the Lessee before the date of this Lease or of which the Council did not
become aware of earlier than ten years after the date of this Lease and (c) insuring against risks involving such repairs or the making good of such
defects.’
By cl 5 of the lease the lessees entered into a number of specific covenants with the council. The relevant part of cl 5 was in these terms:
‘5. The Lessee hereby covenants with the Council as follows … To pay service charge … (2) To pay such sum (hereinafter called “the Service
Charge”) as is specified in the Fifth Schedule hereto subject to and in accordance with the provisions therein mentioned in arrear on the first day of
October in every year.’
The fifth schedule to the lease contained provisions relating to the service charge. It is sufficient to refer to only part of the fifth schedule as follows:
‘The Service Charge to be paid by the Lessee to the Council in accordance with Clause 5(2) hereof shall be: (a) the sum of Two hundred and
eight pounds pa and (b) by way of additional charge a sum bearing the same proportion to the said sum as shall be borne by any increase in the
Building Cost Information Service Tender Price Index published by the Royal Institution of Chartered Surveyors [RICS] to the figure shown therein
for May …’
It is not necessary to set out the terms of the proviso. It will be seen that the service charge was to be at the rate of £208 a year but was subject to an
increase to take account of any escalation in building costs as established by the RICS index.
Clause 6 of the lease contained a covenant by the council in these terms:
‘The Council hereby covenants with the Lessee in addition to the covenants implied by virtue of Part III of the Sixth Schedule to the Housing
Act 1985 or any statutory amendment or re-enactment thereof (subject to the Lessee paying the rents hereby reserved and performing and observing
the several covenants conditions and agreements herein contained and on 999 the Lessee’s part to be performed and observed) but not so as to
be personally liable after it shall have transferred all its estate and interest in the said Property that the Lessee shall and may peaceably and quietly
hold and enjoy the said Property during the said term without any lawful interruption or disturbance from or by the Council or any person or
persons rightfully claiming under or in trust for the Council.’
In due course the council made a claim against the lessees for the service charge expressed to be payable in accordance with cl 5(2) of the lease for
the period from 1 October 1988 to 30 September 1989. The sum claimed was £244 calculated, it seems, in accordance with the fifth schedule to the lease.
The lessees failed to pay the sum claimed or any part of it and on 10 April 1990 the council issued a summons in the Coventry County Court. The case
came before Deputy District Judge Sharpe in November 1991 under the small claims procedure. By a judgment dated 15 November 1991 the deputy
district judge dismissed the claim on the basis that the council were not authorised to recover the sum claimed by reason of the provisions of the Housing
Act 1985 relating to service charges. The council then appealed.
On 2 June 1992 Judge Harrison-Hall QC allowed the council’s appeal and set aside the order of the deputy district judge. He granted leave to appeal
to this court. Judge Harrison-Hall QC held that cl 5(2) of the lease was valid and enforceable.
The statutory right to buy

The right to buy houses and flats was first conferred on council tenants by the Housing Act 1980. The right could be exercised either by taking a
conveyance of the freehold or by obtaining the grant of a long lease of not less than 125 years. By s 17 of the 1980 Act it was provided that a grant of a
lease should conform with Pts I and III of Sch 2 to the Act.
The 1980 Act was amended by the Housing and Building Control Act 1984 which introduced new paragraphs into Pt III of Sch 2 and a requirement
that the landlord should provide estimates of costs of making good structural defects.
The lease with which this appeal is concerned was granted pursuant to the right to buy provisions contained in Pt V of the Housing Act 1985 which
replaced the 1980 Act. It is therefore necessary to consider in some detail the provisions of the 1985 Act and to take account of the amendments to the
1985 Act introduced by the Housing and Planning Act 1986. By s 139(1) of the 1985 Act (replacing s 17 of the 1980 Act) it was provided that the grant
of a lease should conform with Pts I and III of Sch 6.
Before I come to Sch 6, however, I should refer first to the definition of ‘service charge’ contained in s 621A of the 1985 Act and to the provisions
relating to estimates and information about service charges contained in s 125A and s 621A of the 1985 Act which was inserted by s 24(2) of the Housing
and Planning Act 1986. So far as material s 621A is in these terms:
‘(1) In this Act “service charge” means an amount payable by a purchaser or lessee of premises—(a) which is payable directly, or indirectly, for
services, repairs, maintenance or insurance or the vendor’s or lessor’s costs of management, and (b) the whole or part of which varies or may vary
according to the relevant costs.
(2) The relevant costs are the costs or estimated costs incurred or to be incurred by or on behalf of the payee, or (in the case of a lease) a
superior 1000 landlord, in connection with the matters for which the service charge is payable.
(3) For this purpose—(a) “costs” includes overheads, and (b) costs are relevant costs in relation to a service charge whether they are incurred, or
to be incurred, in the period for which the service charge is payable or in an earlier or later period.’
It is provided in s 621A(4) that the ‘payee’ means the person entitled to enforce payment of the charge.
Section 125 of the 1985 Act provides that where a secure tenant has claimed to exercise the right to buy the landlord should serve on the tenant a
notice containing the information prescribed in the section. Section 125 was amended by the Housing and Planning Act 1986 and it is now provided by s
Preamble
125(4) that where the notice contains provisions which would enable the landlord to recover service charges from the tenant the notice should also contain
the estimates and other information required by s 125A. Though it is not necessary to set out the terms of s 125A at length it is to be noted that the broad
effect of this section (which was inserted by the 1986 Act) is to require a landlord to set out in the notice under s 125 estimates of the likely cost of, and of
the tenant’s likely contribution in respect of, each item of work which the landlord considers may have to be carried out by way of repair in the first five
years after the grant of the lease. Where works are so itemised the notice has to contain an estimate of the average annual amount which the landlord
considers is likely to be payable by the tenant.
I come now to Sch 6. As to Pt I of Sch 6 it is sufficient to refer only to para 5. It is in these terms:
‘Subject to paragraph 6 [which has no relevance in this case], and Parts II and III of this Schedule, the … grant may include such covenants and
conditions as are reasonable in the circumstances.’
Pt III of Sch 6, however, requires fuller treatment. It is provided by paras 11 and 12 of Pt III that where the landlord holds the freehold interest the
lease should be for a term of not less than 125 years and at a rent not exceeding £10 pa.
Paragraph 14 contains statutory implied covenants by the landlord where the dwelling house is a flat. Paragraph 14(2) is in these terms:
‘There are implied covenants by the landlord—(a) to keep in repair the structure and exterior of the dwelling-house and of the building in which
it is situated (including drains, gutters and external pipes) and to make good any defect affecting that structure; (b) to keep in repair any other
property over or in respect of which the tenant has rights by virtue of this Schedule; (c) to ensure, so far as practicable, that services which are to be
provided by the landlord and to which the tenant is entitled (whether by himself or in common with others) are maintained at a reasonable level and
to keep in repair any installation connected with the provision of those services.’
Paragraph 14(3) contains an additional implied covenant by the landlord that he should—
‘rebuild or reinstate the dwelling-house and the building in which it is situated in the case of destruction or damage by fire, tempest, flood or
any other cause against the risk of which it is normal practice to insure.’
1001
It is further provided by para 14, however, as follows:
‘(4) The County Court may, by order made with the consent of the parties, authorise the inclusion in the lease or in an agreement collateral to it
of provisions excluding or modifying the obligations of the landlord under the covenants implied by this paragraph, if it appears to the court that it
is reasonable to do so.’
Paragraph 6 of Sch 6 sets out the covenants to be implied on the part of the tenant:
‘Unless otherwise agreed between the landlord and the tenant, there is implied a covenant by the tenant—(a) where the dwelling-house is a
house, to keep the dwelling-house in good repair (including decorative repair); (b) where the dwelling-house is a flat, to keep the interior of the
dwelling-house in such repair.’
I come now to paras 16A to 19 of Sch 6. Paragraphs 16A to 16D and para 18 were introduced by the Housing and Planning Act 1986. It is
necessary to set some of these paragraphs out in extenso. It is not necessary, however, to refer to paras 16C or 17.
‘Service charges and other contributions payable by the tenant

16A.—(1) The lease may require the tenant to bear a reasonable part of the costs incurred by the landlord—(a) in discharging or insuring
against the obligations imposed by the covenants implied by virtue of paragraph 14(2) (repairs, making good structural defects, provision of
services, etc), or (b) in insuring against the obligations imposed by the covenant implied by virtue of paragraph 14(3) (rebuilding or reinstatement,
etc), and to the extent that by virtue of paragraph 15(3) (effect of provision of superior lease) such obligations are not imposed on the landlord, to
bear a reasonable part of the costs incurred by the landlord in contributing to costs incurred by a superior landlord or other person in discharging or,
as the case may be, insuring against obligations to the like effect.
(2) Where the lease requires the tenant to contribute to the costs of insurance, it shall provide that the tenant is entitled to inspect the relevant
policy at such reasonable times as may be specified in the leas.
(3) Where the landlord does not insure against the obligations imposed by the covenant implied by virtue of paragraph 14(3), or, as the case
may be, the superior landlord or other person does not insure against his obligations to the like effect, the lease may require the tenant to pay a
reasonable sum in place of the contribution he could be required to make if there were insurance.
(4) Where in any case the obligations imposed by the covenants implied by virtue of paragraph 14(2) or (3) are modified in accordance with
paragraph 14(4) (power of county court to authorise modification), the references in this paragraph are to the obligations as so modified.
(5) This paragraph has effect subject to paragraph 16B (restrictions in certain cases as regards costs incurred in the initial period of lease).
16B.—(1) Where a lease of a flat requires the tenant to pay service charges in respect of repairs (including works for the making good of
structural defects), his liability in respect of costs incurred in the initial period of the lease is restricted as follows.
1002
(2) He is not required to pay in respect of works itemised in the estates contained in the landlord’s notice under section 125 any more than the
amount shown as his estimated contribution in respect of that item, together with an inflation allowance.
(3) He is not required to pay in respect of works not so itemised at a rate exceeding—(a) as regards part of the initial period falling within the
reference period for the purposes of the estimates contained in the landlord’s notice under section 125, the estimated annual average amount shown
in the estimates; (b) as regards part of the initial period not falling within that reference period, the average rate produced by averaging over the
reference period all works for which estimates are contained in the notice; together, in each case, with an inflation allowance.
(4) The initial period of the lease for the purposes of this paragraph begins with the grant of the lease and ends five years after the grant, except
that—(a) if the lease includes provision for service charges to be payable in respect of costs incurred in a period before the grant of the lease, the
initial period begins with the beginning of that period; (b) if the lease provides for service charges to be calculated by reference to a specified
annual period, the initial period continues until the end of the fifth such period beginning after the grant of the lease; and (c) if the tenant served
notice under section 142 deferring completion, the initial period ends on the date on which it would have ended if the lease had been granted on the
Preamble
date on which the notice was served …
16D.—(1) The Secretary of State may by order prescribe—(a) the method by which inflation allowances for the purposes of paragraph 16B or
16C are to be calculated by reference to published statistics; and (b) the information to be given to a tenant when he is asked to pay a service charge
or improvement contribution to which the provisions of paragraph 16B or 16C are or may be relevant.
(2) An order—(a) may make different provision for different cases or descriptions of case, including different provisions for different areas; (b)
may contain such incidental, supplementary or transitional provisions as the Secretary of State thinks appropriate; and (c) shall be made by statutory
instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament …
18. Where the dwelling-house is a flat, a provision of the lease or of an agreement collateral to it is void in so far as it purports—(a) to authorise
the recovery of such a charge as is mentioned in paragraph 16A (contributions in respect of repairs, etc) otherwise than in accordance with that
paragraph and paragraph 16B (restrictions in initial period of lease); or (b) to authorise the recovery of any charge in respect of costs incurred by
the landlord—(i) in discharging the obligations imposed by the covenant implied by paragraph 14(3) (rebuilding or reinstatement, &c), or those
obligations as modified in accordance with paragraph 14(4), or (ii) in contributing to costs incurred by a superior landlord or other person in
discharging obligations to the like effect; or (c) to authorise the recovery of an improvement contribution otherwise than in accordance with
paragraph 16C (restrictions in initial period of lease).
19. A provision of the lease, or of an agreement collateral to it, is void in so far as it purports to authorise a forfeiture, or to impose on the
tenant a 1003 penalty or disability, in the event of his enforcing or relying on the preceding provisions of this Schedule.’
The statutory control of service charges

Since 1972 Parliament has recognised the need to protect tenants from excessive demands made in respect of service charges. The control was
introduced by s 90 of the Housing Finance Act 1972 which provided as follows:
‘(1) Where the service charges which are payable by the tenant of a flat in any calendar year, or which are demanded from the tenant as being
so payable, exceed [£80], the tenant shall, in accordance with the section, be entitled to obtain a summary in writing of the relevant costs in the
accounting year ending in or with that year certified by a qualified accountant as being in his opinion—(a) a fair summary of those costs, set out in
a way which shows how they are or will be reflected in demands for service charges, and (b) sufficiently supported by accounts, receipts and other
documents which have been produced to the accountant, and the certificate shall identify the accounting year to which the summary relates.’
It was made plain, however, by the definition of ‘service charge’ in s 90(12) that the statutory control was restricted to any charge for ‘service, repairs,
maintenance or insurance’ which varied or might vary according to any costs (including charges for overheads) incurred from time to time by or on behalf
of the landlord. It was further provided that the amount of £80 could be varied from time to time by the Secretary of State. Local authorities and certain
other bodies were excluded from the statutory control by s 91.
By s 124 of the Housing Act 1974 a right to challenge service charges was given to tenants by the insertion of a new s 91A into the Housing Finance
Act 1972. In 1980 ss 90 to 91A of the Housing Finance Act 1972 were replaced by the provisions contained in Sch 19 to the Housing Act 1980. A
service charge was defined in para 1 of Sch 19 as meaning—
‘an amount payable by the tenant of a flat as part of or in addition to the rent (a) which is payable, directly or indirectly, for services, repairs,
maintenance or insurance or the landlord’s costs of management; and, (b) the whole or part of which varies or may vary according to the relevant
costs.’
The relevant costs were defined as the costs or estimated costs incurred or to be incurred in any period by or on behalf of the landlord.
By para 14 of Sch 19 an exception from the statutory control was made in relation to service charges payable by a tenant of the local authority and
certain other bodies.
It is to be noted that the definitions of ‘service charge’ contained in s 46(1) of the 1985 Act (before it was amended), in s 18(1) of the Landlord and
Tenant Act 1985 and in s 621A of the 1985 Act (as amended by the Housing and Planning Act 1986) include as part of the definition the words ‘the
whole or part of which varies or may vary according to the relevant costs’.
The case for the lessees

Counsel for the lessees drew attention to the right to buy legislation and to the provisions relating to long leases of flats imposed first by Sch 2 to the
1980 1004 Act and later by Sch 6 to the 1985 Act (as amended in 1986). He pointed out that cl 4(4) of the lease, though apparently included in the
lease by an oversight, would have been apt as a tenant’s covenant at the time when paras 16 and 17 of Sch 2 to the Housing Act 1980 were in force in
their original form. He submitted, however, that the charge mentioned in cl 5(2) of the lease (whether properly described as a service charge or by some
other name) was void and unenforceable as it fell within para 18(a) of Sch 6 to the 1985 Act. Alternatively, the sum mentioned in cl 5(2) would fall to be
treated as part of the rent and would then be irrecoverable because of the provision in para 11 of Sch 6 that the rent could not exceed £10 pa.
The case for the council

It was submitted on behalf of the council that cl 5(2) of the lease was unaffected by para 18(a) of Sch 6. That paragraph, in common with the
statutory control relating to private landlords, was concerned with service charges as defined in the various acts since 1972, or at any rate was concerned
with variable charges. Neither para 18(a) nor paras 16A and 16B were concerned with fixed charges of the kind specified in cl 5(2). Furthermore, it was
clear from the context that the word ‘rent’ in para 11 was not used in the wide sense as meaning any periodic consideration payable under a lease but
meant a ground rent. It was to be noted that the words ‘the ground rent’ were used in s 127(3)(c) with reference to the assumptions to be made for
calculating the value of a dwelling house for the purposes of the statutory notice to be provided by the landlord in accordance with s 125.
It was argued that the statutory control of service charges which were variable were fully justified but the need for such control had no relevance to a
fixed charge. A variable charge was beneficial to landlords under long leases because he was thereby insured against financial risks. On the other hand if
the service charge was not controlled the tenant was exposed to the unpredictability of charges for repairs which could be undertaken at times decided by
the landlord. In addition the right to recover costs incurred provided the landlord with no incentive to make sure that any repairs and maintenance were
carried out as economically as possible. In the case of a fixed charge it was the landlord who was at risk of having to incur substantial expenditure at
short notice. A fixed charge (subject only to an indexed escalation clause) enabled a tenant to budget for the future. Furthermore a tenant exercising his
right to buy had the added security of being able to refer the terms of his long lease to the county court before any contract was concluded.
The validity of clause 5(2) of the lease

Preamble
It was accepted on behalf of the council that if cl 5(2) was held to be valid they could not rely in addition on cl 4(4). Counsel stated that the council
are willing to give an undertaking on the matter which can be recorded in any order of the court.
The central question for decision is whether cl 5(2) is avoided by the following words in para 18 of Sch 6:
‘Where the dwelling-house is a flat, a provision of the lease or of an agreement collateral to it is void in so far as it purports—(a) to authorise
the recovery of such a charge as is mentioned in paragraph 16A (contributions 1005 in respect of repairs, etc) otherwise than in accordance with
that paragraph and paragraph 16B (restrictions in initial period of lease) …’
Certain matters appear to be clear. (a) Although the sum referred to in cl 5(2) is described as ‘the service charge’ both in cl 5(2) and in the fifth schedule
to the lease the description is of no particular significance in this case. The reference to the price index published by the RICS makes it clear, however,
that the sum is payable as a contribution towards the cost of repairs and maintenance. (b) The ‘service charge’ in cl 5(2) is not a ‘service charge’ within
the meaning of the 1985 Act or of any of the relevant provisions of the 1985 Act such as ss 125A and para 16B of Sch 6. (c) Paragraph 16B of Sch 6 has
no application because the restrictions on liability imposed by that paragraph during the initial period of a lease only apply ‘where a lease of a flat
requires the tenant to pay service charges in respect of repairs’. The sum payable under cl 5(2) is not a ‘service charge’ within the meaning of the 1985
Act.
One therefore turns to consider the words ‘such a charge as is mentioned in paragraph 16A (contributions in respect of repairs etc …)’ in para 18.
The implied covenant contained in para 14(2) of Sch 6 obliges the landlord, inter alia, to keep in repair the structure and exterior of the dwelling
house and of the building in which it is situated and to ensure, so far as practicable, that services which are to be provided by the landlord are maintained
at a reasonable level. Paragraph 16A entitles the landlord to include in the lease a provision that the tenant should bear a reasonable part of the costs
incurred by the landlord in discharging the obligations imposed by the covenants implied by virtue of para 14(2).
In the present case the council are bound by the implied covenants in para 14(2): see cl 6 of the lease. They do not seek, however, to recover any
contribution from the lessees by way of a charge authorised by para 16A. The sum claimed is not ‘a reasonable part of the costs incurred by the landlord’
within the meaning of para 16A, but a fixed charge payable without any reference to the actual costs incurred or to be incurred in the future. Clause 5(2),
it is said, is a term which is permissible under para 5 of Sch 6 which authorises the inclusion in the grant of a lease of ‘such covenants and conditions as
are reasonable in the circumstances’.
After some hesitation I have come to the conclusion that the submissions advanced on behalf of the council are correct. Schedule 6 and the
protection which it confers on a tenant have to be looked at in the context of the statutory control relating to variable charges. The reasonableness of a
fixed charge can be examined at the time when the long lease is being negotiated. Assuming the fixed charge is reasonable the tenant is protected over
the whole period of the lease from fluctuating and unpredictable costs. His only exposure to risk is in the risk attendant on a clause which depends on
inflation. I consider that the judge was right to uphold the clause and to treat cl 5(2) as falling outside para 16A and therefore outside the scope of para 18
of Sch 6.
I am also satisfied that cl 5(2) does not infringe para 11 of Sch 6. The rent ‘not exceeding £10’ stipulated in that paragraph clearly means ‘the
ground rent’. The provisions set out in para 16A and 16B make it clear that the word ‘rent’ in para 11 cannot embrace all sums payable from time to time
as consideration under the lease.
1006
Subject to the inclusion in the order of the court that will record the undertaking given by the council that they will not hereafter seek to enforce or
rely upon cl 4(4) of the lease I would dismiss the appeal.
STEYN LJ. I agree.
ROSE LJ. I also agree and have nothing to add.

[1994] 1 All ER 1007
Re a company (No 007946 of 1993)

COMPANY; Insolvency
CHANCERY DIVISION (COMPANIES COURT)

MORRITT J
20, 22 OCTOBER 1993
Company – Winding up – Compulsory winding up – Company incorporated in Northern Ireland – Petition by Secretary of State to wind up company –
Company applying to strike out petition or for direction that petition be not advertised – Whether Secretary of State authorised to present petition –
Insolvency Act 1986, ss 124A, 220, 221, 225, 441.
The Secretary of State for Trade and Industry petitioned the court pursuant to s 124A(1)a of the Insolvency Act 1986 to wind up a private company which
had been incorporated in Northern Ireland on the ground that it appeared to be in the public interest that the company be wound up. The company applied
for an order striking out the petition on the ground that by virtue of s 441b of the 1986 Act the Secretary of State had no power to present a petition in
Preamble
respect of a company incorporated in Northern Ireland. Section 441(2) provided that except for ‘any provision [in the Act] expressly relating to
companies incorporated elsewhere than in Great Britain’ nothing in the 1986 Act applied to companies incorporated in Northern Ireland. The Secretary of
State contended that the company was an ‘unregistered company’ within s 221(2)c of the 1986 Act because it had principal places of business both in
England and Wales or Scotland as well as Northern Ireland and therefore he was authorised by that section to present a petition for its winding up.
‘Unregistered company’ was defined by s 220(1)d as including ‘any company’ subject to certain immaterial exceptions. The company contended that s
221 did not expressly relate to companies incorporated elsewhere than in Great Britain. In the event that the petition was not struck out, the company
sought an order that the petition be not advertised, on the ground that an advertisement would cause untold 1007 damage to the company by alerting
customers and debtors without any advantage to anyone else. A minority of creditors in number, but who were owed more than half the company’s debts,
supported the application. The views of the remaining creditors were unknown. The Secretary of State opposed the application for dispensing with
advertisement of the petition on the grounds that the court should not permit a petition to be unadvertised for any lengthy period and that the
consequences for the company were no different than in other winding-up cases.
________________________________________
a Section 124A(1), so far as material, provides: ‘Where it appears to the Secretary of State … that it is expedient in the public interest that a company should be wound up,
he may present a petition for it to be wound up if the court thinks it just and equitable for it to be so …’
b Section 441 is set out p 1010 b c, post
c Section 221, so far as material, is set out at p 1010 h to p 1011 a, post
d Section 220, so far as material, is set out at p 1010 g, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
Held – The applications would be dismissed for the following reasons—

(1) Sections 220 and 221 of the 1986 Act expressly related to companies incorporated elsewhere than in Great Britain and having a principal place of
business in England and Wales, within s 441(2) of the 1986 Act, since (a) a provision could expressly relate to something without expressly referring to it
and therefore it was not conclusive that the definition of ‘unregistered company’ in s 220 did not expressly refer to companies incorporated elsewhere
than in Great Britain, and (b) the definition of ‘unregistered company’, which included ‘any company’ but excluded companies registered in England and
Wales, did not exclude companies incorporated in Northern Ireland. Such a conclusions was consistent with s 225e of the 1986 Act, which permitted the
court to wind up a company which was dissolved or ceased to exist in the country in which it was incorporated, since otherwise the English court could
only wind up a Northern Ireland company that had been dissolved in Northern Ireland and had ceased to carry on business in England. It followed that s
221 applied s 124A to the company, thereby authorising the Secretary of State to present the petition (see p 1012 d e h and p 1013 d e, post).
________________________________________
e Section 225 is set out at p 1011 b, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
(2) The company had failed to discharge the onus of showing sufficient reason why the petition should not be advertised since the likely attitude of
its customers did not make it a special case. Moreover, it was not the court’s normal practice to permit a petition to remain unadvertised for a lengthy
period. It was irrelevant that creditors opposed the petition since the application would have been dismissed even if they had all supported the company
(see p 1015 b c g, post).
Notes
For winding up of foreign companies, see 7(2) Halsbury’s Laws (4th edn reissue) paras 2438–2441, and for cases on the subject, see 10(2) Digest (2nd
reissue) 528–530, 13286–13308.
For the grounds on which winding-up petitions will be ordered not to be advertised, see 7(2) Halsbury’s Laws (4th edn reissue) paras 1466, and for a
case on the subject, see 10(1) Digest (2nd reissue) 363, 8711.
For the Insolvency Act 1986, s 124A (as inserted by the Companies Act 1989, s 60(3)), see 8 Halsbury’s Statutes (4th edn) (1991 reissue) 848, and
for ss 220, 221, 225 and 441 of the 1986 Act, see 4 Halsbury’s Statutes (4th edn) (1987) reissue) 874, 875, 878, 1053.

Cia Merabello San Nicholas SA, Re [1972] 3 All ER 448, [1973] Ch 75, [1972] 3 WLR 471.
1008
Application
A company in respect of which the Secretary of State for Trade and Industry had petitioned the court for a winding-up order applied for orders (1) that the
Secretary of State’s petition be struck out on the ground that it disclosed no reasonable cause of action and/or it was otherwise an abuse of the process of
the court pursuant to RSC Ord 18 r 19 and/or the court’s inherent jurisdiction or (2) that the Secretary of State, whether by himself, his servants, agents or
otherwise howsoever, be restrained from proceeding further on the petition whether by advertising the same or otherwise. The facts are set out in the
judgment.
Peter Griffiths (instructed by Lawrence Graham) for the company.

Richard Ritchie (instructed by the Treasury Solicitor) for the Secretary of State
Cur adv vult
22 October 1993. The following judgment was delivered.
MORRITT J. A company (to which I shall refer as the company) was incorporated on 25 October 1983 as a private company limited by shares under
the Companies Acts (Northern Ireland) 1906–1982. On 26 February 1993 the Secretary of State for Trade and Industry authorised two of his officers,
pursuant to s 447(3) of the Companies Act 1985, to require the company to produce to them such documents as they might specify. From the information
and documents so obtained it appeared to the Secretary of State that it was expedient in the public interest that the company be wound up. On 9
September 1993 the Secretary of State presented a petition to this court seeking the compulsory winding up of the company on the just and equitable
Preamble
ground. The petition, which has not been advertised, is due to come before the court for the first time on 3 November next.
By the application before me the company seeks an order that the petition be struck out pursuant to RSC Ord 18, r 19, or the inherent jurisdiction of
the court on the ground that it discloses no reasonable cause of action and/or is otherwise an abuse of the process of the court. In the alternative, the
company seeks a direction, pursuant to r 4.11(1) of the Insolvency Rules 1986, SI 1986/1925, that the petition be not advertised. Both applications are
opposed by the Secretary of State. The latter application, but not the former, is supported by eight creditors of the company with debts totalling £237,000.
The basis of the first application is that, as the company contends, the Secretary of State had no power to present and the court has no jurisdiction to
entertain the petition because the company was incorporated in Northern Ireland. The question is entirely one of law and depends upon the true
construction of the Insolvency Act 1986.
By s 124A of the 1986 Act the Secretary of State is authorised to present a petition for the winding up of ‘a company’ where it appears to him, from
amongst other sources, information obtained under Pt XIV of the 1985 Act that it is expedient in the public interest that it should be wound up. The
ground for making a winding-up order is that the court thinks it just and equitable that the company should be so wound up.
The relevant definition of the word ‘company’ (see s 251 of the 1986 Act) is that contained in s 735(1)(a) of the 1985 Act which is, ‘unless the
contrary 1009 intention appears’ (s 735(4)), ‘a company formed and registered under this Act, or an existing company’.
‘Existing company’ is defined to mean a company formed and registered under the former Companies Acts which are also defined.
The 1986 Act, s 441(1) and (2), provides as follows:
‘(1) The following provisions of this Act extend to Northern Ireland—(a) sections 197, 426, 427 and 428; and (b) so much of section 439 and
Schedule 14 as relates to enactments which extend to Northern Ireland.
(2) Subject as above, and to any provision expressly relating to companies incorporated elsewhere than in Great Britain, nothing in this Act
extends to Northern Ireland or applies to or in relation to companies registered or incorporated in Northern Ireland.’
None of the exceptions referred to in sub-s (1) is material to the question I have to decide. Accordingly, the opening words of sub-s (2), ‘Subject as
above’, may be ignored. But the rest of sub-s (2) makes it clear that the Secretary of State had no power to present the petition and the court has no
jurisdiction to entertain it unless there is a ‘provision expressly relating to companies incorporated elsewhere than in Great Britain’ enabling it. The
company contends that there is no such provision. Counsel for the company referred to s 225 of the 1986 Act and s 740 of the 1985 Act to the like effect
in connection with s 745 of the 1985 Act as examples of such provisions. These sections refer in terms to ‘a company incorporated outside Great Britain’
and ‘a company incorporated elsewhere than in Great Britain’.
The Secretary of State accepted that it was necessary to find some provision expressly relating to companies incorporated elsewhere than in Great
Britain which authorised him to present the petition and the court to entertain it. He contended that such provision is to be found in Pt V of the 1986 Act
dealing with the winding up of unregistered companies, and in particular s 220 containing the definition of ‘an unregistered company’.
The relevant provisions of Pt V are as follows:
‘220. Meaning of “unregistered company”.—(1) For the purposes of this Part, the expression “unregistered company” includes any trustee
savings bank certified under the enactments relating to such banks, any association and any company, with the following exceptions—(a) a railway
incorporated by Act of Parliament, (b) a company registered in any part of the United Kingdom under the Joint Stock Companies Acts or under the
legislation (past or present) relating to companies in Great Britain …
221.—(1) Subject to the provisions of this Part, any unregistered company may be wound up under this Act; and all the provisions of this Act
and the Companies Act about winding up apply to an unregistered company with the exceptions and additions mentioned in the following
subsections.
(2) If an unregistered company has a principal place of business situated in Northern Ireland, it shall not be wound up under this Part unless it
has a principal place of business situated in England and Wales or Scotland, or in both England and Wales and Scotland …
(5) The circumstances in which an unregistered company may be wound up are as follows—(a) if the company is dissolved, or has ceased to
carry on business, or is carrying on business only for the purpose of winding up its affairs; (b) if the company is unable to pay its debts; (c) if the
court is of 1010 opinion that it is just and equitable that the company should be wound up …’
‘Where a company incorporated outside Great Britain which has been carrying on business in Great Britain ceases to carry on business in Great
Britain, it may be wound up as an unregistered company under this Act, notwithstanding that it has been dissolved or otherwise ceased to exist as a
company under or by virtue of the laws of the country under which it was incorporated.’
‘(1) The provisions of this Part with respect to unregistered companies are in addition to and not in restriction of any provisions in Part IV with
respect to winding up companies by the court; and the court or liquidator may exercise any powers or do any act in the case of unregistered
companies which might be exercised or done by it or him in winding up companies formed and registered under the Companies Act.
(2) However, an unregistered company is not, except in the event of its being wound up, deemed to be a company under the Companies Act,
and then only to the extent provided by this Part of this Act.’
The response of the company is that none of the provisions of Pt V, except s 225 which is irrelevant, is one ‘expressly relating to companies
incorporated elsewhere than in Great Britain’ because such companies are not mentioned. In this connection, reliance was placed in Dicey and Morris on
the Conflict of Laws (11th edn, 1987) pp 1144–1145, which so far as relevant states:
‘Rule 176(1). English courts have no jurisdiction to wind up: … (2) any company registered in Northern Ireland except one which has
carried on business in Great Britain and which has ceased to carry on such business …’
In footnote 26 to that rule reference is made to the Insolvency Act 1986, ss 441(2) and 225. Dicey and Morris continues:
‘The definition of “unregistered company” does not expressly relate to a Northern Irish company, and accordingly such a company cannot be
wound up under section 221 of the Act. However, section 225 of the Act does expressly relate to companies incorporated outside Great Britain, and
hence it is submitted that the courts have jurisdiction to wind up a Northern Irish company if that company has been carrying on business in Great
Preamble
Britain and has ceased to carry on that business.’
It was submitted that if the Secretary of State were right, all companies incorporated under the Northern Ireland Companies Acts were liable to be
wound up in England, contrary to the apparent intention behind s 441 of the 1986 Act that they should not be.
Reliance was also placed on the alteration to s 440 of the 1985 Act, the statutory predecessor of s 124A of the 1986 Act, by the Companies Act 1989.
Section 440 had authorised the Secretary of State to present a petition in respect of a body corporate liable to be wound up under that Act, which was
defined by s 740 as including a ‘company incorporated elsewhere than in Great Britain’. The 1989 Act repealed s 440 of the 1985 Act, and replaced it by
inserting s 124A 1011 into the 1986 Act. But, in effecting that re-enactment, Parliament changed ‘body corporate’, as defined in s 740 of the 1985
Act, to ‘company’ as defined in s 735(1)(a). It is submitted that such change was deliberate and intended to bring petitions by the Secretary of State in
respect of companies incorporated in Northern Ireland (which on this basis would previously have been permissible) into line with the petitions of
creditors or contributories which previously would not have been possible. Counsel emphasised that a company incorporated in Northern Ireland, which
the Secretary of State was authorised to investigate by s 453 of the 1985 Act, could, if his submissions were right, still be wound up in Northern Ireland
because the Secretary of State would be entitled to pass the information and documents to the Department of Economic Development for Northern Ireland
pursuant to s 449(1)(dd) of the 1985 Act, which, it was to be assumed, had similar powers to present a winding-up petition in respect of a company
incorporated in Northern Ireland to those of the Secretary of State in respect of a company incorporated in England conferred by Order in Council made
under s 214 of the 1989 Act.
In the end, the question depends upon the proper construction of the three words appearing in s 441(2) of the 1986 Act ‘expressly relating to’. No
doubt the word ‘expressly’ is to be contrasted with ‘impliedly’. But the words ‘relating to’ are not the same as ‘referring to’. The former includes but is
not confined to the latter. Thus, s 225 of the 1986 Act and 2 740 of the 1985 Act, which the company relied on as provisions expressly relating to
companies incorporated elsewhere than in Great Britain, do so relate because they refer expressly to such companies. But in my judgment it is quite
possible, as a matter of ordinary English usage, to have an express relation without an express reference. For example, a provision which referred
expressly to citrus fruits would be a provision expressly relating to oranges and lemons, even though they were not expressly mentioned in the provision.
Thus, in my judgment, the fact that s 220 of the 1986 Act does not refer expressly to companies incorporated elsewhere than in Great Britain is by no
means conclusive.
Section 220 of the 1986 Act refers to ‘any company’ as part of the definition of an unregistered company. Therefore, it is plain that the context of s
220 is one in which the definition of ‘company’ in s 735(1)(a) of the 1985 Act is inapplicable because that definition, in effect, confines the word
‘company’ to a registered company, which would be excluded by para (b). Thus the words ‘any company’ are unlimited and include companies
incorporated elsewhere than in Great Britain. A company incorporated in Northern Ireland under the Companies Acts Northern Ireland 1960–1982 is not
excluded from the definition by s 220(1)(b) because those Acts are not within the relevant definition of Joint Stock Companies Acts contained in s 735(3)
of the Companies Act 1985, and the expression ‘Great Britain’ does not include Northern Ireland. In my judgment, s 220 is a provision expressly relating
to companies incorporated elsewhere than in Great Britain notwithstanding that there is no express reference to such a company.
There are other provisions in Pt V of the 1986 Act which clearly point to the same conclusion. Thus the provisions of s 221(2) suggest that the
draftsman considered that a company incorporated in Northern Ireland could be wound up in England as an unregistered company because a company
with a principal place of business in Northern Ireland would most commonly be a company incorporated there. But of more significance this provision
disposes of the company’s contention that the argument for the Secretary of State would, by a 1012 sidewind, subject all companies incorporated in
Northern Ireland to substantially all the provisions of the 1986 Act, when s 441 suggests that that should be the exception rather than the rule. Section
221(2) shows that only those companies incorporated in Northern Ireland which also have a principal place of business in England and Wales are liable to
be wound up in England.
Section 225 of the 1986 Act was originally enacted to remove a doubt as to the court’s jurisdiction which arose in connection with the dissolution of
Russian banks following the revolution in 1917. It did not confer any new power to wind up companies: see Re Cia Merabello San Nicholas SA [1972] 3
All ER 448 at 455, [1973] Ch 75 at 86. It would be most surprising if a company incorporated in Northern Ireland might be wound up in England if it had
ceased to carry on business in England and had been dissolved in Northern Ireland, but not otherwise. This would be the consequence of the company’s
argument and of the view expressed in Dicey and Morris (to which I have referred).
Finally, the amendments introduced by the 1989 Act on which the company relied did not remove an anomaly for none existed as both creditors and
the Secretary of State were entitled to take steps to wind up a company incorporated in Northern Ireland as an unregistered company provided that it had a
principal place of business in England and Wales.
In my judgment, s 220 of the 1986 Act is such a provision as is mentioned in s 441(2). The consequence is that s 221(1) applies s 124A to such a
company, thereby authorising the Secretary of State to present the petition in this case. The court may in due course wind up the company under s 221(5)
provided that it has a principal place of business in England or Wales. The company does not suggest that it does not have such a place of business.
Accordingly, I dismiss the application to strike out this petition.
I then turn to the second part of this application whereby the company seeks a direction pursuant to r 4.11(1) of the Insolvency Rules that this
petition be not advertised. Unless a direction is made as requested, the rule requires the Secretary of State to insert an advertisement in the London
Gazette not less than seven days after service of the petition or before the day appointed for the hearing of the petition. The advertisement must, among
other things, indicate the venue fixed for the hearing of the petition and state that anyone seeking to appear at the hearing must give notice of his intention
in accordance with r 4.16. The rules contemplate that the persons responding to the advertisement will be creditors of the company: see rr 4.16(2)(c) and
4.17(2). But the practice of the court has been in its discretion to hear other interested persons in order to hear what public grounds there may be for or
against the making of an order: see Buckley on the Companies Acts (14th edn, 1981) vol 1, p 546.
The company’s application is not made on the basis that the petition of the Secretary of State is bound to fail, rather that the advertisement of the
petition would cause untold damage to the company without any countervailing advantage to anyone else. The nature of the company’s business is
adequately set out in paras 8 and 9 of the petition, which state:
‘8. The Company offers finance to other business using a method of invoice discounting which it describes as “The Normandy Concept”. The
basis of the concept is that the Company buys goods from a client at a small discount and resells them to the client’s customer, paying the client
immediately, less a retention of 20%. Upon receiving payment from the customer Normandy releases the retention to the client less interest
charges.
1013
9. The Company is funded by 18 individuals and companies (known as “Traders”) who between them were owed some £395,981 at 1 October
1992 (the last available figures). The Traders each signed an agreement with Normandy allowing it to utilise their monies to purchase and resell
goods on their behalf, accounting to them for the profits on these trades. The agreements contained a number of conditions which were designed to
offer the Traders a measure of protection including the provision of quarterly statements by the Company showing the “valuation” of the Trader’s
Preamble
holding and identifying the trades in which they are involved.’
Paragraphs 10 to 16 (both inclusive) set out the conduct of the company on which the Secretary of State relies. It is common ground that the victims
of that conduct, if there be any, are primarily the traders. Eight of the 18 traders referred to in para 9 of the petition, with debts aggregating £237,000 out
of current total debts to traders of £425,000, have appeared by counsel on this application and support it.
The basis for the application is set out in para 64 of the affidavit of Mr Leong Son, a director of the company, sworn on 19 October 1993. In paras
3(2) and 62 he deposes that the company proposes to make a fundamental change to the way the company is financed, in consequence of which all
traders’ funds will be fully repaid to them in two to three months so that the matters of which the Secretary of State complains will be historic. He
submits that it would be pointless to make a winding-up order and unfair to subject the company and hence the traders to the considerable extra costs that
a winding-order would involve. He also expresses concern that the company’s customers would not pay the amounts they owe the company, thereby
giving rise to further loss and expense. In para 64 he states:
‘Finally, I turn to the consequences of this Petition being advertised. If this Petition is advertised, the Company will obviously have to cease
trading. There is also a considerable risk that customers will think that they can get away with not paying the Company. It is a sad fact of life that
whenever a company goes into liquidation its debtors try to avoid paying because they know a liquidator is unlikely to be as enthusiastic in trying to
collect in all the debts as the existing management. If the Petition is advertised, therefore, the customers will start inventing excuses justifying non
payment and that will destroy the business. That business is, however, a very valuable business and one that it is important to preserve. It will be
destroyed if the Petition is advertised and it will be pointless defending the Petition. Accordingly, I ask this Court to direct that the Petition be not
advertised pending the hearing of the Petition because otherwise the mere advertisement of the Petition will result in the Company going into
liquidation without any hearing on the merits.’
As I have indicated, that is supported by eight traders with debts amounting to £237,000 of which counsel informs me four, with debts totalling
£200,000, are entirely independent of the company or its directors. In addition, he asks for an opportunity for his instructing solicitors to obtain
instructions from the remaining ten traders.
The application is opposed by the Secretary of State. His counsel points out that the petition was presented because the Secretary of State considered
it to be in the public interest that the company be wound up. He suggested that, in consequence, it should be brought to the attention of the public. He
relied on 1014 the fact that, as counsel for the company had stated, the petition would take two days to hear so that an early resolution of the dispute
was unlikely. He contended that the court should not permit an unadvertised petition to lie on the file for any lengthy period. He submitted that the
consequences to the company, if the petition is advertised, are no different in this case to all the many winding-up cases which come before the court.
I consider that the efficacy of an advertisement in the London Gazette has been exaggerated by both sides. No doubt it alerts the company’s bankers
so that an order under s 127 of the 1986 Act may be required in order that the company may continue to trade. But I do not think that the Gazette is so
widely read that an advertisement would alert ordinary trade creditors, who would not discover the existence of the petition by other means anyway. By
the same token, the Secretary of State’s concern that a petition presented in the public interest should be brought to the attention of the public is hardly
allayed by advertising it in the Gazette. Nevertheless, the rules require advertisement unless the court otherwise directs. Thus it is for the company to
show sufficient reason to depart from the normal practice.
In the paragraph in the affidavit of Mr Leong Son which I have quoted, he suggests that the business of the company will be destroyed if the petition
is advertised. But he does not, in any of the passages in the affidavit to which I was referred, explain why that should happen, except by reference to the
likely attitude of the company’s customers. In that regard he does not seek to put forward any special case; he complains that advertisement will lead
customers to start inventing excuses justifying non-payment and that will destroy the business. This is described as a sad fact of life. But, if the value of
the business is as great as he suggests, advertising the petition could not have the effect of destroying it. If the state of the company’s business is so
parlous as to be capable of being destroyed by advertisement in the manner suggested, that circumstance alone justifies advertisement to give an
opportunity to creditors other than traders to express their wishes. Moreover, it would not be consistent with the normal practice of the court to permit a
petition to remain unadvertised for a lengthy period. If it be the case that the petition cannot be disposed of this year, then it should be advertised
promptly.
In these circumstances, I see no reason to allow further time to enable the views of the remaining ten traders to be ascertained. If all of them
supported the company’s application, that would not discharge the onus on the company. Accordingly I refuse to direct that this petition be not
advertised.
Order accordingly.

1015
[1994] 1 All ER 1016
The Capitan San Luis

SHIPPING: CIVIL PROCEDURE
QUEEN’S BENCH DIVISION (ADMIRALTY COURT)

CLARKE J
27, 30 JULY 1993
Shipping – Limitation of liability – Costs of limitation action – Limitation of liability under Convention on Limitation of Liability for Maritime Claims
1976 – Whether costs should follow event where shipowner seeks to limit liability under convention – Merchant Shipping Act 1979, Sch 4, arts 1, 2, 4.
Preamble
Where the defendant to a writ in rem issued against a vessel involved in a collision seeks a declaration or decree of limitation of liability under arts 1a, 2b
and 4c of the Convention on Limitation of Liability for Maritime Claims 1976, as incorporated into English law by s 17 of and Sch 4 to the Merchant
Shipping Act 1979, costs should ordinarily follow the event. The principles in relation to costs where limitation was sought under the Merchant Shipping
Act 1894, whereby the plaintiff paid the ordinary costs of obtaining an uncontested limitation decree and could be ordered to pay the costs of a contested
limitation issue regardless of the outcome if the issue was one of fact peculiarly in the knowledge of the plaintiff, do not have any application to limitation
actions under the 1976 convention since the regime under the convention is markedly different to that under the 1894 Act. Whereas under the 1894 Act
the shipowner had to prove that the damage was caused without his actual fault or privity, under the 1976 convention the shipowner is entitled to limit his
liability unless the other party proves that either that he intended to cause the loss or that the damage was caused recklessly and with knowledge that
damage would probably result. Accordingly, under the convention the shipowner merely has to establish that the claim falls within art 2 of the
convention and if the claimant, as a result of discovery of interrogatories, obtains information which enables him to establish facts which defeat the
shipowner’s right to limit he is ordinarily entitled his costs but if he fails to defeat the right to limit he must pay the costs of the investigation (see p 1023
b c g to p 1024 d, post).
________________________________________
a Article 1, so far as material, is set out at p 1019 h j, post
b Article 2, so far as material, is set out at p 1019 j to p 1020 a, post
c Article 4, is set out at p 1020 b, post
¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯
The Alletta (No 2) [1972] 2 All ER 414 considered.
Notes
For limitation of liability under the Merchant Shipping Act 1979, see 43 Halsbury’s Laws (4th edn) para 1121.
For the Merchant Shipping Act 1979, s 17, Sch 4, arts 1, 2, 4, see 39 Halsbury’s Statutes (4th edn) 956, 957.

African Steamship Co v Swanzy and Kennedy (1856) 2 K & J 660, 69 ER 947.
Alletta (No 2), The, Groen v Owners of the ship England [1972] 2 All ER 414, [1972] 2 QB 399, [1972] 2 WLR 1237.
Bowbelle, The [1990] 3 All ER 476, [1990] 1 WLR 1330.
1016
SS Pharmaceutical Co Ltd v Qantas Airways Ltd [1989] 1 Lloyd’s Rep 319, NSW SC; affd [1991] 1 Lloyd’s Rep 288, Aust CA.
Cases also cited

Breydo Merchant, The [1992] 1 Lloyd’s Rep 373.
Rijnstroom, The (1899) 8 Asp MLC 538.
Tiruna and Pelorus, The [1987] 2 Lloyd’s Rep 666.
Motion
By a writ in rem dated 9 November 1989 the owners of the vessel Celebration claimed damages against the owners of the vessel Capitan San Luis, who
by a defence and counterclaim asserted that they were entitled to limit their liability pursuant to the Convention on Limitation of Liability for Maritime
Claims 1976. The plaintiffs served a reply and defence to the counterclaim which was struck out by the Admiralty Registrar on 19 November. The
defendants applied by notice of motion for a declaration that they were entitled to limit their liability under the convention and also sought an order that
the costs of that issue be the defendants’ costs in any event. The facts are set out in the judgment.
David Steel QC (instructed by Hill Dickinson Taylor) for the plaintiffs.

Elizabeth Blackburn (instructed by Richards Butler) for the defendants.
Cur adv vult
CLARKE J. On 10 February 1989 the defendants’ vessel Capitan San Luis and the plaintiffs’ cruise liner Celebration collided off the coast of Cuba. On
9 November 1989 the plaintiff owners of the ship Celebration issued a writ in rem in this action. On 20 April 1990 they served a statement of claim and
on 21 May 1990 the defendants served a defence and counterclaim. By para 6 of their defence and counterclaim they asserted that they were entitled, if
necessary, to limit their liability pursuant to the Merchant Shipping Act 1979 (Commencement No 10) Order 1986, SI 1986/1052. The particulars which
they gave of that allegation were these:
‘The plaintiffs’ claim is one to which Article 1(a) of the Limitation Convention 1976 applies. The gross tonnage of the Capitan San Luis for
limitation purposes is 4,326.41 tonnes. In the premises the defendants are entitled to limit their liability to 816,177.47 special drawing rights in
respect of claims other than loss of life or personal injury. If (which is denied) the plaintiffs’ claim validly includes claims for loss of life or
personal injury, the defendants are entitled to limit their liability to 2,024,028.5 special drawing rights.’
The defendants counterclaimed a declaration that, if necessary, they were entitled to limit their liability. On 16 September 1990 the plaintiffs served
a reply and defence to counterclaim in which they asserted that the defendants were not entitled to limit their liability. Paragraph 4 of the defence to
counterclaim was in the following terms:
1017
‘Further, if (which is denied) the plaintiffs’ claim is one to which Article 2, paragraph 1(a) of the Convention on Limitation of Liability 1976 as
Preamble
set out in Schedule 4 of the Merchant Shipping Act 1979 applies, the defendants are barred from limiting their liability by reason of their conduct,
in that the plaintiffs’ loss resulted from personal acts or omissions committed recklessly and with knowledge that such loss would probably result on
the part of the defendants.
Particulars
1. The defendants caused or allowed the Capitan San Luis to sail from Havana when it was known or ought to have been known that her
electrical equipment was defective.
2. The defendants failed to operate an adequate (or any) system of maintenance and inspection of the electrical equipment of the Capitan San
Luis to ensure that her electrical equipment was in an efficient and working state when the Capitan San Luis was at sea.
3. The defendants failed to despatch to the Capitan San Luis in due time assistance by other vessels on learning that the Capitan San Luis had
suffered an electrical black-out and was lying unlit and immobilised in the busy shipping lane off the north Cuban coast.
4. The defendants caused or allowed the Capitan San Luis to remain lying unlit and immobilised in the busy shipping lane off the north Cuban
coast. Further or alternatively, the plaintiffs rely on the fact of the Capitan San Luis being unlit and not exhibiting the proper lights for a vessel
under way from sunset to sunrise shortly before the collision as prima facie evidence that (a) the defendants caused or allowed the Capitan San Luis
to sail from Havana when it was known or ought to have been known that her electrical equipment was defective and that (b) the defendants failed
to operate an adequate (or any) system of maintenance and inspection of the electrical equipment of the Capitan San Luis to ensure that her
electrical equipment was in an efficient and reliable working state when the Capitan San Luis was at sea.’
In February 1991 the statement of claim (which had previously been amended in a manner which is not at present relevant) was re-amended to add
Carnival Cruise Line Inc as second plaintiffs. They were time charterers of the Celebration.
On 18 March 1991 the defendants issued a summons to strike out the defence of limitation of liability. On 16 April 1991 that summons was heard by
the Admiralty registrar, who adjourned the summons with liberty to restore if the plaintiffs had not applied for interrogatories and discovery within 35
days. The registrar ordered that the costs of the summons should be in the cause.
On 9 May 1991 the plaintiffs served detailed interrogatories and on 22 May the defendants served their list of documents. Inspection of the
documents took place on 8 July and copies of the documents were provided on 25 July 1991.
In the meantime, on 9 July, the defendants answered the interrogatories. On 19 November 1991 the Admiralty registrar ordered that the plaintiffs’
defence to counterclaim be struck out in so far as it amounted to a defence to the defendants’ case that they were entitled if necessary to limit their
liability. The registrar ordered that the defendants’ costs of that application and any costs ordered previously to be in the cause were to be taxed if not
agreed and to be paid by the plaintiffs within 14 days of agreement or taxation.
1018
I am told by Mrs Blackburn, who appeared both before the registrar and before me, that the basis upon which the defendants’ case was put was that
the plaintiffs’ case on limitation was bound to fail. I understand that the registrar refused to adjourn the application in order to allow the plaintiffs
forensically to examine some of the documents.
In July 1992 Sheen J struck out the claim of the time charterers (the second plaintiffs) save in so far as their claim was for an indemnity in respect of
liability to third parties in respect of death or personal injuries.
On 12 February 1993 liability for the collision was settled on the basis that the Celebration was 25% to blame and the Capitan San Luis was 75% to
blame. The defendants now apply by notice of motion for a declaration that they are entitled to limit their liability in this action pursuant to the provisions
of the Merchant Shipping Act 1979. They also seek an order that the costs of the issue whether they were entitled to limit their liability be the
defendants’ costs in any event and that they be paid by the plaintiffs to the defendants, to be taxed forthwith if not agreed.
The precise form of the declaration sought is in somewhat different terms from that sought in the defence and counterclaim because a mistake was
made in the original pleading as to the gross tonnage of the Capitan San Luis. It was there alleged that it is 4,327.41 tons, whereas it is now said that it is
4,977 tons. The defendants accordingly seek leave to re-amend their defence and counterclaim in order to allege that they are entitled to limit their
liability to 914,659 special drawing rights in respect of claims other than loss of life and personal injury and to 2,214,341 special drawing rights in respect
of claims for loss of life and personal injury.
Mr Steel, who has appeared on behalf of the plaintiffs, does not oppose that application, provided that an appropriate order for costs is made. I
therefore grant the application on terms that the defendants pay the costs of and occasioned by the re-amendment in any event.
There are thus two questions for decision. The first is whether the defendants are entitled to the declaration now sought and the second is whether
the plaintiffs should pay the costs of the issue of limitation of liability.
The second issue raises a question of principle, namely, what is the proper approach to the question of costs in cases where a declaration or decree of
limitation is sought under the Convention on Limitation of Liability for Maritime Claims 1976 (London, 1–19 November 1976; TS 13 (1990); Cm 955).
That convention is now part of English law by reason of s 17 and Sch 4 of the Merchant Shipping Act 1979. Schedule 4 contains the text of the
convention, which provides so far as relevant as follows:
‘Article 1
Persons entitled to limit liability
1. Shipowners and salvors as, hereinafter defined, may limit their liability in accordance with the rules of this Convention for claims set out in
Article 2 …
Article 2
Claims subject to limitation
1. Subject to Articles 3 and 4 the following claims, whatever the basis of liability may be, shall be subject to limitation of liability: (a) claims in
respect of loss of life or personal injury or loss of or damage to property 1019 occurring on board or in direct connection with the operation of
the ship and consequential loss arising therefrom …
Article 4
Conduct barring limitation
A person liable shall not be entitled to limit his liability if it is proved that the loss resulted from his personal act or omission, committed with
the intent to cause such loss, or recklessly and with knowledge that such loss would probably result …’
In The Bowbelle [1990] 3 All ER 476 at 479, [1990] 1 WLR 1350 at 1335 Sheen J said:
‘I return to consider the 1976 convention under which shipowners agreed to a higher limit of liability in exchange for an almost indisputable
right to limit their liability. The effect of arts 2 and 4 is that the claims mentioned in art 2 are subject to limitation of liability unless the person
Preamble
making the claim proves (and the burden of proof is now on him) that the loss resulted from the personal act or omission of the shipowner
committed with the intent to cause such loss or recklessly and with knowledge that such loss … would probably result. This imposes upon the
claimant a heavy burden.’
In the present case the plaintiffs alleged that their loss resulted from personal acts or omissions on the part of the defendants committed recklessly
and with knowledge that such loss would probably result in the particular respects pleaded in para 4 of the defence and counterclaim which I have quoted
above.
It is accepted by Mrs Blackburn that the plaintiffs acted reasonably in making those allegations. It is also accepted that it was reasonable for the
plaintiffs to seek discovery and interrogatories in order to investigate these questions as fully as possible. As is so often the case, all, or almost all, the
relevant facts and documents were within the knowledge or possession of the defendants alone.
Mr Mallin of the plaintiffs’ solicitors has set out in an affidavit the reasons why the plaintiffs took each of the steps which they did. It is unnecessary
to refer to the affidavit in detail because, as I have said, it is accepted by Mrs Blackburn that the plaintiffs acted reasonably throughout. However in his
affidavit Mr Mallin said:
‘When the decision was made to challenge limitation, the Plaintiffs’ claims were thought to be very substantial. These claims included claims
for the costs of repair to “Celebration”, a claim for detention, claims for an indemnity in respect of various very substantial personal injury claims
brought and/or threatened by the passengers of the “Celebration” in the U.S. Courts and also claims for an indemnity in respect of claims notified to
the Plaintiffs by the Defendant’s solicitors in respect of death, personal injury and property damage claims of the former crew of “Capitan San
Luis” and which are detailed in the telex from Messrs. Richards Butler dated 24th April 1989 referred to in sub-paragraph (c) above. A copy of my
fax to Messrs. Richards Butler dated 28th February 1990 forms pages 175 to 179 of exhibit “MFM 1” and it sets out the position in the claims faced
by the Plaintiffs as known in February 1989 and, indeed, as known in November 1990. These claims were not and are not accepted by the
Defendants. At the time of the meeting of 6th November 1990 previously referred to, the limitation fund of “Capitan San Luis” calculated on the
limitation tonnage as pleaded of 4,327.41 tonnes was equivalent to 1020 approximately U.S.$1,080,000 in respect of property damage and
U.S.$2,700,000 in respect of personal injury and death claims. It was believed therefore that the Defendants’ net liability when expressed in
monetary terms would substantially exceed their vessel’s limitation funds. On 16th June 1989 and on the basis of the above information (save the
information about the pre-voyage repairs which, as it appears from a review of counsel’s instructions, was not then known to me) I had sought the
advice of junior counsel, Mr. Alastair Stewart-Richardson, as to whether the Defendant’s right to limit their liability for the collision should be
challenged. His advice was, having regard to the amounts at issue and the circumstances of the collision, the right of the Defendants to limit their
liability should be investigated to the point of obtaining full discovery of relevant documents and the signed statements of the defendants’
witnesses.’
On the basis of the corrected tonnage of the Capitan San Luis, the property fund is about $US1,280,000 and the personal injury and loss of life fund
is about $US3,100,000. It is however apparent from those paragraphs that when the defendants pleaded a defence of limitation, the plaintiffs thought that
the claims might well exceed the limitation fund or funds so that limitation was likely to be a live issue.
In these circumstances, I do not think the defendants are to be criticised for pleading limitation in their defence. It will not always be appropriate to
plead limitation as a defence and nothing which I say in this judgment should be regarded as applicable to cases where it is not appropriate for a defendant
to seek a declaration of limitation of liability in his defence. However, in the present case it was in my judgment appropriate for the defendants to take
that step. The situation has now altered to some extent, because the claim of the time charterers, which amounted to over US$3m, has been struck out.
Nevertheless, I can see no reason why I should not make the declaration now sought by the defendants.
I turn therefore to the question of costs. The question for consideration is whether the same principles should apply where limitation of liability is
sought under the 1976 convention, as where limitation was sought under s 503 of the Merchant Shipping Act 1894. Under the 1894 Act, a shipowner was
entitled to limit his liability if he proved that the damage was caused without his actual fault or privity. The modern practice in relation to limitation
sought under the Merchant Shipping Act 1894 was established by the decision of Dunn J in The Alletta (No 2) [1972] 2 All ER 414, [1972] 2 QB 399.
It was agreed between the parties that the principles to be deduced from that decision are these: (a) the plaintiff in a limitation action, being a
wrong-doer, should pay the ordinary costs of obtaining an uncontested limitation decree. Further, the defendant is entitled to a reasonable opportunity to
make inquiries into and to investigate the plaintiff’s case, including the process of discovery, before being required to decide whether to dispute the right
to limitation; (b) the defendant should pay the costs of the issue where he unsuccessfully persists in it, but where the issue is one of fact peculiarly in the
knowledge of the plaintiffs, the defendant should not have to pay the plaintiff’s costs and may well recover his own.
It is submitted by Mr Steel that the same principles should apply where limitation is sought under the 1976 convention. It is submitted by Mrs
Blackburn on the other hand that the 1976 convention has made a radical change in the principles governing limitation of liability and that, having regard
1021 to that change, the practice followed under the 1894 Act is not now appropriate and that costs should follow the event.
It is common ground that costs are in the discretion of the court and that pursuant to RSC Ord 62, r 3(3), they should normally follow the event—
‘except when it appears to the court that in the circumstances of the case some other order should be made as to the whole or any part of the
costs.’
It is submitted by Mr Steel that the present case falls within the exception. He points to the fact that the procedure for obtaining a decree of
limitation of liability is not significantly different under the present Rules of the Supreme Court from the procedure under the previous rules. That is
correct. The present Ord 75, r 38 is very similar to the former Ord 75, r 38. It provides for a person wishing to limit his liability to issue a summons
supported by an appropriate affidavit or affidavits containing the material expressly provided by the rule. RSC Ord 75, r 38(6) provides:
‘On the hearing of the summons, the registrar, if it appears to him that any defendant has not sufficient information to enable him to decide
whether or not to dispute that the plaintiff has a right to limit his liability, shall give such directions as appear to him to be appropriate for enabling
the defendant to obtain such information and shall adjourn the hearing.’
Thus it is submitted by Mr Steel that the rules of court contemplate the same procedure under the new rule as under the old, namely, that a party
facing a claim by a shipowner to limit his liability should have an opportunity of investigating the facts in order to consider whether or not to challenge
that right. It is submitted that, since under the old practice the costs of that investigation were normally paid by the shipowner, so under the present
identical practice, the costs should also be paid by the shipowner.
Mrs Blackburn on the other hand submits that although the rules are the same, the principles in accordance with which a shipowner is entitled to
limit his liability are now so different that it would not be appropriate for an exception to continue to be made from the principle that costs should follow
Preamble
the event. She submits that there are important differences between the limitation regime under the 1894 Act and under the 1976 convention. They are
that under the 1894 Act, the burden of proof is on the shipowner to prove that the damage was caused without his actual fault or privity, whereas under
the 1976 convention, the shipowner is entitled to limit his liability unless the other party proves, in a case like the present, that the damage was caused
recklessly and with knowledge that damage would probably result.
It is thus submitted that it was intended that a decree of limitation should be comparatively easy to obtain and, now that the burden of proof is upon
the claimant, it is for the claimant to decide whether he wishes to challenge the claim or not and, if he does and loses, then it is submitted that he should
pay the costs. It is further submitted that the reasoning of Dunn J in The Alletta (No 2) does not apply, or at least does not apply with the same force, to
the new situation.
Mr Steel submits that there is no difference in principle between the new regime and the old. He submits that the petitioner is still the wrong-doer
seeking the protection of limitation and that the petitioner is seeking a decree valid against the whole world. It is a privilege extending beyond the
confines of the action: African Steamship Co v Swanzy and Kennedy (1856) 2 K & J 660.
1022
He further submits that the fact that the quantum of the limit has increased commensurate with the change in the standard of conduct required to
avoid the right to limit is irrelevant to the rationale of the decision in The Alletta (No 2). Finally he submits that the change in the burden of proof is
irrelevant and that the burden of proof played no part in the decision in The Alletta (No 2).
In my judgment the present regime is markedly different from that under the 1894 Act. There is a radical difference between the case where the
shipowner must prove that the damage occurred without his actual fault or privity before he is entitled to a decree and the case where the shipowner is
entitled to a decree unless the claimant proves either that he intended to cause the loss or that he acted recklessly and with knowledge that damage would
probably result. The background against which Dunn J heard argument and reached his decision in The Alletta (No 2) was well-known to the parties who
were before him and included the fact that it was for the shipowner to establish absence of actual fault and privity. In The Alletta (No 2) [1972] 2 All ER
414 at 418, [1972] 2 QB 399 at 404 Dunn J said:
‘Looking at the matter de novo, I fully accept that a plaintiff in a limitation action, being a wrongdoer, should pay the ordinary costs of
obtaining a limitation decree, but if a defendant raises and persists in an issue in which he fails, I find great force in the argument, and I accept it,
that the costs of that issue should be governed by the ordinary rule that costs follow the event. There may be cases, for example, where the issue is
one of fact peculiarly in the knowledge of the plaintiff, where the unsuccessful defendant should not have to pay the costs of that issue, or even
were the successful plaintiff should pay the defendant’s costs; but that is not this case. The fact as to the practice of shipowners were equally
available to all parties.’
Then he said ([1972] 2 All ER 414 at 149, [1972] 2 QB 399 at 406):
‘Reasonable time must be given to the parties and their advisers to investigate the plaintiffs’ case and to decide whether or not to dispute it.’
In my judgment Dunn J had in mind the fact that it was for the plaintiff to establish his case. Since it was for the plaintiff to establish the absence of
actual fault or privity and since in many cases the facts relevant to the question of whether he could establish the absence of actual fault or privity were
solely within his possession or control, it was appropriate that there should be a practice whereby the shipowner should pay the costs of investigating the
facts, at least up until the moment when the claimant was able to decide whether or not to dispute the shipowner’s claim.
Under the 1976 convention the position is in my judgment very different. The shipowner merely has to establish that the claim falls within art 2 of
the convention. Once he establishes that, he is entitled to a decree limiting his liability, unless the claimant proves the facts required by art 4. It is of
course a matter for the claimant whether he wishes to investigate that question. If he does so, he may persuade the registrar in an appropriate case to
make an order for discovery or interrogatories under RSC Ord 75, r 38(6). If, as a result, he obtains information which enables him to establish the facts
which defeat the shipowner’s right to limit, he will ordinarily be entitled to his costs. If, however, the facts so obtained do not enable him to discharge the
burden which the convention has placed upon him, it would not in my judgment be just to 1023 hold that the shipowner should incur the costs of the
investigation. On the contrary, it seems to me that the just result would be that costs should follow the event and that the claimant should pay the costs.
I therefore accept the submissions made by Mrs Blackburn and hold that the regime under the 1976 convention is different from the regime under the
1894 Act in this as in other respects. I do not think that the fact that the shipowner is a wrong-doer leads to any other conclusion. The 1976 convention
and the 1979 Act have conferred upon the shipowner a right to limit his liability which can only be defeated if certain facts are proved. Whether the right
to limit liability under the 1894 Act was properly characterised as a privilege, the right to limit under the 1976 convention is a legal right, exercisable in
circumstances which can readily be established and which can only be defeated if the claimant discharges what Sheen J rightly described as ‘a heavy
burden’.
I accept the submission of Mrs Blackburn that a fair balance is struck between the parties if it is held that the shipowner must pay the costs of
proving those matters which he must prove in order to obtain a decree and that the claimant must pay the costs of investigating and determining the facts
which the convention provides that he must prove if, at the end of the day, he fails to establish those facts.
I was referred to the decision in the Australian case of SS Pharmaceutical Co v Qantas [1989] 1 Lloyd’s Rep 319; affd [1990] 1 Lloyd’s Rep 288.
That case is in my judgment of no assistance on the question of how the costs of investigating the question of limitation should be borne. It was
concerned only with what inferences could properly be drawn on the facts of a particular case.
I have therefore reached the conclusion that in a case of this kind, costs should ordinarily follow the event. There is in my judgment no exceptional
circumstance in the present case which leads to any other conclusion. I therefore hold that the plaintiffs should pay the defendants’ costs on the issue of
limitation other than those which would be incurred in establishing the matters upon which the burden of proof is upon the defendants. I will hear
argument upon the precise form of order which I should make.
Finally, I would just like to state that I entirely accept that the plaintiffs and their solicitors have acted reasonably throughout.
Order accordingly.

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All England Law Reports 1936 - books on screen™

All ER 1994 Volume 1

All ER 1994 Volume 1

Attorney General for Hong Kong v Reid and others

Cases referred to in judgment

Metropolitan Bank v Heiron (1880) 5 Ex D 319, CA.

11 November 1993. The following judgment of the Board was delivered.

Celia Fox Barrister.

Birmingham City Council and others v H (a minor)

Their Lordships took time for consideration.

16 December 1993. The following opinions were delivered.

The requirements of paramountcy in s 1(1), he said—

Celia Fox Barrister.

L’Office Cherifien des Phosphates and another v Yamashita-Shinnihon Steamship Co Ltd

Cases referred to in opinions

16 December 1993. The following opinions were delivered.

Their Lordships took time for consideration.

Celia Fox Barrister.

QUEEN’S BENCH DIVISION (COMMERCIAL COURT)

K Mydeen Esq Barrister.

COURT OF APPEAL, CIVIL DIVISION

Alati v Kruger (1955) 94 CLR 216, Aust HC.

Cur adv vult

30 July 1993. The following judgments were delivered.

Setting aside the transaction

Restoring the parties to their original positions

Restitution for both parties

BUTLER-SLOSS LJ. I agree.

PETER GIBSON LJ. I also agree.

Celia Fox Barrister.

R v Tower Bridge Metropolitan Stipendiary Magistrate, ex parte Chaudhry

QUEEN’S BENCH DIVISION

Cases referred to in judgments

Cases also cited

Cur adv vult

7 July 1993. The following judgments were delivered.

Section 3(2) of the 1985 Act, so far as it is relevant, provides:

Dilys Tausz Barrister.

Cambridge Water Co Ltd v Eastern Counties Leather plc

COURT OF APPEAL, CIVIL DIVISION

Cases referred to in judgments and opinions

Cur adv vult

19 November 1992. The following judgment of the court was delivered.

He next considered at length some of the authorities and concluded:

Cotton LJ said (at 124):

Bebe Chua Barrister.

P I F Vallance QC and David Hart (instructed by Berrymans) for ECL.

9 December 1993. The following opinions were delivered.

Their Lordships took time for consideration.

The decision of Ian Kennedy J

I feel, with respect, that this passage requires some elucidation.

The decision of the Court of Appeal: Ballard v Tomlinson

Nuisance and the rule in Rylands v Fletcher

Foreseeability of damage in nuisance

Foreseeability of damage under the rule in Rylands v Fletcher

The facts of the present case

Natural use of land

Celia Fox Barrister.

R v Criminal Injuries Compensation Board, ex parte P

QUEEN’S BENCH DIVISION

Cases cited or referred to in skeleton arguments

Application for judicial review

Cur adv vult

28 April 1993. The following judgments were delivered.